THE BLOG

Cut the Orwellian Apologies for Corporate Welfare

08/27/2013 07:52 EDT | Updated 10/27/2013 05:12 EDT

In his 1946 essay, Politics and the English Language, George Orwell argued that, "political speech and writing are largely the defence of the indefensible." Orwell's quip came to mind again recently after reading Bombardier's defence of taxpayer subsidies to business, this in response to my recent study on the matter.

In a recent column, John Paul MacDonald, Bombardier's vice-president of public affairs, made several assertions: The length of time for a product to make it from conception to development to market "necessitates partnerships between the private sector and governments;" Bombardier spends a lot of money and employs many people in Canada; other countries also support "their local champions" with tax dollars; the federal government produced a report this spring that makes the same points.

It would take more space than allotted to dissect the various mistaken assertions and narrow-interest pleading, but let me concentrate on a few facts, starting with taxpayer cash transferred to Bombardier over the decades.

Bombardier has publicly noted how it has repaid $275 million on two government loans originally worth $187 million.

Private sector lenders require repayment of the original loan with interest, so it is not clear why Bombardier thinks it's remarkable it did the same on two of its government loans. (Perhaps the reason is because the full repayment of government loans is rare.)

What Bombardier has not disclosed is how the company has chronically sought taxpayer subsidies, or its overall repayment records, or how much money the corporation has received in grants.

According to records obtained from Industry Canada, Bombardier first started receiving federal tax dollars in 1966. Over the decades, adjusted for inflation to current dollars (critical in order to make apple-to-apple comparisons in real dollars), various Bombardier iterations received over $1.1 billion in 48 separate disbursements from the federal department of Industry. (That figure thus excludes any tax dollars received from any other federal departments or other governments).

Almost $300 million went to Bombardier in 17 "contributions," government language for grants, never to be repaid. Another $79 million arrived in the form of repayable loans.

However, the bulk of the money, $759 million in 28 separate disbursements, went to Bombardier in the form of "conditionally repayable contributions." The word "conditionally" is critical to note, as such taxpayer-financed loans are not necessarily repaid in full, even decades later.

This was revealed in a 2005 analysis prepared for the department of Industry by consultants Hickling Arthurs Low which analyzed one now-defunct Industry Canada program, Technology Partnerships Canada. That is the program that Bombardier notes is one source of that company's corporate welfare income.

With reference to that program, Hickling Arthurs Low noted, "repayments are typically less than originally forecast." By 2005, optimistic repayment estimates were already reduced by 55 per cent to just $2.6 billion, instead of the original forecast of $4.3 billion.

As for conditionally repayable loans to Bombardier, beyond the two repayments the company publicly trumpets, it appears Bombardier does not disclose information about the repayment amounts on the dozens of other Industry Canada loans it received over the decades.

For example, my past Access to Information requests to Industry Canada were returned with repayment amounts for many companies (including Bombardier), blacked out. (The department of Industry needs permission from companies to release such information.)

Also, as one of the world's foremost experts on business subsidies, Professor Terry Buss, has discovered, claims of increased investment and employment from corporate welfare, promulgated in industry and government studies, often result from correlation-causation errors. In addition, such reports fail to account for how "gains" to one region (be it in economic growth, employment, or tax revenues) are offset by losses elsewhere, for example, factories that close because of taxpayer-financed competition.

More generally, on the assertion from defenders of business subsidies that economic growth and job creation results, they forget that the money comes from somewhere--from the higher rates of tax needed to finance corporate welfare.

Bombardier is a fine Canadian-based company and one hopes it prospers in the years ahead and employs even more people -- but without taxpayer assistance. Governments should not pick winners and losers with taxpayer money or prop up industries with funds from other sectors, companies and individuals.

Just as bad, Canada's approach reinforces the incentive for poorer countries, such as Brazil, to inefficiently support selected industries when they could better use tax dollars for more empirically defensible and useful spending.

The local temptation to subsidize companies with tax dollars -- the argument that others do it so "we" must as well -- is why governments worldwide should strengthen free trade agreements in the years ahead to ban such business subsidies. It is long overdue for government to be neutral in the fight for market share between companies.