COST OF DOING POLITICS
Canada gave billions to Chrysler, GM, with no real questions asked
We found it impossible to gain a complete picture of the assistance provided, the difference the assistance made to the viability of the companies, and the amounts recovered and lost. Auditor general’s report on car company bailouts
The $14 billion in public funds handed out to General Motors and Chrysler in 2009 stands as the largest corporate bailout in the history of the country. A joint operation of the governments of Canada and Ontario, it was part of an overall North American package of assistance to the two firms totalling $80 billion.
As with all such bailouts, it was justified strictly with regard to the interests of the companies involved, which were assumed, as always, to coincide with the public interest. The question of opportunity costs — what else might have been done with the same money, what other investments might have been made or jobs created with the $14 billion governments sucked out of the capital markets to lend to GM and Chrysler — never came up.
It never does. The whole game of politics is to keep the public’s eye focused on the benefits of a given public expenditure, while diverting attention from the costs. That’s so far as anyone even counts those costs, or in the case of opportunity costs, understands them.
Still, it is generally assumed that at least the money goes where the government says it goes. And governments are usually quick to assert how careful they have been to see that it does. We didn’t just throw your money away on some no-hoper, they protest. Strict conditions were attached.
We required the company to produce a detailed restructuring plan. We demanded they show us how they could regain viability. We insisted on accountability for every dollar spent: why it was needed, how it would be used, how it was in fact used. And look, it worked! The company was saved! The money was repaid! Not with anything resembling a return on investment, but never mind! Success! Vindication! Re-election!
Understand, again, that none of this really matters. It does not prove the value of subsidy — using scarce public funds to divert scarce productive resources from every other firm to the one the government prefers should have them — that the recipient of the handout actually benefits from it. But I suppose it demonstrates a baseline level of competence.
So it is a little disconcerting to find, via the auditor general’s latest report, that in the matter of the bailout of GM and Chrysler none of this applied. The language is restrained and bureaucratic, but in its own way it is devastating, and while it only covers the federal government’s role, it is hard to imagine the government of Ontario was any more vigilant with its own share of the funds. Did I mention it was $14 billion?
In fact, Industry Canada, the federal department leading the bailout negotiations, “did not require final plans from Chrysler or GM on the restructuring of their Canadian operations.” It had only the vaguest assurances (“high-level information”) of “what the Canadian restructuring costs would be, how much government funding would be needed (to restore them to viability), and what the funds would be used for.” It had similarly sketchy data (“limited analysis”) on “how the restructuring actions would improve the financial situations of the Canadian subsidiaries” and “how the companies would repay their loans.”
Other subjects on which it had “limited analysis,” “limited information” or “limited documentation” included: “the required concessions from unionized labour, suppliers, and dealerships; GM Canada’s liabilities for healthcare benefits for retired employees; the impact these liabilities would have on the company’s future viability; (or) how it determined the amount of public funds to provide to GM Canada regarding these liabilities.”
Industry Canada had the
The whole game of politics is to keep the public’s eye focused on the benefits of a given public expenditure, while diverting attention from the costs.
same “limited documentation” on GM’s pension deficits, including the extent to which these funds would help reduce the pension plan deficits; the effects of the pension plan deficits on the company’s viability; (or) how it determined the amount of public funds allocated for this purpose.”
So much for the negotiations. As far as monitoring how the funds were used, the department “did not require the companies to submit specific reports on their use of the funds.” (No, I mean, why would you?) For exam- ple, “Industry Canada had limited documentation on the actual use of a $2.8-billion loan made to GM Canada for capital expenditures, warranty claims and other general corporate purposes,” and “no documentation” at all on the use of another $528 million.
“In the absence of detailed information on the use of the funds,” the report states, “Industry Canada does not know to what extent the federal government’s financial assistance contributed to the viability of Chrysler Canada and GM Canada.” Though it later comes to its own conclusion on this point (the various federal departments involved “managed the financial support to the automotive sector in a way that contributed to the viability of the companies and the competitiveness of the sector in Canada”), it is hard to see how, given the “limited information” available to it.
Not only was there “no comprehensive reporting of the information to Parliament,” but even the auditor general’s staff could not piece it together into something intelligible. “Based on the information that is publicly available, we found it impossible to gain a complete picture of the assistance provided, the difference the assistance made to the viability of the companies, and the amounts recovered and lost.”
Well, we have some idea on that last point. Of the $14 billion — OK, $13.7 billion — in loans to the two companies, much of it converted into shares in GM, about $5.4 billion has been recouped — $3.1 billion in loan repayments, and $2.3 billion from the sale of some of those GM shares. At current prices, the remaining shares would fetch another $4 billion and change. The other $4 billion? Yeah, we’ll never see it again. Not that it would make it a wise use of public funds if we did. Did I mention opportunity costs?
ANDREW COYNE