Corporate welfare flourishes in lean times

Posted on September 22, 2012 in Policy Context

Source: — Authors: – opinion/editorialopinion
September 13, 2012.   By Carol Goar, Editorial Board

For five years, Mark Milke, a senior fellow at the Fraser Institute, has been churning out highly critical reports on “corporate welfare.”

The right-wing Albertan is an odd successor to former New Democratic Party leader David Lewis, who launched the crusade 40 years ago. Milke is not motivated by a desire to invest in social programs, redistribute wealth, give labour a larger share of the pie or move toward a planned economy. His primary goal is tax relief.

But he is a skilful researcher who uncovers information governments would prefer to keep hidden.

His latest report, released this week, focuses on a single federal department: Industry Canada. Between 1982 and 2012, it spent $13.7 billion on grants and loans to business. The vast majority of these loans were not repaid. A mere 0.1 per cent of the interest owed on these loans was ever collected.

No business would get away with this in the private financial market. Its credit rating would plummet. Its ability to raise capital would dry up.

What makes it worse, Milke says, is that there is no credible evidence Canadians benefit from this taxpayer largesse, although generations of political leaders have made that claim. “Peer-reviewed research on business subsidies does not support the oft-heard claims that corporate welfare is responsible for widespread economic growth or job creation,” he says.

So who gains from his long-entrenched practice? The big winners, obviously, are the recipients of government subsidies. But there are other beneficiaries: vote-seeking politicians who want to look like they’re “doing something” for the economy and lobbyists who make a bundle vying for a share of the spoils for their corporate clients.

Who loses? Taxpayers top Milke’s list; it’s their money that is being doled out. Other losers include companies trying to compete without subsidies, innovators trying to carve out a niche in a skewed market and consumers who pay inflated prices.

He acknowledges that it might seem odd that the Fraser Institute — the country’s most vocal champion of free enterprise — is also its most persistent critic of subsidies. But the think-tank has always argued that competition is superior is “corporatism,” Milke contends. And it has always maintained that what’s good for one business is not necessarily good for capitalism, the economy, employment or democracy.

Regardless of Milke’s motives, he is providing Canadians with a valuable service. He does the laborious paperwork to get information bureaucrats attempt to withhold citing privacy and commercial confidentiality. And he uses it to show taxpayers how billions of their dollars end up in the coffers of private corporations.

To his credit, he is also an equal-opportunity tormentor. His latest publication spans the tenures of four Liberal and three Conservative prime ministers. He goes after them all with the same zeal.

To put Corporate Welfare Bargains at Industry Canada in context, it focuses on one piece of a very big puzzle. Ottawa, the provinces and the municipalities spent $202 billion on business subsidies between 1994 and 2007, according to Milke’s previous reports. But this bird’s-eye view obscures the telling details, so he decided to take a close look at one agency — Ottawa’s principal source of subsides for the aerospace, automotive, high-tech, shipbuilding and tourism sectors. This would allow him to show Canadians how the process works and let them judge whether they’re getting their money’s worth.

Industry Canada is by no means the only cash dispenser in Ottawa. At east eight other federal departments — defence, natural resources, aboriginal affairs, infrastructure, fisheries, public works and public safety — hand out corporate subsidies. But it does play a pivotal role.

On the basis of his analysis, Milke ventures three conclusions:

• The term “repayable contribution,” which governments use to describe the majority of business subsidies, is misleading. Most of these loans aren’t repaid.

• Politicians don’t have a shred of proof that corporate subsidies create jobs and growth. Yet decade after decade, they offer this justification.

• Governments make it next to impossible for taxpayers who want their money used in more productive ways — or not collected in the first place — to mount a challenge. By withholding information, they prevent outsiders from doing a cost-benefit analysis to question their use of public funds.

It is unlikely that Canadians would ever agree on the most productive use of their tax dollars. But there is a good chance they would agree handouts to Bombardier, Pratt and Whitney and Rolls-Royce aren’t the right choice.

Now, thanks to one dogged investigator, the facts are clear enough for reasoned public debate.

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