Crocus haunts investment funds

Hey there, time traveller!
This article was published 14/02/2018 (2933 days ago), so information in it may no longer be current.

It’s tough being a government minister. People come in — smart people in business suits — who nervously explain why a policy needs to be loosened or tightened. They warn that failing to do so will cost money, or jobs — or worse, votes. Then they walk out and the minister is left to solve a complex equation filled with infinite variables of budgets, livelihoods and politics.

And while some of these equations come with the job, make no mistake, there will be many more such meetings if Manitoba goes ahead with a plan to create a government investment fund.

In the meantime, the government’s investment fund proposal has the charm of an idea devoid of detail.

“We’re very excited about this,” gushed Growth, Enterprise and Trade Minister Blaine Pedersen in the Free Press. “This is the start of the process to get an access-to-capital plan in place.”

Here’s what we know about the plan. There will be a capital fund, or maybe two, with at least $40 million each. The government is looking for investment managers to manage the money and direct it to small- and medium-sized enterprises in Manitoba.

There’s no word yet where the money will come from, although it seems likely it’ll come from institutional investors rather than individuals, and Pedersen vaguely committed that the government would “have a stake.”

This is not the provincial government’s first foray into investment funds. The Manitoba Federation of Labour convinced then-premier Gary Filmon to start the Crocus Investment Fund in 1992. The fund gave investors big tax credits and put the money back into Manitoba businesses.

It hit some home runs — when Ipsos bought Angus Reid Group for $100 million, Crocus owned a 21 per cent share. But mismanagement overwhelmed the wins. By the end of 2004, Crocus collapsed and 34,000 Manitobans who trusted the scheme saw two-thirds of the $150 million in the fund disappear.

At the mere mention of Crocus, proponents of this new investment fund will protest. They’ll insist this fund won’t be anything like Crocus. There will be safeguards. So many safeguards.

No doubt it will. Here’s the thing: the problem isn’t the place where the plan starts, but where it eventually meanders. And there’s no fail-safe for political shenanigans.

With all due respect to the Germanic hordes, Rome wasn’t destroyed in a day. And with all due respect to the reprehensible incompetence of former finance minister and premier Greg Selinger, Crocus wasn’t destroyed in a day, either. It was a delayed decision here and an ignored memo there that bought about the decline and fall of Crocus.

Which brings us back to that hypothetical minister left to solve a complex equation. What if the suits who just left the office urged the minister to tighten safeguards in a way that slows job creation? What if they asked the minister to relax standards to increase investment? What are the odds the minister would solve the equation correctly?

Here’s an important thought experiment for those who trust the current government to handle these choices: do they have the same confidence in the next government? What about the government after that? It’s an important thought experiment because it’s not entirely hypothetical, it’s historical — the NDP destroyed Crocus, but the Progressive Conservatives started it.

In fact, there’s a bipartisan historical overlay on this hypothetical.

John Loewen, then serving as the PC finance critic, scheduled a press conference to raise concerns about Crocus in 2002, according the Globe and Mail. Then two Crocus officials met with then-PC leader Stuart Murray. The suits advised the Opposition to tread lightly. The PCs cancelled the press conference.

If the PCs couldn’t stand up to the suits while in opposition, will they have the fortitude to do so in government?

Governments have to resist the temptation to get into the business of business, whether the siren call comes from the federation of labour or the chamber of commerce.

Todd MacKay is the Prairie director of the Canadian Taxpayers Federation.