Canadians who don’t regularly track how governments spend money might be surprised to learn how myths crop up about government expenditures.
Exhibit A is a new report that claims Canada needs even more “industrial policy,” academic lingo for subsidies to business, and this as if governments had not already long practised such policy, and at a considerable cost to taxpayers.
Industrial policy is more colloquially known as corporate welfare. Proponents dislike that term, as “industrial policy” sounds more technical and smart.
Space does not permit a full analysis of the Institute for Research on Public Policy report, which urges Canadian governments to enact a “strategy” on corporate welfare. (To be fair, the report acknowledges problems with and critiques of the practice.) Let me instead point out that peer-reviewed, academic research on business subsidies casts doubt on the many claims proponents offer up in defence of the practice.
One of the more comprehensive analyses is from Terry Buss, a professor in Australia and formerly with the World Bank. In a review of studies that support industrial policy, Buss found most were industry-sponsored and/or never peer reviewed, and thus lacked scientific rigour. That led to correlation-causation errors and faulty claims of increased investment and employment.
Such studies, Buss writes, are “based on poor data, unsound social-science methods [and] faulty economic reasoning.”
He concludes such reports, “cloaked in the legitimacy of what appears to be scientific and economical [rationale], provide politicians and practitioners with justification to award political favours without appearing to be political.”
Back to on-the-ground practice in Canada. With the exception of Alberta, where subsidies have been mainly abandoned since 1996 after a disastrous $2.2-billion loss on 1980s loan guarantees to business, most Canadian governments are too eager to send tax dollars to corporations. (My 2009 report found Canadian governments spent more than $200 billion on capital and operating subsidies to business in a 14-year period.)
In contrast, governments are less eager to be frank about the cost of corporate welfare, including chronic government failure on collecting on loans.
Not all of the taxpayers’ cash given to companies is paid back. Industry Canada’s internal reports reveal its repayment forecasts are routinely revised downward.
A 2005 analysis was prepared for Industry Canada by a consultant, who noted “repayments are typically less than originally forecasted.” The consultant informed Industry Canada its original repayment estimates “totalled about $4.3 billion, while the current repayment estimates total about $2.4 billion, or 55 per cent of the original aggregated estimates.”
In another example of non-transparency, since 2008, cabinet ministers and MPs from the Harper government have announced $550 million in funding from Industry Canada’s Strategic Aerospace Defence Initiative, the main program for dispensing taxpayer cash to the aerospace industry. The accompanying media releases claimed the $550 million given to aerospace companies was in the form of “repayable contributions.”
That language, wrongly, gives the public the notion that such loans are guaranteed to be repaid one day.
In fact, the funds disbursed were “conditionally repayable contributions,” in the accurate legal language.
The “conditional” descriptor is critical; companies that receive conditionally repayable contributions don’t necessarily have to pay them back. Repayments depend on a variety of factors, known only to departments and recipients.
If the Harper government included the “conditional” word in its public statements, it might flag how billions in taxpayer dollars are sent out with only a chance of a partial return.
Canada’s governments have never taken a breather in “industrial policy” and the call for more of it is ill-advised, strategic or not.
Besides, the Harper government is rather non-transparent about the chronic corporate welfare already practised by it and previous federal governments.
Mark Milke is a senior fellow at the Fraser Institute.
