Massive handout for VW plant is corporate welfare writ large
If you live in St. Thomas, government plans committing up to $14 billion on a new VW battery plant probably seems like a good idea – it will certainly provide jobs and a host of financial benefits. For everyone else, the deal raises some big concerns.
The federal government offered to provide some
$13 billion in tax subsidies over 10 years to entice Volkswagen to choose the southern Ontario location as the site of its first electric battery plant in North America. The province is kicking in another $500 million.
Government supports amount to double the $7 billion VW has earmarked to build the massive production facility, which is expected to open in 2027.
The plant will have the capacity to produce a million batteries per year, employing 3,000 workers.
Leaving aside the logistics and environmental considerations of mining and sourcing the materials needed to produce a million automotive batteries – as well as the long-term viability of the technology – the government subsidies wreak of corporate welfare writ large.
While this deal is likely the largest example of support for a single project, Canada is no stranger to corporate handouts.
Getting a handle on such payouts is notoriously difficult, not least of all because of secrecy, but a report released last month by the Fraser Institute estimated all levels of government in the country spent some $352.1 billion on subsidies between 2007 and 2019. The payoff for taxpayers? Not much.
“A significant body of research finds little evidence that business subsidies generate widespread economic growth and/or job creation. In fact, business subsidies might have a negative impact on economic development as governments’ attempts to pick winners by interfering in the free market ultimately distort private decisions and misallocate resources,” find Tegan Hill and Joel Emes, authors of ‘The Cost of Business Subsidies in Canada.’
The true level of government supports is likely much higher, they note.
The automotive sector is no stranger to handouts, of course, so the VW deal fits the mould. The companies have pocketed the cash and some pandering politicians have helped their cronies and got their pictures taken at ribbon-cuttings, but the rest of us are simply out a whole lot of money.
Advocates of perpetual handouts to businesses – often large and profitable businesses – say such deals create and/or protect jobs. Besides, they’ll say, every other government does the same thing, so we need to dole out cash to even the playing field.
Problem is, companies know this, and end up playing one jurisdiction off of another. Worse still, the benefits touted don’t materialize.
The history of corporate welfare is replete with unpaid loans, bankruptcies, undelivered jobs and shuttered factories despite assurances to the contrary. For a sad example of all of the above, check out Ontario’s steel industry, particularly what happened in Hamilton. The automotive sector, too, has seen plants close and jobs disappear even as governments poured in billions of dollars.
Given that all levels of government and a variety of ministries and departments are involved, it’s hard to get a handle on just how much money is doled out as corporate welfare. It’s made worse by the fact that officials try to hide what they’re doing: what we do know almost always comes through Access to Information requests. Documents redacted as a matter of course, with the transfer of your money to wealthy corporations treated in the same way as military secrets. Any documentable benefits are hard to come by.
In that light, it makes sense to scrap all subsidies to business. That’s not going to happen, however, as such programs are another vote-buying scheme for politicians. Political life is a perpetual election cycle, and the one thing politicians relish is doling out money – grants, loans, subsidies – and the photo ops that accompany such announcements. Staples throughout the year, they’re especially prevalent during the summer barbecue circuit. With legislatures on a break, funding announcements are a way for members to keep themselves in the spotlight, reminding constituents they’ve still got representatives at work.
Will the money ever come with airtight guarantees for long-term employment, investment and eventual full return to tax coffers? Not likely. Instead, it will be just another gimme in the never-ending cycle of privatized profits and socialized costs, the real modus operandi of corporatism.
What would make the this and other welfare payments more palatable is a realistic cost-benefit analysis: if an investment makes sense – i.e. pays back every dollar to the taxpayers directly, and then some – then it should be considered. If not, then take a pass. That applies to everything from massive, decades-long support for the likes of Bombardier and Pratt and Whitney to ersatz economic development efforts in Woolwich and the region. In almost every case, the decisions are bad ones, which, as we know, is pretty much business as usual for politicians and bureaucrats.
“It was an NDP leader, David Lewis, who coined the term corporate welfare bums in 1972. Unfortunately, in the past 30 years, too many corporations have been drawn into this trap by the available plethora of government loans, grants, and subsidies.”
Those words came not from Lewis’ successors or free-enterprisers of the Frontier Centre mould, but from then-opposition leader Stephen Harper in a 2004 speech to the Toronto Board of Trade, part of a pledge to tackle corporate welfare. We know how that’s played out in the past decade.
Political gain and an eagerness to channel public money into private hands aside – and that’s a big cultural change to reverse, as milking taxpayers is the norm – ending corporate welfare wouldn’t be that difficult. As it stands, reports show most of the country’s largest companies don’t take financial assistance.
Broader research tells us that any benefits of corporate welfare are, at best, fleeting and rarely successful in attracting highskilled, high-paying jobs. The money disappears down a sinkhole, with little lasting effect. But as long as politicians are allowed to control the money, they’ll
keep on wasting it to benefit only themselves and a few well-heeled friends.
For now, the Trudeau government is selling the $13-billion “investment” to beat the band. Some people in St. Thomas will eventually be happy. By the time everybody else finds out if they’ve been sold a bill of goods, there will have been many more handouts, handshakes and smiles for the camera.