Thomas Marois is a professor of political economy at McMaster University.
With the launch of the Ontario Infrastructure Bank, the province has just become home to the world’s newest public bank. As part of the provincial budget, Finance Minister Peter Bethlenfalvy announced recently that an initial $3-billion in public funding is planned for the OIB.
Priority investment areas for the bank will include long-term care homes, energy infrastructure, affordable housing, municipal and community infrastructure, and transportation. Such support appears to be welcome news.
But will the OIB serve the public or private interest? We’ll have to watch closely – early indications suggest the latter.
Having a public development or infrastructure bank provide directed financing for such critical areas is nothing new. There are more than 900 public banks worldwide with combined assets of nearly US$50-trillion – 10 per cent more than the gross domestic products of the U.S., Germany, and China combined. Public banks are specialists in infrastructure finance and development.
The earliest municipal banks, such as Barcelona’s Taula de Canvi, go back to the 1400s. More contemporary ones, such as the Caisse des Dépôts et Consignations in France, were founded in the 1800s.
The OIB, however, has suddenly entered the public stage, and we know very little about its background. What model from the world of public banking have its creators looked to for shaping its practices on accelerating infrastructure investment?
Mr. Bethlenfalvy told CBC Radio last week that he had consulted widely, including with workers, who purportedly welcome the OIB. But so far the government hasn’t shared any information about its consultations, let alone results.
To be fair, these are early days, and the OIB will need to find its feet. Still, the bank’s proposed purpose and structure, as set out by the government, are concerning.
For one, the OIB is being pitched as a silver bullet for funding the province’s infrastructure needs – as if all that’s necessary is to set out public funds and guarantees, and the private sector will follow. This strategy is cut and pasted from the Canada Infrastructure Bank’s initial promise to leverage private funds many times over, but that never happened.
It also mirrors the World Bank’s “Cascade” approach: “To maximize the impact of scarce public resources, the Cascade first seeks to mobilize commercial finance, enabled by upstream reforms where necessary.”
That’s code for bending public infrastructure investments to private investors’ needs for low-risk, high-return financial assets that generate returns for their owners or, in the case of pension funds, pensioners. This is their understandable fiduciary duty, but one that does not include protecting (let alone advancing) the public interest.
The OIB’s strategy ignores criticism of the Cascade approach, which for many civil society organizations is little more than a warmed-over yet failed public-private partnership/privatization strategy. What Ontario needs is more public-public collaboration to deliver equitable infrastructure as a matter of policy, not profit.
Further, the government sees the OIB as a way “to attract trusted Canadian institutional investors to help build essential infrastructure.” Trust is indeed important. How are we to trust and hold accountable this new public institution with control over allocating $3-billion in public money?
According to its new website on governance, the OIB will be “a new, arms-length, board-governed agency. The Board of Directors shall manage or supervise the management of the Ontario Infrastructure Bank’s affairs and will be composed of at least three and at most 11 members.”
The site adds: “Board members will be appointed by the Lieutenant Governor in Council (LGIC) on the recommendation of the Minister of Finance and will need to have significant financial and infrastructure related project expertise.”
This is far from assuring, at least in terms of public banks functioning in the public interest. The world’s best public banks are mandated to advance economic and social developmental policies.
These policies need advancing with government and society, not through opaque nominations and appointments. What’s required is a representative, diverse, accountable and transparent governing board – one that can collaborate with government and society.
Fortunately, the world is full of promising examples of stable, secure, effective, well-governed public infrastructure banks to help shape the future of the OIB.
The government even references one of them: the German KfW, which has a representative Board of Supervisory Directors that includes government representatives, along with members from municipalities, trade unions, small- and medium-sized enterprises, and so on. This provides opportunities for dialogue, co-determination and accountability.
On a wider level, there are other promising examples, such as the Dutch Municipalities Bank (the BNG). Its mandate is the polar opposite of the proposed OIB’s: “BNG Bank is of and for the Dutch public sector. Instead of maximising profits, our priority is to maximise the social impact of our activities.”
Unfortunately, the OIB does not appear to be following any such models.
There is nothing inherently good or bad about public banks. They are only ever as good or as bad as society makes them. Good ones contribute to the public good by advancing prosperous, inclusive and increasingly sustainable societies. Whether Ontario will craft the new OIB in that vein remains to be seen.