One of the problems of being where we are in Ontario’s public sector – grumpy taxpayers, yet with demanding public expectations of service, demographics turning negative, powerful and agitated unions, mounting debt, and sluggish future income prospects – is that we're extremely vulnerable to ideas that could turn out badly.

This is how I feel about “value maximizing”... or should I say “recycling” ... or should I say “privatization” of government assets.

To be sure, “recycling” is a slightly different spin on selling government assets. The argument is that they are not really being sold, just swapped for some others. The proceeds from the sale of assets will be dedicated to buying new assets. (And, by the way, we’ll start with the really “juicy” government assets, LCBO, OPG and Hydro One).

You might reasonably ask: If we need new assets because they would enhance our future income, why don’t we just buy them and finance them from raising taxes and more borrowing?

Well, it seems no one wants to pay for all the government we have and the new assets we need; or at least the political party elites can’t agree on how to do that. So, rather than taking any political risks by imposing a burden on the current electorate, the Crown jewels are again up for sale ... or, should I say, recycling.

Only this time it’s the Liberals making the pitch. And they have pulled out all the stops. Ed Clark – a highly trained economist cum top federal public servant cum successful Canadian banker - is to lead a council charged with maximizing the value of Ontario’s public assets. He is joined with similarly accomplished people, including the former head of the CPP Investment Board.

Even the Mowat School of Governance figured into this initiative. Mowat simultaneously published a report by a respected former municipal and provincial public servant, and current board member of the OMERS pension fund, Michael Fenn, on the need to “recycle” government assets.

So what could go wrong? Well, actually, a lot could go wrong.

The people of Ontario own a great deal of wealth and “potential wealth,” whether they realize it or not. They own a substantial chunk of North American real estate, including all of its vast bounty in forests, minerals, hydroelectric capacity, wind power, fresh water supply as well as its geographic “location” advantages.

Moreover, our lifestyle depends on certain essential services. Electrical energy and water (in and out) are two. And they must be delivered to our homes and businesses. The delivery is a natural monopoly, mostly owned by our provincial and municipal governments.

Then, there is our own reliable penchant for intoxicating substances as well as gambling. Supplying alcohol and gambling opportunities are not natural monopolies. They are government created and owned. They could be done in competitive private markets, with the government replacing its monopoly revenues with even higher commodity taxes.

But what is important here is that the revenue generating potential of these activities is both large and highly dependable for a long time into the future. That makes them extremely attractive to private capital looking out to the long term. In short, they fit the investment needs of pension funds and other large scale private pools of capital who want high returns but with manageable risk over the long haul.

So will our government, so preoccupied with its current pressing financial and electoral concerns, make a bad swap (or “asset recycle”)? Will they trade long term assets for short term assets?

I don’t know. We’ll have to see what Clark and his colleagues recommend and the government actually does. But the very fact that we are doing this doesn’t give me a good feeling. When they start “recycling” assets, you should keep your eye on the distant future before you decide if you agree. What if the private sector turns out to be more farsighted than our governments?

Ask yourself this, would the Queen sell off Buckingham Palace so she could outfit the Royal family with a new fleet of Land Rovers? Will the Ontario government sell off our hydroelectric generating stations in order to finance the purchase of more subway cars or Go trains? Well, maybe yes.

Purchase: Asset recycling – is it really a viable option?

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