The Missing Middle Podcast
Welcome to the Missing Middle, a podcast about why the middle class in Canada is disappearing. We hope to help you understand why life is becoming unaffordable for so many in this country, and what can be done to reverse course.
The Missing Middle Podcast
Why Mark Carney Wants Canada’s Own “Norway Fund”
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Canada is launching a new sovereign wealth fund, but what exactly is it, and why is Prime Minister Mark Carney betting big on it?
In this episode of Classonomics, Mike Moffatt and Meredith Martin break down the proposed Canada Strong Fund, how sovereign wealth funds work, and why comparisons to Norway’s famous $2 trillion oil fund may not tell the full story. They explore whether debt-financed infrastructure investing can actually grow the economy, why critics are calling it a “sovereign debt fund,” and what this could mean for housing, ports, transit, energy infrastructure, and future generations of Canadians.
Topics covered:
• What sovereign wealth funds actually are
• How Norway built its trillion-dollar oil fund
• Why Canada is creating the Canada Strong Fund
• The debate over debt-financed infrastructure
• How infrastructure investment affects housing and economic growth
• The risks, criticisms, and unanswered questions surrounding the fund
Chapters:
00:00 Introduction to Sovereign Wealth Funds
00:41 What is a Sovereign Wealth Fund?
01:29 Norway’s Two Sovereign Wealth Funds Explained
03:19 Why Norway Created a Second Fund
05:13 How Canada’s Fund Differs From Norway’s
06:28 Criticism Over Debt Financing
08:22 Will the Fund Benefit Future Generations?
09:58 Why the Announcement Confused Canadians
12:03 Final Thoughts And Outro
Research/links:
The Canada Strong Fund: Nation-Building or State Venture Capitalism?
What Canada can learn from Norway's Sovereign Wealth Fund
https://www.mjemcgill.com/articles/what-canada-can-learn-from-norways-sovereign-wealth-fund
Our pension funds must be sovereign wealth funds, too – even if pensioners take a hit
Canada's spring budget projects economy to grow and deficit to fall
https://www.bbc.com/news/articles/cz0278zyznjo
Neither Norway nor Singapore: Decoding Canada’s new sovereign wealth fund
https://globalnews.ca/news/11825911/norway-singapore-canada-sovereign-wealth-fund/
Hosted by Mike Moffatt & Cara Stern & Sabrina Maddeaux
Produced by Meredith Martin
Funded by the Neptis Foundation https://neptis.org/
Hi everyone, Sabrina is off today, and we're releasing a mini episode with producer Meredith Martin filling in on sovereign wealth funds, what they are, how they work, and why Prime Minister Mark Carney thinks they are a good idea for Canada.
SPEAKER_01Also, for those in the Toronto area, we're recording a Missing Metal podcast episode in front of a live audience with all three of the hosts, plus Ron Butler at the National Club on June 1st. Please check out our Substack for more information. Classonomics, hosted by Sabrina Mado and Mike Moffat. A few weeks ago, just before the spring economic update, it was announced that Canada would be creating a sovereign wealth fund called the Canada Strong Fund, and it will be used to invest in infrastructure and other domestic projects. I've occasionally covered the oil and gas sector. So when I heard of this, I immediately thought of Norway, which is similarly to Canada, rich in oil and gas. And it's the only other nation I knew of that had a sovereign wealth fund. Mike, what is a sovereign wealth fund?
SPEAKER_00Well, it's time to uh play Professor Mike here. So there's actually hundreds of sovereign wealth funds around the world, with some like the Alberta Heritage Savings Trust Fund at the subsovereign or provincial level. Norway's is the most famous with uh roughly $2 trillion in assets. Sovereign wealth funds tend to spread their money across a mix of assets. So we're talking public stocks, bonds, real estate, infrastructure, private equity, credit, sometimes hedge funds or direct stakes in non-publicly traded companies.
SPEAKER_01Before we get into what Canada is doing, I think we should talk about Norway for a bit because it's the largest, and I think the one that's most widely known in Canada. What's the purpose of Norway's sovereign wealth fund?
SPEAKER_00Sovereign wealth funds differ on a number of dimensions. Uh, two of the most important ones being, you know, where does the money come from? And second, how is it used? Like what is it trying to accomplish? So if we look at that second question around how the money is used, what is trying to accomplish, Norway has two separate funds with two separate purposes. So we'll start with the bigger of the two. The Government Pension Fund Global was established in the 1990s and is used to invest the surplus revenue of Norway's petroleum sector into all kinds of international investments, the same way most pension funds do. So it's typically called the oil fund, and you know, it owns stocks and things globally around the world. The other fund is much smaller. It was created in 1967. It's more kind of a national insurance fund, and it is managed separately from the much larger oil fund. Unlike the oil fund, uh, which invests around the world, owns you know a lot of uh companies on U.S. stock markets, this fund mainly invests in Norway and the Nordic region. So it's more focused on local and regional economic development, you know, investing in local companies, you know, infrastructure like roads and ports, you know, that kind of thing.
SPEAKER_01So my understanding is that the older, smaller fund was set up to diversify the economy. Norway is a very small country. It only has 5.5 million citizens today. Back when the fund was created, it had less than 4 million people. The country was generating a lot of revenue per person. And it could have just paid dividends back to its citizens, but instead they pooled the profits, created the fund, which then helped invest in other industries. Why do you think they created the second fund in the 1990s?
SPEAKER_00Well, so the the first fund was basically designed to kind of grow the economy again, uh, develop infrastructure so they could build up the manufacturing sector, the tourism sector, and so on. But, you know, there's only so many kind of investments you can make like that locally before you're just kind of throwing money, you know, towards anything and everything. So the second fund, the larger one they set up was, you know, what do we do with this big pot of money that's probably not gonna last forever, right? Just because the oil in Norway may eventually run out. And you're right, they could have just, you know, written checks to uh existing residents, uh, but that you know doesn't really help the future. And if you start writing massive checks to citizens, you're gonna get a lot of inflation, right? Everybody's gonna go out and spend that money. So by taking a lot of the cash, pooling it into a second fund, you can buy up stocks and bonds from around the world. You're not gonna get that huge surge of inflation. And it creates this fund where you know we can pay dividends to the citizens for like hundreds and hundreds of years, uh, so we can kind of ensure the ongoing prosperity of the country.
SPEAKER_01This seems like a really, really prudent thing to do and very reasonable, but somehow I wonder how many citizens in the world would have been okay. Like how many of them were not just like, hey, give me the money. I wonder how they actually got the consensus to do this. Anyway, on to the next question. So is the Canada Strong Fund more like the older Norway fund or the newer, bigger one, or something else entirely?
SPEAKER_00Yeah, so it's designed more like the smaller fund, uh, that is designed more for economic development rather than being a fund that's buying uh, you know, Google stock or or something like that. So, and it's really designed uh to fund large infrastructure projects. So the prime minister used the Canadian Pacific Railway in the 1870s as an example of a nation-building uh infrastructure that this thing could fund. It's going to operate as an independent crown corporation. Uh so it's supposed to be arm's length from the government, but it invests alongside uh the private sector. And the federal government is providing an initial endowment of about $25 billion over three years. So, in sovereign wealth fund terms, you know, this is very small. It's, you know, we're not talking about the $2 trillion or so of Norway's big fund. The plan is over time that they kind of uh build a bunch of assets, um, you know, infrastructure and so on, sell those things off, and then use the proceeds to build uh more assets, uh, a term that uh liberal governments love uh called asset recycling. But we don't know a lot of the details yet. Uh the announcement was pretty nebulous.
SPEAKER_01I've been hearing a bunch of criticism about it, especially about the fact that the Canada Strong Fund is being debt financed instead of created with surplus revenues. And I've heard a few people say it shouldn't be called a sovereign wealth fund because it isn't one. What do you make of that criticism?
SPEAKER_00Yeah, I've heard that too, of people saying, well, this should be a sovereign debt fund. And okay, fine, you can use that terminology. But this really is that kind of second dimension I talked about earlier around where the money comes from. It's not uncommon to have a sovereign wealth fund from a government that has government debt. Um, that's actually the norm. It's not the exception. Like Norway is kind of the exception here. And it can make sense that, you know, if you are a government that can borrow for 30 years at 3% to 4%, and you can use that money to build infrastructure which will generate returns of 8%, 9%, 10%, kind of makes sense to do that, you know, because that spread between earning, you know, 10% versus having to pay 4%, you know, makes a whole thing uh profitable. So, you know, I I kind of agree with the people pointing out the the terminology uh that maybe it should be a debt fund rather than a wealth fund. But I still think there can be logic to this. Now, there's this other kind of component to this fund, which is really not hasn't been well explained, but they're also talking about allowing Canadians to invest directly into the fund. So just the same way you might invest in a mutual fund or an ETF, an exchange traded fund, that, you know, if you are a high wealth investor and go, hey, I like what the government's doing here, you know, I'll buy in at, I don't know, $100,000 or whatever, but it's really not clear at this moment how that's going to work.
SPEAKER_01When the fund was announced, Carney said that, and this is a quote: over time, the fund will grow through asset recycling and reinvestment, creating even greater opportunities for future generations. How do you think it will benefit future generations? And do you agree that having a sovereign wealth fund is a good idea?
SPEAKER_00Yeah, I think it can be a good idea. Like, like in most things, the the devil's in the details, but you know, I at a high level, I like what they're doing. And it it can really help with a lot of things. Uh, you know, we uh here talk a lot about housing and the housing theory of everything. You know, if this helps uh Canada build uh water and wastewater treatment plants, uh which are needed to be able to build more homes, you know, grow uh grow our subdivisions and things like that, that's that's a good thing. I do think there are some open questions around, you know, how is this going to fit in with other government programs? Like we already have a Canada infrastructure bank, we already have a lot of agencies out there building infrastructure. So, you know, where does this fit in the mix? So, you know, I worry about duplication. I don't really understand the model here around Canadians buying in. But I think, you know, overall, Canada needs a lot of infrastructure. I do think there are a lot of opportunities there to build infrastructure that will both be profitable and help the country. So at a at a high level, I like the idea, but uh, you know, I've got a lot of uh questions when it comes to implementation and details and so on.
SPEAKER_01I think the thing that I found most surprising about the announcement was that A, I don't think many people know what a sovereign wealth fund is. I thought they didn't outline it very well, which is always a complaint with government. They're not great communicators in general. And then the few people I did see talking about it online reacted so strongly to it. And I think most citizens were just like, what are you even talking about? Like, why why are you why is this a thing? Do you have any thoughts on like the reaction to it and how strong it was?
SPEAKER_00Yeah, well, I I think some of the folks who were reacting to it uh, you know, are going to react strongly against you know anything that that the government does. Though again, I think though they had some really good points around the fact that this is this is debt financed. I think they had a lot of good points around that this isn't particularly detailed. You know, I don't think like 95% of Canadians care uh around the announcement. I think what they'll care about is, you know, hey, if we're able to build uh a death port or expand the port of Vancouver, you know, get more uh goods or get more natural gas to Asia, grow the economy, create a bunch of jobs. I think Canadians will will be happy with that. And the government needs to understand that, that the people don't really care about the announcements. They they care about the outcome. So we'll have to see three, four, five, 10 years down the line, whether or not this actually created uh opportunity. Uh, you know, I did find it a little strange that it it did seem to be the government's headline in the spring economic update on a thing that like 95% of the of the population won't really care about or or won't understand.
SPEAKER_01Yeah, that was exactly my point. Like it felt weird to me that this was your headline. It was a really odd type of thing to focus on when so few people would even understand what they were talking about. Anyway, I too am really interested in results, and that's all I really care about. And I think most of the missing middle team, like I think we all agree with that. Just show me the money. Show me the money. Or show me the infrastructure project, you know? Let's see the high speed rail. Thank you so much for watching and listening. Sabrina will be back next week. Our producer today is Kara Stern and our editor is Sean Foreman.
SPEAKER_00And if you have any thoughts or questions about regional economic development policies in Scandinavia, please send us an email to missing middle podcast at gmail.com.
SPEAKER_01And we'll see you next time.
