Reducing Transaction Costs on Infrastructure Corridor Projects in Canada

High transaction costs often arise because a lack of procedural and system standards creates inefficiencies and uncertainty for securing property rights. In the absence of land, jurisdictional or property rights clarity, ad hoc attempted solutions dominate these systems. In the absence of a process certainty, ad hoc attempted solutions are perpetuated and high transaction costs linger.

Infrastructure corridor projects in Canada face high transaction costs because of little clarity between Indigenous rights and jurisdictions and those of other governments. These costs are higher in part because of a lack of efficiencies throughout the infrastructure lifecycle (planning, design, procurement, construction, financing, operation, maintenance and replacement or decommissioning) and because the legal, economic and fiscal requirements to include Indigenous people and governments in these projects almost always leads to ad hoc solutions. In the absence of a process to address the systemic causes of these high transaction costs, they will linger and infrastructure corridor projects will be more difficult to complete.

We focus on the transaction costs associated with recognizing Indigenous rights and title and securing Indigenous support through greater fiscal and economic participation in infrastructure corridor projects. We use a comparative systems approach and focus on four broad sources of transaction costs to secure Indigenous support — historic, infrastructure lifecycle requirements, inadequate Indigenous fiscal and environmental jurisdiction implementation and inadequate economic participation.

Our findings are not surprising. The colonial legacy of legislating Indigenous people out of the economy and Indigenous governments and their jurisdictions from the federation has created numerous transaction costs related to at least mistrust of centralized governments; differing capacities to support projects and negotiations; unstandardized agreements with unstandardized fiscal, environmental and economic elements; and confusion about governance and representation.

We identify two broad strategies to reduce these transaction costs: targeted federal and provincial programs and decentralized Indigenous jurisdictions supported by Indigenous-led institutions. We find that the program approach fails because of mistrust and that programs are almost always designed to address the symptoms of high transaction costs and not the systemic causes. Moreover, they also can support bureaucratic bloat, which can increase, instead of decrease, transaction costs. We suggest that a better approach is to support the implementation of Indigenous fiscal, financial, lands, infrastructure, economic and environmental jurisdictions supported by Indigenous-led institutions. We assert that transaction costs caused by systemic issues cannot be effectively reduced by programs, but instead require institutional approaches that support jurisdictional implementation and innovation. We identify many Indigenous-led institutions that could support the systematic reduction of the transaction costs for greater Indigenous fiscal and economic participation in infrastructure corridor projects.

For fiscal, financial, economic and infrastructure jurisdictions this includes the First Nations Tax Commission, the First Nations Financial Management Board, the First Nations Finance Authority, the Tulo Centre of Indigenous Economics and the proposed First Nations Infrastructure Institute. For lands, environmental and economic jurisdictions, this includes the First Nations Land Resource Centre and the First Nations Major Projects Coalition. Many of these institutions operate under legislative frameworks, such as the First Nations Fiscal Management Act and the First Nations Land Management Act, that provide an effective process to implement these jurisdictions in the federation. More than half of First Nations in Canada participate in either the First Nations Fiscal Management Act, the First Nations Land Management Act, or both.

We observe that these institutions have begun to work together to co-ordinate their services and advance jurisdictional and institutional innovations to further reduce transaction costs for infrastructure corridor and other Indigenous economic initiatives. We recommend that expanding the support of these institutions, encouraging greater co-ordination among them and implementing more Indigenous jurisdictions along infrastructure corridors is the most effective way to reduce transaction costs and secure more economic and fiscal benefits for Indigenous people and governments, and all Canadians.