Business subsidies a drag on economy

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This article was published 25/11/2023 (717 days ago), so information in it may no longer be current.

Each year, governments in Canada shell out hundreds of billions of dollars on subsidies to businesses. Researchers at the Fraser Institute found that, between 2007 and 2019, federal, provincial and local governments blew $352.1 billion (inflation-adjusted) on these subsidies.

Families foot the bill for these giveaways. Subsidies at all three levels cost Manitoba taxpayers a total of $11,290 per tax filer from 2007 to 2019.

Politicians assure us these subsidies boost economic growth and deliver a bonanza of jobs. But there’s little evidence that’s the case.

Indeed, the opposite may be true as governments create distortions in the economy by awarding cash to some corporations but giving a thumbs-down to others, especially to small businesses which benefit local communities but cannot afford the armies of well-paid lobbyists and lawyers that multinational corporations muster to protect their interests.

We see these dynamics playing out as the federal government dishes out billions to foreign-owned corporations to build and operate electric vehicle battery plants in Ontario. Prime Minister Justin Trudeau is convinced the future of automobiles is electric, and he’s willing to bet vast sums of taxpayers’ dollars on it.

A massive battery plant being constructed in Windsor, Ont., through a partnership between the multinational automobile corporation Stellantis and South Korean battery maker LG Energy benefited from up to $15 billion in subsidies from the federal and Ontario governments.

Then, in June of this year, the federal government announced $13 billion in subsidies for a new Volkswagen battery plant to be built in St. Thomas, Ont., plus an extra $700 million to help with construction. But Canada’s parliamentary budget officer, after reviewing the agreement, argued the true cost to taxpayers would be closer to $16.3 billion.

Seeing this giveaway to VW, Stellantis then demanded more money from Ottawa, and even shut down construction on its Windsor plant in order to apply more pressure. The government caved and Stellantis got its way.

In 1972, federal NDP leader David Lewis coined a memorable phase to describe the recipients of these subsidies: corporate welfare bums.

All politicians are eager to claim that they are responsible for creating “jobs, jobs, jobs!” And these massive subsidies at least seemed to offer that. VW, for example, estimated that construction of its St. Thomas plant would generate 1,400 jobs.

At the very least, government investments should produce high-quality jobs to help support and give stability to the lives of Canadian families.

But now, it turns out Canadians likely won’t even get that in return for these subsidies.

As Stellantis began to staff its Windsor plant, it recruited workers from South Korea. The company argued its proprietary equipment required the use of foreign workers.

But it was then revealed that roughly 1,600 South Korean nationals would move to Windsor in 2024 to fill positions in the new plant.

This set off a flurry of outrage as local and provincial politicians demanded to know from the federal government how many temporary foreign workers would be permitted to work at the plant. The federal minister, Francois-Philippe Champagne, was at pains to clarify that “a fairly small number” of temporary foreign workers would be employed there.

But that is not what Stellantis seems to have in mind. And the president of the local chamber of commerce spilled the beans, saying that stakeholders always knew foreign workers would be needed for the plant.

The justified outrage being generated by this news is because jobs that were promised to Canadian workers in exchange for vast sums in subsidies now seem destined to go to foreign workers. It seems like a parody of bad governance, the sort of thing that would render Canada’s government a laughingstock across the world’s corporate boardrooms. What exactly do we get in return for these subsidies?

But the whole episode illustrates how Canadian governments have their priorities wrong.

Using temporary foreign workers in positions promised to Canadian workers in exchange for subsidies is obviously offensive. But in fact, the entire temporary foreign worker program, which saturates the labour market and keeps wages stunted for vulnerable low-income Canadian workers, is offensive.

Recent changes to the program announced by the Trudeau government that will see the number of temporary workers in Canada swell will only make this worse.

Shelling out billions to corporations which cannot then even be bothered to hire Canadian workers is outrageous. But this is far from the first time that governments have been hosed by the recipients of their generosity with our tax dollars. The entire practice of government subsidizing corporations is outrageous.

It’s remarkable that it even needs to be said that governments should put the interests of Canadian families and Canadian workers above those of multinational corporations.

» Royce Koop is a professor of political studies at the University of Manitoba and academic director of the Centre for Social Science Research and Policy. This column previously appeared in the Winnipeg Free Press.