Don’t make investments through the looking glass.

By now, most of you reading this column are aware of Prime Minister Mark Carney’s announcement earlier this week that the government is launching a sovereign wealth fund (entitled the Canada Strong Fund).

There is, in theory, nothing wrong with such an idea. Indeed, the logic behind such a fund is quite sound.

The problem is that, in practice, the Carney government appears to be proposing a mirror reversal of what is generally understood as the guiding premise for these funds, both in how it is capitalized and in what it invests.

The basic idea of a sovereign wealth fund is that when a government has large but time-limited revenues — most often derived from “Crown-owned” but finite oil and gas resources — then rather than spending those revenues on current operating programs, it would be wise and prudent to direct those funds into a long-term state-owned investment fund. 

The earnings from such a fund can then be used to: a) finance public programs and services long into the future, for the benefit of subsequent generations, well after that finite resource is gone; and b) invest in new economic endeavors that move the economy away from an overdependency on finite natural resources, in anticipation of the day when those industries have wound down.

While details of the new Canada Strong Fund remain scant, early signs are that the Carney government’s fund will be doing precisely the opposite. Rather than being capitalized by oil and gas industry income — even now, with the industry about to reap record windfall profits of as much as $100 billion this year in the wake of the Iran War — and using that money to invest in the post-carbon economy, it appears the federal government plans to capitalize the fund with public money and use it to invest in “nation-building projects” that have been referred to the government’s Major Projects Office. This means at least a chunk of the investments will be........

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