Cor­po­rate wel­fare and the gullible gov­ern­ments who pay it


Last week, Prime Min­is­ter Justin Trudeau and On­tario Premier Kath­leen Wynne vis­ited a Toy­ota plant to an­nounce they were con­tribut­ing $220 mil­lion to­wards a $1.4 bil­lion in­vest­ment by the com­pany to cre­ate some 450 jobs (which works out to an eye­pop­ping $488,888 sub­sidy per job.)

The jus­ti­fi­ca­tion for such gifts is fa­mil­iar: tax­pay­ers ‘need’ to pro­vide th­ese kinds of ‘in­cen­tives’ for Toy­ota, lest it take its plant and jobs else­where. We’re sup­posed to be­lieve that Toy­ota—which five days later an­nounced a record global profit of $29 bil­lion—was pre­pared to aban­don a Cana­dian plant in which it had al­ready in­vested bil­lions of its own money, and was ready­ing to put in a bil­lion more, un­less our pli­able politi­cians ponied up the pork.

If this sounds un­likely, it’s be­cause it is. What’s far more likely is that Toy­ota—like so many other cor­po­rate gi­ants in po­lit­i­cally sen­si­tive in­dus­tries—has learned over the years that our gov­ern­ments are gullible suck­ers. And who can blame it? After all, if it doesn’t take the hand­out a com­peti­tor just might. The re­sult is that com­pa­nies that aren’t even on the hunt for hand­outs will say yes to them.

Hold on, crit­ics will protest. It’s not as if they’re just get­ting money no-strings at­tached. There are job cre­ation tar­gets and loan re­pay­ment terms! So we can en­sure we’re get­ting a re­turn on our ‘in­vest­ment,’ right?

Wrong. Most of the time no­body even both­ers to check if job cre­ation tar­gets are met. And even if they are checked, and tar­gets were missed, there’s un­likely to be any pun­ish­ment. As for loan re­pay­ment terms, they are al­most never made pub­lic, on the grounds that that in­for­ma­tion would be com­mer­cially sen­si­tive for the re­cip­i­ent. This means tax­pay­ers don’t even get to know if they ever get paid back.

At this point, most peo­ple will con­cede that, in the­ory, such sub­si­dies are waste­ful, but many ar­gue that here in the real world we need to ‘play the game’ or risk los­ing jobs to other ju­ris­dic­tions that con­tinue to of­fer up sub­si­dies. It’s true: there’s no guar­an­tee that ev­ery busi­ness that’s cur­rently on the gov­ern­ment dole would stick around in the event hand­outs stop. But the al­ter­na­tive is to be per­pet­u­ally held hostage by busi­nesses hint­ing they may leave un­less they lit­er­ally get free money from tax­pay­ers.

(Some ar­gue that busi­nesses ask­ing for lower taxes is anal­o­gous to de­mand­ing hand­outs. But the dis­tinc­tion is ob­vi­ous: low­er­ing taxes leaves all busi­nesses with more of the money they’ve ac­tu­ally earned. Ask­ing to keep more of what’s al­ready yours is rather different than ask­ing for free things from oth­ers.)

Stop­ping the cul­ture of cor­po­rate wel­fare in Canada won’t be easy on ei­ther the sup­ply or de­mand side; it’s been a part of the po­lit­i­cal land­scape for so long it’s con­sid­ered nor­mal.

Aside from the ob­vi­ous step—stop trans­fer­ring money from tax­pay­ers to pri­vate, for-profit busi­nesses—what else can gov­ern­ments do to help cre­ate a strong econ­omy?

First, lower taxes. Busi­nesses take hand­outs be­cause they want more money—so we should in­stead make it eas­ier for them to earn it. Sim­ply tak­ing all the bil­lions poured into cor­po­rate wel­fare to­day and cut­ting busi­ness taxes across the board by an equal amount wouldn’t cost gov­ern­ments a dime. It would also en­sure that it’s the mar­ket­place, not po­lit­i­cal favouritis­m, that de­cides which busi­nesses suc­ceed.

Sec­ond, keep costs down. Car­bon taxes, high elec­tric­ity prices, min­i­mum wage hikes and pay­roll tax hikes are just a few ex­am­ples of costs that make it harder for busi­nesses to turn a profit. Keep those costs down and it will ease the bur­den on busi­nesses.

Fi­nally, smarter reg­u­la­tion. It’s not just high-pro­file projects like Trans Moun­tain that get bogged down in reg­u­la­tory hell. Un­rea­son­able oc­cu­pa­tional li­cens­ing re­stric­tions, ar­chaic zon­ing rules and oner­ous le­gal com­pli­ance rules can add up to a hos­tile en­vi­ron­ment in which to start and run a busi­ness.

If gov­ern­ments fol­low the pre­scrip­tion above, sub­sidy-de­pen­dent in­dus­tries will die off. But the trade-off will be a wel­com­ing busi­ness cul­ture that at­tracts com­pet­i­tive, sus­tain­able busi­nesses that are in­ter­ested in mak­ing money the old-fash­ioned way: by ac­tu­ally earn­ing it.

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