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It reads like a classic textbook business turnaround. Red ink turns black. Business volume up seven-fold in 10 years. Customer base up three-fold. Not satisfied with its torrid growth, this world-beater puts both feet on the accelerator, with plans to double its number of customers and increase its capital base one-and-a-half times over the next five years.

Is this AOL? Intel? Nortel? No, it’s the Export Development Corp., the federal Crown corporation created to promote Canadian exports abroad. To attract new business, EDC TV ads have been appearing nightly on the national news. “EDC is a Canadian success story,” a chest-thumping Pierre Pettigrew, Canada’s Minister for International Trade, told Parliament last week in concluding an 18-month review of EDC’s legislation.

How did Ottawa-based EDC pull off this Miracle on Sparks Street? Just as you’d expect a government monopolist to succeed: at the expense of almost everyone and everything else — taxpayers, EDC’s private-sector competitors, honest government and the environment at home and abroad.

The EDC success story starts with a taxpayer gift of nearly $1-billion in capital. Because that wasn’t enough to make a go of it, EDC also obtained “Her Majesty’s credit card,” as put by Michael Mackenzie, former director of the Office of the Superintendent of Financial Institutions. Membership in government has its privileges. On this credit card, EDC now carries a balance of some $16-billion at the government’s preferential rate. Among other government privileges: EDC doesn’t pay income taxes and, after it makes bad loans to countries such as the former Zaire, it gets the government to bail it out. Over the past decade, Canadian taxpayers have picked up some $800-million in deadbeat loans.

Even with these privileges, EDC was an also-ran. So in 1993, Ottawa bestowed the best privilege to date. It handed this export agency a portion of the private sector’s domestic insurance and banking business, by allowing EDC to raid those industries’ customers, offering government sweeteners. The government’s review of EDC’s operations, contracted out to the Ottawa law firm Gowlings, Strathy & Henderson, acknowledged that EDC’s government status “likely confers a competitive advantage” over its private-sector competitors.

The profits thus taken from bank and insurance company shareholders are then used to finance high-risk, uneconomical projects the private sector would never touch, including some of the world’s most environmentally reprehensible projects. These include China’s Three Gorges dam, which is scheduled to forcibly relocate two million people. Three Gorges has no customers on the horizon because its power will cost two to three times as much as the competition’s. The projects also include Guyana’s costly Omai gold mine, which spilled 3.2 billion litres of cyanide and heavy metal-laced effluent into the Essequibo River, the country’s main waterway. These economic basket case projects, euphemistically known as “lender of last resort” activities, account for 70% of EDC’s business.

Although EDC does service some rising stars — Nortel is a major beneficiary of its largesse — it is first and foremost a crutch to the old economy. The forest industry has been by far EDC’s largest customer. “We couldn’t imagine doing business today without the assistance of EDC,” stated a past president of the Canadian Lumbermen’s Association in the corporation’s annual report for 1995. That year, EDC supported $5-billion in forestry sales, and this one industry accounted for 30% of its business volume. In last year’s annual report, forestry accounts for $9-billion. “[Selling our products] to more than 50 countries would not be possible without the support of EDC,” said an executive at West Fraser Timber Co., an exporter of timber from the Great Bear Rainforest, one of Canada’s most treasured old-growth temperate rainforests. All told, forestry, mining, nuclear, hydro, oil and gas, base and manufactured goods and other old economy industries receive more than half of EDC’s support.

To disguise its role as a pork barrel agency for relatively few politically well-connected corporations, EDC trumpets the claim that 88% of its clients are small and medium-sized enterprises. In fact, the remaining 12% — about 600 large corporations — receive 85% of EDC’s spoils, an average of $54-million a year each in subsidized insurance and financing. As an assistant treasurer of GE Canada told a House of Commons committee, without “our good friends at EDC, we certainly would not survive.”

Raiding the bank and insurance industries has a side benefit for EDC. “Without commercial-quality business to offset its higher-risk business, EDC would require substantially more capital as well as annual government appropriations,” the Gowlings review concluded. And that would allow parliamentarians to ask embarrassing questions about political payoffs and questionable recipients of EDC money. Thanks to its exemption from the Access to Information Act, digging up information about just who EDC lends money to, for what purposes, and how much, is next to impossible.

The only serious sleuthing now under way comes from the Ottawa Citizen, which turned up evidence of sweetheart deals benefiting government cronies and other politically important constituents. To avoid the appearance of being an international HRDC, EDC claims to be a “self-sustaining” commercial financial institution that doesn’t put taxpayers at risk when it insures, guarantees and finances $40-billion in exports each year. Yet EDC’s own auditor, the auditor-general of Canada, puts the lie to this claim. In a letter last year to a parliamentary committee, Auditor-General Denis Desautels said EDC “assumes higher risks than would normally be assumed by private-sector organizations.” He described EDC’s provisions for losses on its total portfolio as “many times those of Canadian commercial financial institutions.”

Former OSFI director Michael Mackenzie agrees. EDC makes “riskier loans than banks do. [Its] ratio of bad debts to total loans is way higher than the banks’,” he states, adding that $10.4-billion of its $18.6-billion in outstanding loans ranked below investment grade, speculative or impaired. Professor Michel Boucher at the Ecole Nationale Administration Publique in Quebec City notes that EDC’s 6.6% return on equity in 1999 is low, especially considering the risk the taxpayers are taking. “It is not a healthy institution,” he says.

In a move that would further distance EDC from any government agency that might hold it to some level of accountability, the Gowlings review team proposed to dump the auditor-general in favour of a private-sector auditor. Mr. Desautels claims that would prevent him from accurately portraying the government’s books: As EDC’s auditor, he says, “the Auditor General of Canada is better able to ensure that Parliament’s needs are served and the public interest protected. Further, the Auditor General is also better able to fulfill his responsibilities as auditor of the accounts of Canada if he is also the auditor of EDC, given the significance of EDC’s impact on those accounts.”

EDC calls itself an insurer, but with a debt-to-equity ratio of almost 10 to 1, and with what must be one of the riskiest loan portfolios in Canada, it is nothing more than a shell for the government to deliver its political pork. There is nothing behind EDC but us taxpayers. Without government backing, in fact, no business would consider EDC as an insurer; this would be an insurer financially weaker than many of the companies it insures, devoid of the quality assets necessary to ensure it could make good on a claim.

Last week, Mr. Pettigrew announced that EDC might adopt various reform-like measures: It might appoint an ombudsman, be audited by the commissioner of the environment and sustainable development, and share the financial cost of debt forgiveness. These cosmetic reforms avoid the unadulterated truth: EDC serves no legitimate public policy purpose. Instead of letting it expand willy nilly to become the fastest-growing part of the federal government, Ottawa should simply shut EDC down.

Patricia Adams is an economist and the executive director of Probe International, a Toronto-based environmental organization.