Sunday, 26 January 2014

Corporate Welfare a Misguided Priority


With the news that Chrysler is seeking an estimated $400 million from the public sector for the company’s proposed overhaul of a mini-van plant near Windsor, Ontario, questions of the wisdom of corporate welfare are once again at the fore (though, in truth, they never really left).

When considering that governments and businesses alike frequently tout the value of the “job creators” while they simultaneously demonize workers who seek fair wages and respect for collective bargaining rights, the hypocrisy is almost palpable.

The basic justification advanced by governments for doling out subsidies to corporations is that these subsidies are required to entice corporations to set up shop in Canada. Corporations often cite two principal downsides to doing business in Canada: labour and tax costs. The refrain is that these costs deter corporations from setting up shop here. This, in turn, ends up founding the often ugly political argument that the only way to bring manufacturing back to provinces like Ontario is to reduce the corporate tax rate and provide subsidies to the corporations and weaken labour rights.

Why governments would spend taxpayer dollars on corporate welfare at the same time as seemingly endless amount of cuts are made to social welfare programs is a discussion beyond the scope of this post. But one can’t help but question the wisdom of ongoing cronyism that has a very poor track record when it comes to repayment. According to a report by economist Mike Wilkie, prepared for the Fraser Institute’s Centre for Tax and Budgetary Policy, the report notes that between 1961 and 2012, Industry Canada disbursed $22.1 billion to businesses (when adjusted for inflation).

Of this, $8.8 billion was given in grants and the remaining $13.3 billion was provided in loans.[1] Repayment has been a major issue with the loans, with only 0.1% of the interest owing on these loans ever being collected[2]. It’s almost amazing to think that the government is content to hobble students with debt and to expect workers to make wage concessions while at the same time handing money over to corporate interests.

These government transfers of tax dollars are not new. Back in 1972, NDP leader, David Lewis, used the term “corporate welfare bums” to describe the various rent-seeking behaviours and subsidies given to corporate interests. In Lewis’s book, Louder Voices: The Corporate Welfare Bums, he describes the situation in the following way:

While they publicly denounce increased government expenditure, particularly in the form of social welfare, these champions of free enterprise actively lobby the government for incentive grants, research grants and tax concessions, and all manner of assistance at the individual taxpayer’s expense.[3]

Even then Lewis was alive to a pressing issue of today: namely, profits are individualized and retained by corporations, while corporate risk and losses are underwritten by the taxpayers. Everywhere you look you find business interests that proudly tout the merits of unrestrained capitalism. But look a little further and you often find that these same “job creators” are ironically not too proud to ask for subsidies and other forms of corporate welfare.

And just as corporate interests seem content to accept corporate welfare, the government seems equally content to dish out our taxpayer dollars. Once bearers of a promise to crack down on corporate welfarism, the government now falls all over itself when corporations consider expanding in Canada. Canada’s Minister of Industry, James Moore, is a case in point. After a recent meeting with Chrysler executives in Detroit, Mr. Moore commented as follows:

The auto industry is an incredibly important part of the Canadian economy and we want Chrysler to do well. We’d love to see the new Town and Country built in Canada and it’s a long-term commitment — about a 30-year commitment when they do decide to make that decision.[4]

With gushing comments like that, one has to wonder how tough Mr. Moore was in any negotiations with Chrysler. Did he simply hand agree to hand over $400 million in taxpayer money, or did he insist on protecting the interests of working Canadians as a condition for this money? It goes without saying that we’d all love to see jobs created in Canada. But any subsidies should come only on the basis of binding assurances from Chrysler that it will invest in Canadian research and development and protect the rights and dignity of Canadian workers. Without such assurances, this transfer of taxpayer dollars could wind up being another investment that the Canadian taxpayers end up funding but never receive the true benefit from.

With Unifor involved in the minivan plant there is reason to believe the workers will have a strong union advocating for their rights. However, on the other sider, Mr. Marchionne, Chrysler Chief Executive, has said: “I don’t want this to become a wage discussion.”[5] So the argument is made that while wages justify the requested subsidy of $400 million, the very corporation asking for this handout doesn’t want this to be about wages. Wages are so intimately linked to the subsidy that one would think there must be a wage discussion. The government and the union must make certain that Mr. Marchionne can’t just expect to take taxpayer money without have a discussion about what is arguably the most vital interest for the workers: the wages.

Apart from the obvious inequity subsidies to corporate interests has for the average Canadian, it also hurts the economy by placing the government in the all-powerful position of picking the winners and losers in the market economy.  The playing field gets skewed. Corporations that don’t take taxpayer funded subsidies end up at a disadvantage to those that do. A well-run corporation, like Ford, could have sold more vehicles had its competition, such as GM and Chrysler, not been propped up by taxpayers. In short, it’s a system that penalizes corporations with sound financial stewardship and provides a boon to less successful competitors.

And, finally, in what is perhaps the most immediate effect of these subsidies on the average Canadian is the fact that such use of taxpayer money ends up justifying diversion of funds from social programs and increases the tax rate we all have to pay.

To put the true measure of corporate welfare in Canada into perspective, consider this: the money Canada spends on corporate welfare almost doubles the amount spent on social programs. And the initial cost is only the most obvious aspect this financial expenditure. It reduces spending on social programs like housing, ambulance drivers, hospitals and the like, which have a net benefit on the economy, whereas corporate welfare often results in a net loss and is generally considered a temporary fix to employment problems.

According to the National Council of Welfare, if $12.6 billion had been redirected to fighting poverty through decreasing healthcare costs, making education more affordable and improving employment insurance, the net gain to the country would have been approximately $24 billion[6]. Surely this is preferable to the shabby return on investment the country gets for providing grants and low-interest loans to corporations. How many people could be lifted out of poverty for the cost of one executive bonus? This is a question of the utmost concern and one which the government has a duty to the citizens of this country to answer.