Canada’s Sovereign Malinvestment Fund

O n April 27, Canadian Prime Minister Mark Carney announced the “Canada Strong Fund – Canada’s first national sovereign wealth fund.” Which sounds reasonable enough, until you read the next two sentences: “Through an initial federal contribution of $25 billion, the Fund will strategically invest, alongside the private sector, in Canadian projects and companies driving our economic transformation. This includes projects in clean and conventional energy, critical minerals, agriculture, and infrastructure.”

In other words, unlike a genuine sovereign wealth fund such as Norway’s, Carney’s proposed initiative will not be administered independently to provide Canadian citizens with the best risk-adjusted return. It is instead $25 billion in increased government spending to marshal private capital toward political objectives, especially to fight climate change. Which is exactly what Carney worked on for years as the U.N. special envoy for climate and finance before he left that role to lead the federal Liberal government last year.

Another difference between Norway’s sovereign wealth fund and Carney’s proposal: Norway’s fund is financed by large fiscal surpluses, whereas Canada’s would be financed by government borrowing. The Liberal government’s spring economic update, tabled the day after the sovereign wealth fund announcement, projected a federal deficit of $65.3 billion (or about 1.9 percent of GDP) in fiscal year 2026–27. Deficits are expected to continue for the foreseeable future, so that from approximately $1.5 trillion today, the federal government’s net debt is expected to rise to nearly $1.9 trillion by the 2030–31 fiscal year. The government is in no position to “invest” money it doesn’t have.

Will more Liberal government spending – or “investment” – improve economic growth or generate strong returns for taxpayers? Perhaps, according to the economist John Maynard Keynes, who wrote in The General Theory of Employment, Interest and Money in 1936:

I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever-greater responsibility for directly organising investment.

But here was the sarcastic reply in free-market journalist Henry Hazlitt’s 1959 book, The Failure of the “New Economics”:

The people who have earned money are too shortsighted, hysterical, rapacious and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia).

For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people’s money will do so only with the greatest care and after long and profound study.

Hazlitt’s simple observation was right: Private actors are better at allocating their own capital efficiently than bureaucrats are at allocating it for them. In fact, Canadians do not need to look so far to see how initiatives like Carney’s might perform. The federal government already has many industrial-policy initiatives with similar aims.

As Carney’s announcement said, “Through existing entities such as the Canada Infrastructure Bank, Export Development Canada, the Canada Growth Fund, the Business Development Bank of Canada, the Canada Indigenous Loan Guarantee Corporation, Farm Credit Canada, and departmental programs, the government is investing in essential projects and companies to drive Canada’s long-term growth and competitiveness.”

What have all these existing entities accomplished? Certainly not “long-term growth and competitiveness.” In a widely cited speech in March 2024, Bank of Canada Senior Deputy Governor Carolyn Rogers declared that Canada’s weak economic productivity was “an emergency” and said, “It’s time to break the glass.” Similarly, in November 2025, Bank of Canada External Deputy Governor Nicolas Vincent said, “Canada’s weak productivity growth is getting a lot of attention these days. And with good reason.”

Philip Cross noted in a 2023 study that Canada had not seen such persistently weak real GDP per capita growth since the 1930s. A recent McKinsey analysis showed that Canada’s productivity growth is lagging the United States’ in nearly every sector of the economy. A study by the C. D. Howe Institute last year concluded, “Business investment in Canada has been so weak since 2015 that capital per member of the workforce is falling, undermining growth in labour productivity and compensation. . . . In 2025, Canadian workers will likely receive only 70 cents of new capital for every dollar received by their counterparts in the OECD as a whole and 55 cents for every dollar received by US workers.” Other studies have delivered similarly bad news.

Far from driving long-term growth and competitiveness, the Liberal government’s economic policies, including its industrial policy, carried out in large part by the federal entities named in its sovereign wealth fund announcement, have contributed to a productivity crisis and a collapse in business investment in Canada. Carney’s new proposal only promises more of the same.