11. EDC Doles out Government Patronage -- It Should Be Shut Down
Canada is a trading nation -- about 40 percent of our GDP comes from exports -- and we have a vital interest in facilitating international commerce. NAFTA and other measures to reduce government interference in trade will help to open up our economy and those of our trading partners to mutual advantage. But EDC, and the politically inspired Team Canada trade missions, for which EDC is the steroid, undo trade liberalization efforts and bleed the national economy.
For whose benefit? The big ticket items for EDC and these trade missions tend to be economic basket cases, such as nuclear power plants and megadam technology that have burned takers back home. Their boosters -- Atomic Energy of Canada and wings of Hydro-Québec, Ontario Hydro and B.C. Hydro, and the many private sector companies that feed at these Crown-owned troughs -- would be bankrupt without government largesse from the likes of EDC, and at the first whiff of true trade liberalization. Gerald Rowe, assistant treasurer of General Electric Canada, understood the importance of EDC well. He implored the Legislative Committee that was considering the amendments to the Export Development Act in 1993 to accept the proposed amendments because his company and other manufacturers "certainly would not survive without [EDC]." If EDC's resources were not increased, he argued, "they're going to reach their ceiling. That's not good. That will cut us off at the knees and we'll be out of business."
Rather than promote viable trade, EDC, in reality, is a patronage machine touting government-propped trade. Its web of influence should be curtailed by privatizing the services that the private sector can provide. The short-term export credit insurance services of EDC are no longer needed. The insurance industry in Canada can provide those services and should. Similarly, EDC should never have been in domestic credit insurance services and should withdraw. The big infrastructure contracts which could not attract private credit insurance were never viable. There is no public policy reason that these pork barrel contracts should proceed.
"Governments love to think," says The Economist, "usually mistakenly, that their economies will be better off if they help things along than if they leave well alone." The dean of the Yale School of Management, Mr. Garten, concurred, lamenting the effect of export credit agencies arguing that "In the best of worlds, governments ought to get out of this business altogether. But the marketplace is corrupted by the presence of government."
The signs that governments are beginning to withdraw are hopeful, despite what The Economist calls, "the temptation to meddle" by these "thoroughly modern mercantilists." OECD rules now limit tied aid and eliminate beggar-my-neighbour subsidies on export credit guarantees of two years or more. At the same time, export credit agencies around the world are beginning to hive off those sections of their agencies that can be provided by the private sector. This is good news. EDC should follow suit. It would be good news for the Canadian economy.
It would be good news for the soul of the nation, too. To dispense largesse to favoured firms, or to politically important constituents, and to make subsidy-dependent parts of our economy seem viable, the government cynically bends rules out of shape and abandons principle and honour. To secure a Candu reactor sale in China, the Prime Minister tried to exempt EDC from environmental scrutiny by stealthily issuing an order-in-council that changed federal regulations (the courts will decide if this change was legitimate). When no other foreign government would touch China's Three Gorges dam, the government reversed its policy and stepped up to finance the dam. When the cyanide spill occurred at Cambior's Omai gold mine in Guyana, Canada's High Commissioner lobbied behind the scenes to get the Guyanese government to reopen the mine, without too many questions being asked about the wisdom of using cyanide.
By turning politicians and civil servants into salesmen, and businessmen into politicians, we corrupt our governing structures and undermine our economy. A process to dismantle the EDC machinery should be put in place and carried out in an orderly fashion.
12. Endnotes
1. Patricia Adams and Grainne Ryder, "China's Great Leap backward," International Journal, Toronto, Fall 1998.
2. "In OPICkle," The Economist, September 21, 1996.
3. Patricia Adams, "Patronage Canada," The Next City, Spring 1997.
4. "Taking the credit," Project Finance, November 1998, p. 29.
5. Letter from Mr. Paul Labbé to Ms. Beryl Gaffney, M.P., January 26, 1996.
6. Dam Review Team, "Final Report on Technical Causation Omai Tailings Dam Failure, to the Guyana Geology and Mines Commission," January, 1996, p. 33.
7. "Canada: The EDC: Bank Look-Alike," International Market Insight Reports, August 1998.
8. "Export Development Corporation continues to support exports to Asia," EDC Press Release No. 5, February 12, 1998.
9. "Customer demand drives EDC's mid-year business results to new levels," EDC Press Release, August 13, 1998.
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