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.

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:

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

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
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.

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