How to be a leader in EVS without throwing cash at automakers
There are better ways to maximize return on investment, Kevin Carmichael writes.
Let's agree that Canada should try to become a player in the electric-vehicle business.
Carbon neutral means ditching internal-combustion and diesel engines, and world-beating economies tend to make machines that move people around, so let's go for it.
Here's another idea: How about trying to do it without showering hundreds of millions of dollars of scarce public resources on legacy automakers? It's probably too late, since the Big Three are well on their way to getting a new round of gifts worth more than $1 billion from the governments of Canada and Ontario, but maybe we dam the flow there because there are better ways to maximize public investment.
“I'm not sure that money is intended to speed up the adoption of electric vehicles,” said Ralph Torrie, president of Torrie Smith Associates Inc., an environment and energy consultant based in Cobourg, Ont. “Those handouts are more about trying to get a piece of the action for the Canadian manufacturing workers. The benefits from those plants accrue to the people who get the jobs working at them.”
The case for public intervention in this case is sound. Northern parts of the country are rich in the minerals needed to make batteries, and there is a decent amount of manufacturing capacity and talent congregated around urban centres in Ontario and Quebec. That means supply chains could be short. And, thanks to Donald Trump, we are party to a new North American managed trade agreement that Flavio Volpe, president of the Automotive Parts Manufacturers' Association, credits with a string of big investments in Ontario by the Big Three automakers.
Preferential access to both the European Union and some important Asian markets such as Japan, South Korea, Singapore and Vietnam could allow us to become a global trading hub if we play our cards right, said Mark Agnew, senior director of international policy at the Canadian Chamber of Commerce.
Finally, industrial policy is back in vogue, repopularized by economists such as Mariana Mazzucato of University College London who have punctured the myth created by fans of Ronald Reagan and Margaret Thatcher in recent years by reminding policy-makers that public spending is responsible for just about every game-changing innovation.
Ultra-low interest rates, the imperative of offsetting the economic effects of the COVID-19 crisis, and the existential threat posed by climate change have created greater political tolerance for debt, heralding a tidal wave of public expenditure in the years ahead. But the focus needs to be the return on investment, and there are probably better ways to do that than shovelling money at famous companies.
It's a hard habit to break, though. Justin Trudeau and Ontario Premier Doug Ford have been busy injecting “Detroit muscle” with steroids, starting with Ford Motor Co., which on Oct. 8 received matching federal and provincial “contributions” of $295 million to help overhaul its Oakville, Ont., factory to build electric vehicles.
The subsidies will “help secure” some 5,400 “well-paying middle-class jobs,” according to a press release issued by the Prime Minister's Office that included comments from five different politicians before the head of Ford Motor's Canadian operations and the union had their say.
Fiat Chrysler Automobiles NV will be getting similar payments from the federal and provincial governments to build electric vehicles in Windsor, Ont., as part of a new agreement between the company and its union, Unifor, the Windsor Star reported on Oct. 19, citing Dave Cassidy, the local union leader.
General Motors Co., which earlier this month said it will reopen its Oshawa, Ont., plant, is also in line for a dollop of subsidies, even though the company plans to build gas-guzzling pickup trucks, not electric vehicles, Scott Bell, the head of GM'S Canadian operations, told The Canadian Press this week.
Neither government would confirm that it intends to contribute to the FCA and GM investments, but it seems unlikely they would spoil one of the Michigan-based automakers and neglect the other two.
This is the kind of thing that gave industrial policy a bad name, but there's a better way.
Robert Asselin, a former Liberal economic adviser, and Sean Speer, a former Conservative economic adviser, have been saying for the past couple of years that industrial policy is necessary to remain competitive in the modern economy. But instead of picking favourite companies, they argue governments should back strategic initiatives, and then let competition decide the winners.
Instead of favouring GM, Ford and FCA out of habit, governments should use the money to augment efforts to build a national network of charging stations, or subsidize the buyers of electric vehicles rather than the builders. In either case, the government's contribution would be creating a market for a public good; Competition between entrepreneurs, established companies and investors would determine who delivers.
That's kind of what happened in the 1920s when automobile sales took off, according to research Torrie has done on the period. The introduction of Ford's Model-t and innovations in consumer credit made cars affordable, and governments sped up the construction of paved highways, which made owning an automobile even more compelling.
“The public investor has an important role,” Torrie said.
“One of those roles has historically been, and continues to be, making sure that the infrastructure for a productive and healthy society is in place.”
That's the right way to build an electric-vehicle industry: Create the demand and let the private sector sort out the supply. Who knows? Maybe a Canadian champion will prove worthy of the challenge.