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Mark Milke

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The Harper Government's Crony Capitalism

Posted: 01/24/2013 5:03 pm

You might think the federal Conservatives, who added $125 billion to the federal debt since 2008 and will add another $21 billion by the end of March, might be shy about unnecessary expenditures. Alas, that's not the case, as it appears Prime Minister Stephen Harper and his colleagues would rather hand out cash to corporate Canada instead.

In just the first two weeks of January, the prime minister announced another $250 million for the Automotive Innovation Fund -- a federal subsidy program that provides the auto sector with taxpayer cash for research and development.

Then the prime minister announced $400 million for venture capital, mystifying those of us who thought it was fine to let private-sector angel investors risk their own cash, not that of taxpayers, on high-risk start-ups.

The recent taxpayer gifts are but the tip of the corporate welfare iceberg. Between 1994 and 2007, $202 billion was disbursed by all governments across Canada through subsidies to business.

Whenever politicians wish to shower taxpayer money around, predictable excuses are offered up in defence of crony capitalism.

One is that corporate welfare creates new economic activity, and thus extra jobs and new tax revenues. The prime minister trotted out a variant of this claim when he asserted that the previous $250 million dollop of taxpayer cash into the automotive fund "returned six times what the government has invested [into] the Canadian economy."

But if the prime minister actually believes that, then why stop at $250 million? Why not drop another $1 billion or more into that fund, given such supposed multiplier effects?

The claim of magical multiplication effects is akin to dropping $250 million in taxpayer cash from the top of the CN Tower onto pedestrians below.

Of course such soon-collected money will be pocketed and later spent; that cash might create temporary one-time increases in economic activity and spin-off benefits. And no doubt, some politician somewhere would point to the ensuing spending as evidence such economic development strategies work.

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  • 7. Strong, Stable Majority Government

    Majority governments are by definition strong and stable, so this talking point essentially means nothing. Do the Tories really think they'll win another majority by reminding us they already have one?

  • 6. The NDP's Illegal Union Donations

    Curious about the questionable campaign fundraising done by Tory ministers <a href="http://www.huffingtonpost.ca/tag/peter-penashue">Peter Penashue</a> and <a href="http://www.huffingtonpost.ca/news/dean-del-mastro">Dean Del Mastro</a>? Well the Conservatives have an answer for you. The NDP is much, much worse. While the <a href="http://www.huffingtonpost.ca/2012/08/27/ndp-union-sponsorship-donations-returned-elections-canada_n_1834802.html">New Democrats did pay back nearly $350,000 in sponsorship money from unions</a> after Elections Canada found the party guilty of violating campaign finance laws, that doesn't give the Tories the right to ignore legitimate questions about their own fundraising practices. Then again, why answer questions when you can just blame the other guy?

  • 5. Alexandre Boulerice's Separatist Past

    When NDP MP Alexandre Boulerice asks the government something in question period he usually already knows the Tories' answer. 'Remember when you were a separatist?' <a href="http://cnews.canoe.ca/CNEWS/Politics/2012/06/08/19854701.html">Boulerice has long since admitted he used to sympathize with separatists</a> and it's time for the Tories (we're looking at you Pierre Poilievre) to let this one go.

  • 4. Liberals Are The Only Ones To Be Found Guilty Of Misleading Robocalls

    Instead of answering questions about allegations of misleading robocalls during the 2011 election, the Tories generally pivot and remind people the <a href="http://www.huffingtonpost.ca/2012/08/24/liberal-robocall-fine-guelph-crtc_n_1827915.html">Liberals are the only party that has actually been found guilty of phone-call shenanigans</a>. While this is true, it doesn't erase the fact that <a href="http://www.huffingtonpost.ca/news/robocalls-scandal">Elections Canada's investigation seems to have a fair bit to do with the CPC</a>. Canadians deserve to know what really happened on election day, but the Tories seem content to remind us of their rival's misdeeds. Let's hope all that ends in 2013.

  • 3. No Money Has Been Spent On The F-35 Acquisition

    No answer regarding the <a href="http://www.huffingtonpost.ca/news/f-35">now-scuttled acquisition of the F-35</a> is complete without reminding the audience that no money has been spent on the purchase. Well, as long as you don't count <a href="http://news.nationalpost.com/2012/06/05/opposition-parties-hammer-conservative-government-over-f-35-press-conference-that-cost-taxpayers-47000/">all the cash spent on the flashy press conference in 2010 when Peter MacKay got to sit in the cockpit</a> right? Wouldn't it be more accurate to say plenty of money has been spent trying to replace Canada's ageing CF-18s, it's just that none of it has actually been on new planes? The Tories aren't fooling anyone here. It's time to admit mistakes were made.

  • 2. One Of The Strongest Economies In The Developed World

    Concerned about a housing bubble? Worried about Canada's shift toward a more resource-based economy? Put those fears to rest, things are much worse everywhere else. At least, that's what the Tories keep telling us. But are they really? Two problems: 1. Were the Tories responsible for the relative stability of Canada's banking system after the crash? Not so much. The <a href="http://m.theglobeandmail.com/report-on-business/top-business-stories/ban-on-bank-mergers-helped-canada-withstand-crash-imf-says/article4600686/?service=mobile">IMF has credited regulations introduced by former Liberal finance minister Paul Martin in the 1990s</a>. 2. Things are now <a href="http://www.huffingtonpost.ca/2012/12/01/canada-us-economy-gdp_n_2220164.html">better in the U.S., at least in terms of GDP growth, than they are here</a>. The U.S.'s GDP grew nearly 5 times faster than Canada's in the third quarter of 2012. It's time for the Tories to admit that while Canada weathered the economic crisis well, the country now faces new problems that will require new solutions and not more tired talking points.

  • 1. Job-Killing Carbon Tax

    Even though the <a href="http://www2.macleans.ca/2012/09/21/a-rough-guide-to-the-conservatives-carbon-tax-farce/">NDP has never proposed a carbon tax</a>, the Tories continue to hammer this talking point home every chance they get. Got a question about the F-35? Remind them about the carbon tax. Allegations of misleading robocalls? Did we tell you about the carbon tax? The phrase has become such a predictable refrain that it has <a href="http://www.huffingtonpost.ca/2012/11/08/conservative-ad-carbon-tax-video_n_2092524.html">inspired one of the most dangerous drinking games in Ottawa's history</a>. Let's hope this one evaporates in 2013.


But the relevant question is where the money originated in the first place and whether such a "helicopter" approach to economic development is the best use of tax dollars.

Such scattering of tax dollars to the wind ignores the substitution effect. That is where tax dollars must be taken from others (i.e. through personal and business taxes) to finance the new round of crony capitalism.

The economic literature on subsidies and the substitution effect is clear: had such dollars been left with individuals and businesses (or un-borrowed), that money would have been spent elsewhere or saved and invested.

That too would have created economic activity, jobs, and eventually tax revenues for governments. It would have occurred without the inefficient recycling of tax dollars through the political picking of corporate welfare winners -- and losers.

As one American expert on corporate welfare, Terry Buss, described it, the hidden victims of crony capitalism are businesses not on the take and taxpayers in general. Problematically, wrote Buss, "Potential losers are always in other cities or states, and few people concern themselves with the national interest."

Sometimes politicians will admit that crony capitalism is an economic shell game. Still, they and others will defend it on the grounds that other governments subsidize business, so Canadian politicians play the same subsidy game.

Except that not everyone does it. Sometimes, politicians choose differently.

In 1996 under then Premier Ralph Klein, the Alberta government passed the Business Financial Assistance Limitation Act to stop most loans, loan guarantees and outright subsidies to business (the exception being small businesses). That came after $2.2 billion in government loan guarantees to various businesses went sour.

In New Zealand, the government long ago stopped subsidizing farmers.

More recently, the Saskatchewan government ended the lucrative film tax credit (which cost the province $100 million over the years).

Saskatchewan did so over the wrong-headed objections of some business organizations, such as the Saskatchewan Chamber of Commerce. (The Chamber should prefer more neutral business taxation as opposed to having government pick winners and losers, whether through tax credits or through direct subsidies.)

Where pressure exists to subsidize companies or to engage in unproductive tax credit schemes, one antidote is to toughen up existing free-trade agreements to end such abuses of taxpayers and their money. The very point of free-trade agreements is the pursuit of a level playing field and more economic growth for all.

After all, why should taxpayers (and their money) from any city, province or country be dragged into the competition between corporations? Let companies duke it out without taxpayers being forced into the ring.

 
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