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Highway From Hell


Seriously? You should know better than ask such silly questions by now. It so happens that 40% of the Consortium shares are owned by… the Canada Pension Plan Investment Board (CPPIB)!!! That's right! The government of Canada owns 40% of the 407ETR and this requires a comment. In Canada there is something called the Canada Pension Plan to which all income-earners must forcefully pay into. Eventually, when a Canadian retires, the CPP pays a monthly sum based on the total amount this person contributed over the years. The problem with this is that CPP contributions are pretty high. By statue they are in the order of 7% of a minimum yearly salary in Ontario, before taxes. In other words, the poorest Ontarians pay about 7% of their salaries into the CPP. This would not seem bad, except that the CPP is an independent investment fund which currently holds about 220 Billion CAD in assets and has a ROI of 8% over 10 years! Furthermore, the CPP is fully funded, today, for the next 75 years (which is their horizon). What this all means is that if people would stop paying into the CPP today, the CPP would have enough money to pay for all pensions for the next 75 years as a minimum!

And so people are paying from their income directly into the CPP which does not need the money. People are also paying into the CPP through toll profits the 407 ETR generates. The CPP does not need this money either. People are also paying through damages because they can't afford to use the 407ETR, damages that the CPP ignores. And now, there are talks about "expanding" the CPP, which in practice means higher "contributions" from workers and owners alike, higher contributions which the CPP does not need either.

Basically, the government sold leased the 407 at a huge loss only for the government to continue to benefit from extortive tolls while screwing everybody else. Nice!


This article is a somewhat confusing because it seems to imply that we are against the privatization of the 407, which would come into direct conflict with our Libertarian and Austrian Economic principles. And this is correct; it would only seem so. Let's clarify. We do believe that everything should be private but all private properties must be subjected to the rules of free markets and free markets alone. This not the case with the 407. This highway was paid for by Ontarians at an exorbitant price and essentially gift-wrapped for private interests. As the 407 truly is "public property" it should have been returned to the public through the issuance of shares. Everybody in the province of Ontario should have received ownership. That would have been fair. Once this would have been completed, then operation of the 407 should have been left entirely in private hands and all government interference should have ceased. Alas, this was not the case. It was not the case because of political expediency. At the time it was convenient to balance the budget, even if this required conning Ontarians. Furthermore, free market rules do not apply to the 407ETR because the province of Ontario effectively acts as enforcer. Even more, the very same province guarantees a monopoly. This is anything but free market action.


The 407 should not have been built by the government to begin with. If there is a need for highways there is a market for them. Most people believe that such infrastructure initiatives can only be performed by governments due to very high costs and very long ROI horizons. This is not true. Throughout the world there are many private toll highways, all of them built with private funds which operate based on profit and they do so effectively and efficiently. Land paths can be secured through the issuance of options. Land costs can be offset through the issuance of shares to land owners. Much that this seems farfetched, alas it is not. It is actually day-to-day market operation. Start-up companies routinely pay suppliers with shares. There is no need to buy the land for ridiculous sums of money as the government did in Ontario. A company will simply make land owners partners in the enterprise. All it is required are bank loans for highway construction purposes, and these loans and not difficult to come by. Any bank can see that in traffic-jammed locations a new highway is a secure way of making money.

As a matter of fact, Mike Harris (the then prime minister of Ontario) was told "When we own the highway and traffic is moving at 120 km/hr, we make money. When it moves at 60 km/hr, we make little money. And when traffic is dead stopped, we don’t make any money. So who’s going to build the new lanes faster? Furthermore, when you’ve got health and education competing for tax dollars, highways will always lose. We’ll build them, because we make money when cars move, and we don’t when they don’t." Harris was told so by a corporation interested in outright purchasing the 400 series of highways. Harris said no.


But if this is the case, why is that the Consortium is not building highways? They are, but only insofar they expand the reach of the 407ETR. But why would they do so? Because they have a state-guaranteed monopoly and a state-guaranteed enforcement agency. The Consortium knows that the government won't build competing highways but they also know that other corporations won't do so either. Why? In a word, regulations. One of the primary reasons why only governments build highways is because they are in the position of bypassing regulations, regulations that mere mortals are forced to abide by. Governments can simply invoke Eminent Domain and bulldoze over lands and houses. Private companies cannot. Government can simply invoke the primacy of federal or provincial regulations over local regulations and bully their way through them. Private companies cannot.

Typically bureaucracies are one of the biggest stumbling blocks of any enterprise anywhere in the world. This is, of course, by design. Bureaucrats and politicians must retain iron-clad control. If we now consider regulations from different jurisdictions and trans-jurisdictional ones, the nightmare is complete. Basically, it is close to impossible to build private highways that cross jurisdictions. Period.

And so the owners of the 407ETR have no incentives, none whatsoever, to build cheaper, faster, more accessible highways. Their incentive is to expand the 407ETR because their profits are artificially protected by the government.


The 407ETR is indeed the highway from hell. Not because of the highway itself, but because of the conditions it operates within and the negative consequences this produces for commuters in the GTA. The citizens in Ontario are damaged to the tune of 1 Billion CAD per year due to these circumstances or the destruction of about 950.000 work-days/person per year. Those are staggering numbers. And again we are forced to point out that it is not the privatization process that caused these conditions, but the enabling actions of one government which made them possible. Should the government had privatized the 407 to all Ontarians or should the government had never existed, this problem would not exist today. As it stands, Ontarians are screwed for 81 more years. Madness has been defined as doing the same thing over and over again and expecting different results. This is a clear example. People believe in governments over and over again and governments keep placing their interests above people's interests time and time again. Madness. But in this case, Ontarians have gone beyond madness. They have ventured into hell, the impossibility of reason. Ontarians cannot solve this problem for at least 81 years no matter how hard they may try. Game over.

But perhaps you believe in social government action "for the greater good". Fair enough, we then suggest that you address the hundreds of thousand commuters they waste their lives and health crawling to their jobs every day to make ends meet. We suggest that you explain to them why this is good and why they must suffer for the ephemeral gain of a few politicians. When you do so, please let us know. This should be good.

Note: please see the Glossary if you are unfamiliar with certain words.

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