The Ottawa/Queen's Park war of words over job losses in the auto industry continues with Premier McGuinty demanding more federal subsidies and Finance Minister Flaherty firing back that the province should create new jobs by matching federal tax cuts.
Canada's experimentation with corporate subsidies has been a taxpayer's nightmare. A recent Fraser Institute study entitled "Corporate Welfare Addiction" found that subsidies to businesses across the country over the 10-year period from 1995 to 2004 totalled $144-billion, or more than $11,000 per taxpayer. The study concluded: "There is no concrete evidence that government subsidies to business provide any net benefit to Canada's economy. Instead, these subsidies encourage the transfer of wealth from one set of taxpayers to another, often from small businesses to large businesses, and from taxpayers to special interests."
The Fraser study examined a wide range of industries across the country. In many cases, the huge taxpayer outlays only delayed the inevitable. A case in point is the half-billion federal dollars for a new Ford plant in Oakville. Announcing the subsidy, then Liberal human resources minister Joe Volpe stated "Regrettably, in recent years, more auto jobs have been created elsewhere as investment, private and public, is generated outside our country. We must reverse that trend." In January, 2006, Ford announced 350 layoffs in Windsor, followed by 215 workers in Oakville later that year. Since then, thousands more have been laid off in the Ontario auto sector.
While Mr. McGuinty decries the Conservative government's refusal to repeat the same failed policy, Canadian Auto Workers (CAW) union leader Buzz Hargrove ups the ante by demanding protection from offshore imports through tariffs that would make both imported and domestically produced autos more expensive. So, if Dalton McGuinty and Buzz Hargrove have their way, taxpayers will face a double jeopardy: Subsidies to auto makers coming out of one pocket and paying higher prices for cars out of the other. Meanwhile, what is Mr. Hargrove doing to help make the sector competitive? Basically, nothing. He refuses to discuss wage reductions and threatens any union locals that break ranks to save their jobs. Meanwhile, his U.S.-based union brethren have agreed to meaningful reductions in pay and benefits. These cost reductions, along with the weakened greenback, mean northern U.S. rust belt auto producers are actually getting pretty competitive, while Ontario and the CAW stand pat and call for taxpayers and consumers to bail them out, yet again.
Subsidies to failing businesses are the knee-jerk panacea of politicians programmed to "do something" about every problem. The Fraser study provides examples of cases where subsidies only delayed necessary restructuring until it was too late. Even worse, they are paid for by taxing the progress of those enterprises which will provide the new jobs of the future. The study calculates that the $144-billion taken out of taxpayers' pockets for business subsidies over those 10 years would have allowed corporate taxes to be reduced by 30 per cent. Interestingly, that is approximately the amount of Mr. Flaherty's corporate tax cut program. Critics charge that his tax cuts have used up all the money that could have been used for corporate bailouts. To that I say, thank God.
I have long believed that the right place for taxpayers' money is in the retraining of displaced workers for jobs in the growing parts of the economy. Last week's announcement by the Prime Minister of money for retraining laid-off forest workers is an example.
To paraphrase Einstein, if you repeat the same experiment over and over again, don't expect different results. The Ontario government retains both its investment-repelling capital taxes and high business tax rates while fighting to repeat the failed corporate bailout experiment. The Prime Minister rejects the suggestion that "every problem demands an immediate short-term, high-cost intervention of subsidization" and calls on Premier McGuinty to join his government's tax cut program. Given the evidence of failed corporate bailout experiments, I think Einstein would side with Mr. Harper in this debate.
The surprising counterpoint to the woes of Ontario's auto sector comes in the news that the province leads Canada in new job creation. While 20,000 Ontario manufacturing jobs were lost in February, more than 60,000 new jobs were created as positions opened up in the construction and services sectors. This underlines a basic strength of the open free-market economy: Flexibility of business and labour to move from failing sectors to new and growing ones. Government interference with Darwin's law of survival of the fittest distorts natural selection and adaptation; leaving a species weak, flabby and vulnerable. Most of the time, the best policy for government is to resist the urge to "do something" and let nature take its course.
My bet is that both Einstein and Darwin would say the long-term survival of the Canadian economy depends not on repeating failed experiments, but rather in creating an "econo-system" that fosters our most creative, nimble and adaptable enterprises.