Bombardier ‘ loan’ only hurts others

Well that went swimmingly. Within minutes of the Trudeau government’s announcement that it would, as expected, ply Bombardier with a $373-million “repayable” loan ( only in government is it thought noteworthy that a loan is to be repaid), it became clear the decision had managed to annoy just about everybody.

Albertans were alienated: Conservative heir- apparent Jason Kenney sniffed that, just as the government was “phasing out” Alberta’s oilsands in the name of reducing carbon dioxide emissions, it was subsidizing building CO2- emitting planes in Quebec. Quebecers, meanwhile, were equally dissatisfied. A Bloc Québécois MP dismissed the federal aid as “crumbs” — nothing like what Ottawa gave the auto sector — while Premier Philippe Couil- lard, in classic Quebec Liberal style, called it a “first step.”

As if all these reignited regional grievances were not enough, Brazilian aerospace giant Embraer quickly followed with a formal complaint to the World Trade Organization, charging the federal assistance counted as an illegal export subsidy. Nice work, everybody. Take the rest of the week off.

A few points to make about this loan: ❚ It’s not a loan. It wouldn’t be a loan even if Bombardier were paying interest on it, rather than the undisclosed share of the proceeds from future plane sales it has pledged. Neither would it be a loan in the unlikely event that Bombardier paid it all back, as it has not done most previous federal assistance.

If all Bombardier wanted was a loan, after all, it could have gone to the banks. The catch: it would have had to pay commercial interest rates — likely stiff ones, given the company’s high debt and troubled history. The difference between what it would have had to pay the banks and what, if anything, it winds up paying the government is effectively a grant.

Why not just give it a grant, then? Because then the handout would be obvious to everyone, including the Brazilians. Whereas dressing it up as a pseudo-loan usefully clouds the issue. That the fake loan is with money that was itself borrowed adds a certain note of drollery. ❚ This is not the end. Hardly had the announcement been made before an anonymous government insider was letting slip that further aid would be forthcoming in future years. So: keep the initial payment to a third of the $ 1 billion Bombardier was seeking, to dampen reaction outside Quebec. Then deliver the rest on the instalment plan. ❚ This is not the beginning, either. Conservatives are attacking the Liberals for bailing out Bombardier now, but the previous Conservative government gave Bombardier a $ 350- million loan in 2008, to help it launch its CSeries regional passenger jet. Since then there has been Quebec’s $ 1.3- billion “equity investment” in the CSeries, plus the Caisse de Dépôt’s $1.5-billion purchase of a share of Bombardier’s rail division, plus the sweetheart deal for Air Canada to purchase 75 of the planes in return for various government favours. And before then there was the more than $2 billion in assistance Bombardier and related companies collected over the past 50 years. ❚ There are no conditions attached. There had been some suggestion the government would insist, as a condition of any assistance, on reform of Bombardier’s notorious two- tiered share structure, which has entrenched control by the Bombardier-Beaudo in family notwithstanding its minority ownership position — and abysmal management record. So the “loan” amounts to a transfer from the average taxpayer to one of the country’s wealthiest families.

Not that any of this matters. The folly of this and similar corporate handouts does not depend on what conditions the government extracts, or whether the “loan” is repaid, or how many jobs are created, or any of the non-objections that typically get raised. Neither is the issue whether Bombardier is a “winner” or a “loser,” or what gee-whiz technology it builds into its planes.

All you need to know is this: If a company or project is economic, it doesn’t need government help; if it isn’t, it doesn’t deserve it. The handout to Bombardier isn’t just paid for with other peoples’ taxes, but with the private capital that subsidy diverts into Bombardier’s hands, and away from other uses. It isn’t just Embraer Bombardier is competing with, in this sense, but every other domestic industry or firm, and it is they, rather than the government-backed Embraer, who are most harmed by the assistance Bombardier receives.

That other countries subsidize their aerospace industries, a point industrial policy enthusiasts seem to think is their ace, only clinches the argument against us doing the same. There might conceivably be a case for subsidy if we were the only country to hit on the scheme: for if there were such massive returns to scale that the timely provision of subsidy might result in a worldwide monopoly for Canada in passenger jets, then the extra profits accruing to Bombardier might be enough to offset the costs to other industries. But as other countries are in fact subsidizing their aerospace industries to the hilt — countries with much deeper pockets than ours — the theoretical argument falls to the ground.

But then, as I’ve noted before, Bombardier isn’t really in the aerospace business. It’s in the subsidy business. The willingness of governments to provide a subsidy constitutes a kind of demand for subsidy- seeking, which service Bombardier is only too happy to provide. In return, the government gets to be seen splashing out money in Quebec, ministers ( there were four of them at the announcement) get to pose as forward-looking visionaries, the unions are kept hush, and so on. That a few planes get built is distinctly secondary.

So: to 1930s public works spending, add 1970s industrial policy. How excitingly new. How bracingly innovative.