Taxpayers all in for the ride

Companies such as Bombardier cannot possibly guarantee the jobs promised by politicians. In reality, economic growth alone, not subsidies, can provide jobs.

On October 29, 2015, the Quebec government announced it would invest more than $1.3 billion in Bombardier’s CSeries jet program. At the time of writing, Canada’s prime minister had not closed the door on providing Bombardier assistance from Canadian taxpayers.

It’s the same tune every time: this will protect and create thousands of jobs!

But this is simply not true. Canada’s aerospace industry has long been the “darling” of corporate welfare. For years, we have lent or given hundreds of millions of dollars to the likes of Pratt & Whitney, Bombardier and CAE. And every time, we are told it’s to create jobs. Yet the industry, especially in Quebec, employs thousands fewer workers than it did 10 years ago.

In 2008, our governments provided some $500 million to help Bombardier develop its CSeries jets. The subsidies came in the form of low-interest (read no-interest) loans repayable on the condition the company sold some of its planes. At the time, politicians were promising 3,500 new jobs. The reality is that Bombardier actually laid off thousands of workers in 2009 and 2013, and slashed at least 4,550 more jobs since July 2014. Given the company’s recent troubles, a new wave of layoffs in early 2016 wouldn’t come as a surprise.

Companies such as Bombardier cannot possibly guarantee the jobs promised by politicians. In reality, economic growth alone, not subsidies, can provide jobs.

One of the unintended consequences of such “industrial policies” is to prop up and grow companies that will become dependent on aid. Governments are now faced with having to choose between the lesser of two evils: forever subsidize the aerospace industry (in an era of so-called austerity) or forsake companies that will drag thousands of jobs and suppliers down with them. In short, governments have created corporations that are “too big to fail.”

LOANS DISGUISED AS GIFTS

For those who may not be aware of it, more often than not, these so-called government loans are actually donations.

Thanks to documents obtained through the Access to Information Act in 2010, the Canadian Taxpayers Federation revealed that since 1967, this country’s taxpayers doled out $1.9 billion in loans to Pratt & Whitney, a subsidiary of US conglomerate United Technologies Corp., which enjoys billions in profits year after year.

But get this: after nearly 50 years, Pratt & Whitney has repaid a mere $124 million, or approximately 7% of the total amount “lent.” Industry Canada maintains that the company received only $1.04 billion in loans. Still, that would represent a meagre 12% repayment rate.

My purpose is not to indict Pratt & Whitney or Bombardier, but rather those politicians who think they know how to spend our money better than we do. If we look at all the corporate loans Industry Canada has made since the 1980s, the story repeats itself, regardless of the recipient industries. According to a study by public policy think-tank Frontier Centre, the government has been repaid just 10% of the $18 billion it lent to hundreds of companies over a 28-year period.

One only hopes that Bombardier and its CSeries program — and the entire aerospace industry, for that matter — steers through the turbulence and makes a successful landing. Whether they like it or not, Canadian taxpayers are all in for the ride.
 

About the Author

David Descôteaux


David Descôteaux is a Montreal-based business columnist.

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