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Larding it on the bottom line

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CALGARY -- Question: If someone made $62,000 last year, had $187,000 in their bank account, and yet sought a $5,360 subsidy from government, what would the common sense response be? Most people would say that person possesses chutzpah -- albeit a rather costly form of the affliction for taxpayers if the government granted the request.

But such subsidy-seeking is routine in parts of corporate Canada. In the above example, I simply personalized the financials of General Motors (its parent company): $6.2 billion in income last year and $18.7 billion in cash-on-hand. Yet, over the years, the federal department of Industry has given GM $536 million, not including the federal and Ontario tax dollars from the 2009 automotive bailout.

Of course, comparing income and cash-on-hand from the most recent year with past taxpayer subsidies is not a perfect comparison. In some years, GM was not profitable, especially during the last recession. But it still demonstrates the generally weak case for subsidies to business. In most years, corporations have decent profits and cash-on-hand; they don't need help from taxpayers.

More broadly, according to a recent Access to Information request I made to Industry Canada, between 1961 and 2013, thousands of small, medium and large businesses in Canada received $22.4 billion in grants, loans and other subsidies (all converted to 2013 dollars -- thereby accounting for inflation).

Of that $22.4 billion, almost $8.5 billion went to just 10 corporations: Pratt & Whitney Canada Corp ($3.3 billion), Bombardier Inc. ($1.2 billion), de Havilland (almost $1.1 billion and since folded into Bombardier), CAE Inc. ($652 million), General Motors of Canada ($536 million), Bell Helicopter ($410 million), Groupe Mil Inc. ($394 million), Honeywell ASCa Ltd. ($321 million), CMC Electronics ($309 million), and Litton Systems Canada ($307 million).

Group the companies together, and with the exception of Groupe Mil (no longer around) and de Havilland (submerged into Bombardier), the other eight top recipients of taxpayer cash (or their parent companies) showed profits of almost $17.1 billion. Their cash-on-hand amounted to almost $33.4 billion.

So why did one federal department, Industry, disburse almost $8.5 billion to 10 corporations which don't need the money?

The answer, from a corporate perspective: Why not?

Even if a company is flush with cash, why not buff up the bottom line if some politician is willing to use the public treasury to support your company?

And of course, corporations are happy to play one province or country against another, as politicians "buy" jobs for their region.

But there is a deeper, almost tectonic force at play -- the change in attitudes about what the state should do.

In the late-19th century, German chancellor Otto von Bismarck created what we now call the welfare state, mainly for universal health care and old age pensions. Compared to today, those were pretty modest and arguably defensible aims for a government.

Since Bismarck's time, the welfare state has grown into something much more, something more accurately labelled as the "entitlement state." Thus, these days, corporate heads, on-the-take for decades, continue to demand subsidies from governments (i.e. Chrysler's recent ask for $700 million from Ontario and the federal government).

Meanwhile, the leaders of government employee unions demand taxpayers pay for pension benefits negotiated decades ago when people lived shorter lives -- pensions that are far more generous than anything most taxpayers will ever see.

From corporation heads to union presidents, the welfare state has been replaced by the entitlement state. It's the newest and most prevalent form of chutzpah.


Mark Milke is a senior fellow at the Fraser Institute.

@Milke.Mark

 

Republished from the Winnipeg Free Press print edition June 3, 2014 A9

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