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Doug Ford’s new infrastructure bank will benefit investors, not the public
Posted: February 9, 2024
(February 8, 2024)
By: Linda McQuaig, Toronto Star
It seems like a good rule-of-thumb that the housing of frail and vulnerable people should not be left to those with a voracious appetite for profit.
This could be regarded as a key takeaway from the pandemic, when it emerged that death rates were four times higher in private, for-profit long-term care homes than in municipally operated ones.
So it’s curious that the Ford government, citing the need for more long-term-care facilities, recently announced plans for a new infrastructure bank that would rely on private sector financiers, rather than the tried-and-true method of publicly financing our infrastructure.
The new bank, as structured by Doug Ford’s government, seems to be less about meeting public needs and more about providing lucrative opportunities for major investors.
It’s likely to exacerbate the already serious problem of privatization in long-term care. In 2022 — after the pandemic disaster — the Ford government awarded contracts for 30,000 additional long-term care beds to private operators, including chains with some of the highest pandemic death rates.
The new bank will mean that even more public money allocated for long-term care gets diverted into private profits, says Natalie Mehra, director of the Ontario Health Coalition.
Traditionally, Ontario has raised money to build infrastructure by selling bonds to the public, and this public financing method has worked well, according to Brian Lewis, former chief economist for the province.
Teaming up with the private sector is often sold to the public as a way to entice private investors to put their money into public projects, thereby saving the public money.
But this makes no sense. To believe that involving private investors saves us money, you’d have to believe that these private players — including notoriously penny-pinching private equity firms — give us their money or provide it at bargain-basement rates. (Spoiler alert: they don’t.)
Rather, they insist on collecting high rates of return. This diverts a significant chunk of public money to their profits, and drives up the cost of our infrastructure.
We should have learned this lesson long ago. In 2014, Ontario’s auditor general investigated 74 infrastructure projects — built as “public-private partnerships” — and concluded they had cost Ontario taxpayers $8 billion more than if the government had publicly financed the infrastructure.
Similarly, B.C.’s auditor general concluded the province paid only 4 per cent interest when it raised the money itself, compared to rates as high as 14 per cent paid to private investors on infrastructure projects.
Furthermore, introducing profits undermines the public goals of the project, says Thomas Marois, a political economist at McMaster University who studies public banks around the world.
Marois points to successful public banks like Holland’s BNG, which provides low-cost financing to municipalities, explicitly declaring on its website: “Instead of maximizing profits, our priority is to maximize the social impact of our activities.”
Another widely respected public bank, Germany’s KfW, is notable for its democratic governance.
Marois notes that Canada has an impressive history of creating useful public banks — including the Alberta Treasury Branch, Canada Mortgage and Housing Corporation, Farm Credit Canada — that don’t involve private investors.
But, in 2017, the Trudeau government broke with this tradition when it created the Canada Infrastructure Bank. Designed with heavy input from Wall Street, the bank was structured to attract major investors with high rates of return, and it’s done little to advance the public interest. In 2022, a parliamentary committee recommended it be abolished.
Marois argues it should instead focus on low-cost public financing, without private investors.
The Ford government is now replicating the failed privatization model in its new infrastructure bank. One telltale sign the bank will likely have a pro-corporate approach is its governance. Ford has appointed former Scotiabank CEO Brian J. Porter as chair, and the two other board members so far both have backgrounds in the financial sector.
But what we need is a public bank, governed by people representative of the community, that isn’t all about maximizing profits.
