Bailout costs go beyond mere cash

The common interpretation of Friday's employment report from Statistics Canada - that the economy of Canada's largest province is in a terrible state - is only half right. Examine the numbers more closely, and you'll see that when it comes to jobs, there's not one Ontario, but two.

In the first group are the places where the recession's grip is tight and job hunting feels like a fruitless exercise. In the Highway 401 corridor between Windsor and Toronto, things really are awful. Even London and Kitchener-Waterloo, southwestern Ontario's hubs of health care, education and technology, now have double-digit unemployment.

But elsewhere, the jobs picture is not so bad. Like where? Believe it or not, like Oshawa, the home of General Motors of Canada. To listen to the auto workers, you'd think the place was turning into a ghost town, what with the pink slips littering the factory floor and the permanent closing of GM's truck plant. It's just not so. Statscan says the unemployment rate in Oshawa (7.8 per cent) is lower than in Toronto and nearly every other urban centre south of it. So doesn't it make perfect sense for the federal and Ontario governments to put $10-billion or so at risk to ensure that GM Canada can employ, when the cutting's all done, about 5,000 people? Heaven forbid that some of those jobs wind up in Toyota's brand-new plant a half-hour's drive from London, which is running with just one shift.

That doesn't jibe with the Harper government's view of what it has accomplished in the taxpayer-funded rescue of the domestic branch plants of GM and Chrysler. The Prime Minister, while trying to communicate his distaste for the bailout, simultaneously claimed it had practically saved the manufacturing economy of Central Canada from apocalypse. "I wish there were an alternative," he said "but the alternative to what we are doing today would be vastly more costly and more risky." He outlined, in vague terms, what he thought the cost would have been of letting the Bailout Two fail: "six figures" in job losses within six months.

No one can challenge him on it, since it's strictly hypothetical. Maybe he's right. Maybe, as the advocates of the bailout suggest, the death of GM and Chrysler would have caused a cascading effect: Makers of auto parts collapse under the strain, and take Ford and Toyota and Honda down with them - in the short run.

But in the long run? Looking into the future six years, instead of six months? Peek outside your window. The masses haven't ditched their cars in favour of bicycles or buses. For the moment, they've only changed how frequently they buy them. Even in the worst recession in more than a quarter-century, they are still buying. J.D. Power forecasts that Americans purchase 10 million new vehicles this year. Sure, that's down a long way from 16 million. But North American cities are still designed around the car and as long as that's the case, Canada will still be building vehicles.

All we've done, arguably, is ensure that more of them are made in Oshawa and fewer in Oakville, Ont. (where Ford operates) or Alliston, Ont. (where Honda is). And we've done it at enormous cost: The total cost of the bailout (including the provincial portion) equals more than $400 for every Canadian and Mr. Harper himself admits it's unlikely the taxpayers will get much of their money back. Even if the bailout is "saving" jobs, it's an expensive way to accomplish it. But if it's merely shifting jobs around, it's unconscionable.

So why do it? Because of an age-old problem of politics: The beneficiaries of the bailout are visible - workers at GM and Chrysler and their main suppliers. The losers (other than the taxpayers) are invisible, and diffuse. It's the guy with a trucking business in Woodstock, Ont., whose income would go up if Toyota added another shift to the local plant, or the one who has been indefinitely laid off at Ford. They don't even know what they've lost.

Public policy in the recession is, unfortunately, rife with similar examples. For every steel worker in Pittsburgh who keeps his job because foreign steel is kept out by the Buy American policy, there's going to an engineer or software designer who loses out because his company can't get a contract in Europe. (This is why any credible economist will tell you that protectionism is self-defeating.) All that stimulus spending may create some jobs, but guess what? The resulting deficits are causing longer-term interest rates to go up. Construction workers win; mortgage seekers lose.

If Mr. Harper and President Obama and other leaders want to blow a hole in the public finances by bailing out failed companies, or building highways, or paying extra for domestic steel - that's their prerogative. But the voters should understand there's no free lunch, and the cost of the spending spree isn't limited to higher debt today and higher taxes in the future.