The full-court press by Detroit Three auto lobbyists for taxpayer money has fostered strong feelings across our country. B.C. Premier Gordon Campbell staked out his province's position that massive job losses in the forestry sector merit government help just as much as Ontario's auto sector. Fearing for their own jobs, Canadians employed in the services, retail, construction and other sectors ask why workers who earn much more than they do should be subsidized - and why mismanaging bosses should be bailed out.
Opposition leaders were poised to take over the reins of power in Ottawa, claiming that the Tories are not spending enough to stimulate the economy. Finance Minister Jim Flaherty, who will deliver a budget at the end of January, points out that measures to deal with the downturn need to be well thought out. "This is not a time for political parties writing stimulus ideas on the back of an envelope, spending tens of billions of dollars, putting Canada into a permanent deficit," he said.
Canada has the lowest debt-to-GDP ratio of any G8 country and is the only member going into the global meltdown without a structural deficit. Despite the gloom and doom espoused by panicky politicians, our economy is performing relatively well, so we haven't been forced into the desperate ad-hoc measures seen in the United States. While our country does have the financial capacity for well-placed temporary fiscal stimulus, spending taxpayer money in the wrong places will weaken rather than strengthen the economic future of Canadians.
Ill-fated taxpayer support for industries that were already struggling before the economic downturn would fritter away Canada's hard-won financial strength, while delaying the retraining and migration of workers from failing businesses into jobs with a future. Moreover, once the government starts handing out subsidies, struggling businesses from coast to coast can legitimately argue "why not me." And then there's the "moral hazard" argument of taxing successful businesses and their workers to subsidize mismanaged ones.
Having set out what government should not do, the question becomes: What measures should be taken?
First and foremost, continue to unblock the plumbing of the financial system. Canadians are fortunate that our banks have remained among the world's strongest, but measures to increase the cash they have available for lending are needed. That includes ensuring that our banks have access to international credit markets on a level playing field with bailed-out banks backstopped by government credit. Mr. Flaherty's announcement of additional cash for the government's Business Development Bank and Export Development Canada is also a helpful step.
Most of Canada's large corporations entered the downturn with sound balance sheets, but it is crucially important that the hundreds of small and medium-sized enterprises can gain access to bank credit for operating lines and growth capital. Enhancement of banking sector liquidity should help lending response to small and medium-sized businesses, but the government should monitor their credit access very carefully and take additional steps as required.
This is a very difficult time for startup ventures that contain the seeds to grow into a Canadian global success, a prime example being Research In Motion. After risking savings, mortgaging their house and tapping out friends and family, entrepreneurs often turn to other individuals for capital. Such persons are called angel investors, perhaps because putting seed money behind business plans that are little more than an idea and a prayer requires an act of faith. Unfortunately, Canadian personal tax law provides investors with as much incentive to fund these high-risk startups as for buying zero-risk government savings bonds. This needs to change immediately.
In normal times, Canada's Employment Insurance system is effective at helping the transition of laid-off workers to where they are needed. The problem with severe economic downturns is that more jobs are being lost than created and overall unemployment grows. A temporary adjustment to the terms of EI in recognition that these are not normal times would be a much fairer way of spending taxpayers' money than bailing out specific sectors. In such cases as the Detroit-headquartered auto makers - where the longer-term outlook is dismal - the federal government's priority should be collaboration with the provinces to offer workers a future through retraining.
Economic downturns accelerate the inevitable demise of terminally ill businesses. Spending taxpayer money to keep them on life support traps workers in dead-end, subsidized jobs and squanders precious resources on businesses whose time has passed, rather than encouraging investment in businesses that will build our economic future.
Gwyn Morgan is the retired founding CEO of EnCana Corp.