Although former President Donald Trump and the Biden-Harris administration disagree on most economic policy issues, there is at least one idea on which they appear to agree. The idea is for the US to create its own sovereign wealth fund.
China, Norway, and many countries around the Persian Gulf have them. The fund pools government revenue, often from oil and gas resources, and invests it in everything from stocks to office buildings, soccer teams to infrastructure projects.
Neither the Trump campaign nor the Biden administration have provided many details about how such a fund would specifically work in the United States, although President Trump has mentioned that the fund could invest in infrastructure. are.
As it turns out, you don’t have to go far to see something similar to this in action. Across the border in Quebec, the Canadian province’s pension fund is funding, building and operating a new light rail line around Montreal, a construction process that could take less than 10 years.
The first section of the Réseau Express Métropolitain (REM) automated railway line opened last summer. It connects Montreal’s southern suburbs with the city’s downtown. For Sonia Doucet, that meant changing the way she commutes. She used to be able to catch a bus outside her suburban apartment to get to her university downtown. Well, that bus will take her to REM.
“I need a little more time, but when I’m in REM, it feels so good,” she said as we waited at REM’s train station on a recent Wednesday. “It’s clean and safe. The scenery is amazing.”
Doucet is right. REM stations and trains feel brand new, and the views of downtown Montreal are absolutely stunning as the trains pass over the new bridge over the mighty St. Lawrence River. But like many transportation projects, it took years to get here.
REM operates between downtown Montreal and the city’s southern suburbs. So far, the line serves five stations similar to this one. (Henry Epp/Marketplace)
“So the idea actually surfaced in 1962,” says Pierre Barrio, a transportation consultant and lecturer in transportation planning at the University of Montreal.
Fifty years after the first idea for self-driving trains in the region, Barrow said the plan finally gained momentum in 2012 when Canada’s federal government began discussing light rail to Montreal’s airport. Meanwhile, suburban mayors were trying to get the private sector to build another line. Both parties were looking for ways to circumvent the Quebec government, he noted.
“And that was a very bad vibe for the (Quebec) government, because it showed that the government wasn’t able to get things done,” Barrow said.
But the state premier at the time had other options in mind, Ballew said. “And what they had options for was public pension funds.”
This fund is called the Caisse de Depot et Placement du Quebec, or simply the Caisse. Conrad Yakabuski, a columnist for Canada’s Globe and Mail, said the system was created by the provincial government in 1965 “to manage the assets of the Quebec Pension Plan, the provincial equivalent of Social Security in the United States.” said it was created.
Unlike Social Security, the Treasury has acted more like a sovereign wealth fund that invests in stocks, private equity, and real estate. However, it is a little different from the large pension funds in the United States. It is believed to not only maximize profits, but also contribute to Quebec’s economic development. Fiscal policy assets last year exceeded $310 billion.
“About 20 per cent of it is invested in Quebec. The rest is invested domestically and internationally,” Yakabuski said.
About 10 years ago, Caisse established a subsidiary called CDPQ Infra to invest in as well as develop and operate infrastructure projects, including the REM train system.
“The model is that we have essentially assumed the bulk of the risk, the construction risk and the ridership risk of the project,” explained Noemi Briere-Marquez, CDPQ infrastructure communications director.
In return, the fund would reap potential benefits from the project through fees paid by the region’s transit authorities for each train passenger, she said. Briere-Marquez said the goal is an 8% return on investment.
Saule Omarova, a law professor at Cornell University, argues that this quasi-public model of infrastructure construction could be replicated in the United States. One reason for this, she says, is that infrastructure projects are difficult.
“Construction takes a long time, and many things can happen during that time that can derail a project and reduce its profitability,” Omarova said.
So private industry is less likely to take them on. She also said that while the public sector could be more ambitious, “politics is fickle” and elected leaders may not want to continue funding long-term projects. said. In 2020, Omarova outlined her vision for a “national investment authority” that could finance infrastructure and other major projects in the United States.
Back in Montreal, concerns about continued government support for the REM project were alleviated by shifting most of the fiscal risk to the pension fund. Still, REM is not immune to the problems faced by many transportation projects: cost overruns and delays.
“Although it’s about five years late and billions of dollars over budget, the project is moving forward,” said Pierre Ballue, a transportation lecturer and consultant.
The project schedule has been postponed due to COVID-19, supply chain issues and an unexpected discovery in a tunnel beneath Montreal. But the 42-mile network is currently scheduled to be completed in 2027, about nine years after construction began. Not too bad by Canadian standards, and by American standards.
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