Bombardier bailout is inevitable
The government of Canada would l i ke you to know how reluctant, how unwilling, how supremely disinclined it is to bail out Bombardier. Not that it isn’t going to, or that there was ever the slightest doubt it would. But when it inevitably does, you are meant to understand what a hard bargain it struck.
First i t was put about that, unlike those feckless spendthrifts in the government of Quebec who put up $ 1.3 billion no questions asked, the feds would insist that Bombardier present a “business case” for why it should receive a similar wad of funds from the taxpayer — on top, that is, of the hundreds of millions it has already collected over the years. Then came news Ottawa had “reservations” about forking over the cash without unspecified changes in Bombardier’s “governance structure,” though it conceded it had not actually asked for any. Now Bloomberg is reporting on the six- point “checklist” the Trudeau government is supposedly looking at, including such harsh requirements as “viability” and “efficacy.”
All of this preparatory posturing is in the service of the fiction that when the money eventually pours out of the federal spigot, it will not be a bailout, or a subsidy, or some other discredited government practice from the past, but an honest- to-God “investment,” just like the kind that people who risk their own money make. The message: this government isn’t throwing money at a “loser” — it is backing a “winner.” A winner that can’t survive without government aid, can’t sell its planes for more than they cost to make and can’t pay a sufficient return to attract actual rather than pretend investment, based on an economic rather than a political bottom line.
But of course the case against industrial subsidy has nothing to do with whether governments are good at picking winners or losers ( though, as it is often said, losers are remarkably good at picking governments). As incompetent as Bombardier’s management has been, as catastrophic as its bet on the C Series regional jet ($2 billion over budget, years behind schedule and with no sales in the past year) has proved, that is not why it should not be bailed out. It would be just as ill-advised, perhaps even more so, if Bombardier were hugely profitable and managed by geniuses.
Put simply: if an investment is truly economic — if its benefit to society, measured by what consumers are willing to pay for it at the margin, exceeds its cost to society, measured by the resources required to produce it — it doesn’t need a subsidy. If it isn’t economic, it doesn’t deserve one. All that is achieved thereby is to divert capital and labour from other investments, not dependent on subsidy.
There is no way to escape this logical trap*, and for the most part subsidy advocates don’t try. Rather, the case for new subsidies is almost always based on … past subsidies. The case for subsidizing Bombardier boils down to: we’ve been subsidizing it until now; we’ve subsidized other things before; and besides, everybody else subsidizes theirs.
Bombardier is, indeed, largely the creature of a subsidy, as for that matter is much of the Canadian aerospace sector. The sheer size of the industry — 42,000 jobs in the Montreal area alone — then becomes the primary argument for why subsidy must continue. For without subsidy the industry subsidy created could not long survive.
Much the same, of course, could be said of the Ontario auto industry: the same incompetence, the same subsidized overbuilding, the same demands for still higher doses of the same drug. Which is invoked as another argument for subsidizing Bombardier: the f ederal government bailed out Big Auto in 2009, therefore it would not be fair — certainly it would not be politic, for a party with 40 seats in Quebec — to refuse the same to Bombardier in 2016. As, in turn, the Bombardier precedent will be cited in support of future bailouts, elsewhere in the country.
When all else fails, there is always the “other countries do it” defence. Or as a government briefing paper put it, aerospace (like autos) is viewed as a ” ‘ pay to play’ industry.” Subsidies are justified, in this view, to keep our side in the game. The possibility that the game is not worth playing does not seem to occur. The assumption, rather, is that we must be in aerospace. Why? Not for any economic reason. But for reasons of preference. Because aerospace is high-tech. Because it’s “value- added.” Because. That this essentially faith- based economics — God wants us to be in aerospace — is often defended in the name of pragmatism adds a certain irony to the proceedings.
In fact the willingness of other countries to subsidize their aerospace sectors is the best argument against our doing the same. If we were the only country on Earth to hit on this scheme, there might — conceivably, theoretically, hypothetically — be a case for subsidizing ours: given massive returns to scale, and the possibility of obtaining a worldwide monopoly, the returns might be so great as to turn a negative sum game into a positive. But as the same idea has occurred to other countries — countries with much deeper pockets than ours — then at best all we are doing is matching theirs.
This is a government that is very much concerned with presenting itself as new and different. But nothing would better signal the same old was just the same and twice as old than another planeload of money for Bombardier.
* Well, we could subsidize every industry, and Lord knows we’re half- way there. But the futility — in strictly arithmetic terms — of redistributing from everyone to everyone is surely apparent.