That’s the fear of pension fund managers

Roslyn KuninIn the United States, the government aspires to uphold life, liberty, and the pursuit of happiness. In Canada, our goals are more modest, aiming for peace, order, and good government. While there’s always room for improvement, we have largely achieved these objectives.

A big factor in this achievement, and a blessing for all Canadians, is that Canada operates under the rule of law. Our laws are formulated by freely elected legislatures, administered impartially, and upheld justly by our justice system. Unfortunately, this is not the standard in every part of the world.

Think of all the autocratic, despotic or just plain chaotic countries in the world. Those who work with immigrants to Canada will tell you that many immigrants are amazed when told that judges in Canada do not routinely take bribes.

We frequently invoke the old expression ‘there ought to be a law’ when faced with situations that require resolution. However, there are many scenarios where enacting a law would be ineffective. Legal action would be ineffective against factors beyond our control, such as viruses and weather patterns.

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Laws only function when society collectively demonstrates willingness and capability to adhere to them. Centuries ago, the Talmud wisely cautioned against governments passing laws that people would not obey, as this undermines the integrity of the entire legal system.

Nevertheless, we do not have to look beyond modern democracies to find examples of just such laws.

Prohibition against alcohol in the United States at the beginning of the 20th century is one. Too many people were just not prepared to entirely forego all beer, wine or liquor. When not available for legal purchase, they made their own, sometimes miscalculating the procedures and poisoning themselves or others.

Canadian distillers got rich smuggling alcohol into the U.S. to operators of illegal bars called speakeasies that hid from the police and made a mockery of the legal system.

Long-standing laws and severe penalties have not eliminated the use of non-medical drugs. They now make criminal gangs rich and powerful. The lack of quality control and the resulting death toll is sufficient to have lowered life expectancy in the U.S. In Canada, we at least have had the good sense to stop making criminals of all recreational cannabis users.

The unintended and often unforeseen consequences of such legislation also prevent us from simply passing laws to banish all our ills. Take sanctions, for instance. Sanctions are prime examples of laws that never yield the intended effectiveness because the individuals and nations they target have strong incentives to circumvent them.

The American ban on selling cutting-edge technology to China may slow their progress in the short run. However, the Chinese are already figuring out ways to use older technology to greater advantage and are pouring resources into developing state-of-the-art components and facilities to put China at the forefront of the world technology sector – something they might not have done had the sanctions not been implemented.

In Canada, our major pension funds are concerned that a law might be passed that could hurt present and future pension recipients. Pension fund managers aim to generate a return that is sufficiently stable and ample to meet pensioners’ expectations.

Pension fund managers, including those for the Canada Pension Plan, teachers, civil servants, and other large groups, are globally renowned for their outstanding management of sizable and diversified portfolios. These funds represent some of the largest pools of capital in Canada.

Just as robbers target banks because that’s where the money is, the federal government is now turning its attention to pension funds. In Canada, productivity is declining, and per capita income is falling. Investment, particularly in infrastructure, is crucial to address this situation, and pension plans hold significant funds that could be utilized for this purpose.

Despite efforts to establish public-private partnerships between the government and pension funds, these endeavours have not been successful. The government was unwilling to share revenue-producing projects such as airports, while the funds were hesitant to jeopardize pensioners’ financial security by investing in projects with minimal, delayed, or uncertain returns.

Heavy investment in Canadian infrastructure would reduce both the geographic and industrial diversification that makes the pension funds successful. There is also a risk of the government changing the rules once a project has started.

Rather than passing a law to limit our very effective pension funds, the government would do better to examine other laws that have the unintended consequences of discouraging private investment.

Dr. Roslyn Kunin is a Troy Media columnist, public speaker and consulting economist.

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The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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