Winnipeg Free Press - PRINT EDITION

Report on biz subsidies only part of the story

  • Print

Winnipeg's Buhler Industries -- Canada's last farm-equipment manufacturer -- got a dose of good news Tuesday when Export Development Canada approved a $20-million line of credit.

The announcement, at first blush, seems to be positive. Buhler is a prominent Winnipeg employer, with about 800 employees locally. The money helps Buhler expand overseas sales and keep Canada a player in the international farm-equipment market.

Not everyone sees it that way. The Vancouver-based Fraser Institute -- a conservative think-tank -- released a report the same day condemning government support to business.

The report revealed Ottawa has contributed $22 billion in loans and grants to Canadian businesses since 1961. No matter how you look at that number, it's pretty astounding. But what does it actually mean?

The Fraser Institute argues accepting grants or loans from government is a worst practice for Canadian business. In fact, it points out the gross majority of Canada's largest employers have never taken government largesse to get to where they are today.

'The companies with the highest employee counts -- most of which do not take subsidies -- are real-world examples of companies that have not needed taxpayer assistance to create jobs'

"Peer-reviewed research does not support many claims advanced by federal politicians and other proponents... that corporate welfare is responsible for economic growth or job creation," the report concludes. "In fact, the companies with the highest employee counts -- most of which do not take subsidies -- are real-world examples of companies that have not needed taxpayer assistance to create jobs."

To give credit where credit is due, this is a good subject to study and at its most basic level, there is some good stuff in the report. We cannot escape the fact there have been some bad investments by government in the private sector. However, as is so often the case with Fraser Institute research, this study fails in two profound ways.

First, it does not dig deeply enough into the subject matter to differentiate between good and bad investments; and second, it draws conclusions the findings don't support.

For example, the institute argues because most of Canada's largest employers do not accept corporate welfare, it is unnecessary. However, Canada has more than 18 million people in its workforce. At most, the largest employers who have shunned corporate welfare represent about 1.3 million jobs. It does not list the number of employees employed in companies that have accepted government loans and grants, nor does it attempt to assess the value of the companies, or the wages paid.

The study also fails to acknowledge many of our most profitable, high-value industries -- aerospace, oil and gas, automotive -- were established with government subsidies. The fact is economies do not care where a dollar of investment comes from. Economies are a blend of public- and private-sector investment. Canada is split fairly evenly, with about half of GDP generated by each of the public and private sectors. Nordic countries generate as much as 80 per cent of their GDP from public-sector activity; others such as the United States rely more heavily on the private sector for growth.

In empirical terms, however, a dollar invested, regardless of its source, produces growth. This is particularly true of employment; a dollar spent hiring a worker has the same impact regardless of whether it's public or private.

David Macdonald, chief economist for the Canadian Centre for Policy Alternatives, admits he is not a fan of government subsidies to business. That having been said, he also noted his dislike of this type of investment does not change the fact each dollar invested -- whether by government or a private company -- can produce about $1.50 in economic growth, Macdonald said. There are factors that limit the impact of the investment, he added.

Money spent on direct employment has the biggest economic return, Macdonald said. However, if the money is being used to buy building materials or machinery from outside the jurisdiction in which the investment is being made, the spinoffs are considerably less. This is what economists call "leakage."

The impact could also be eroded depending on whether the company is publicly traded, or privately owned. Or, whether the company is Canadian-owned and located, or multinational.

The Fraser Institute specifically fails to draw any of these lines in its analysis. Just as it fails to deal with the real elephant in this debate: tax cuts.

Remarkably, the institute admits it excluded "tax reductions, deductions, credits or exemptions" for businesses even while conceding "preferential tax treatment... mimics subsidies." That is, for the institute, an assertion too far.

If you created a list of potential government investments, with the ones that created the biggest economic bang at the top, tax cuts would go at the bottom. Tax cuts provide the biggest benefit to high-income earners, who tend to save money rather than spend it, which limits economic impact. The same is true for corporations. Cutting taxes for an already-profitable corporation may boost earnings, share prices and dividends, and that will benefit those lucky enough to own stocks in that company. But it leads to less growth.

Running through the narrative of the Fraser Institute's research is an assumption lower taxes and smaller government make for a better economy. In fact, lower taxes and smaller government mean better conditions for one segment of the population; it is much harder to make the argument this model makes for a better economy.

We are better off for knowing how much money Canada has spent providing grants and loans to businesses. We are still waiting for a more definitive verdict on what it really means.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 24, 2013 B5

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Tree remover has special connection to Grandma Elm

View more like this

Photo Store Gallery

  • A gosling stares near water at Omands Creek Park-See Bryksa 30 day goose challenge- Day 25– June 21, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • JOE.BRYKSA@FREEPRESS.MB.CA Local-(  Standup photo)-    A butterfly looks for nector on a lily Tuesday afternoon in Wolseley-JOE BRYKSA/WINNIPEG FREE PRESS- June 22, 2010

View More Gallery Photos

Poll

Which of Manitoba's new landlord-tenant rules are you looking forward to most?

View Results

View Related Story

Ads by Google