Take the Money and run: Bombardier and our taxpayer cash

"They got the money, hey/You know they got away/They headed down south/and they're still running today."

Take the Money and Run, the Steve Miller Band, 1976

In the Orwellian language of corporate-speak, Airbus's chief executive officer Tom Enders described the recent deal between his company and Bombardier Inc. on the C Series airliner as a "win-win for everybody!"

Not exactly, for taxpayers, but some context for those who missed the details: Montreal-based Bombardier just inked a proposal with Paris-based Airbus, to bring the company into the C Series Aircraft Limited Partnership. That company will, assuming the deal is approved by shareholders, be owned by three parties: Airbus (50.01 per cent), Bombardier (31 per cent) and Investissement Québec (19 per cent), give or take a decimal point.

The benefit for Bombardier is that part of its C Series production will thus happen at Airbus facilities in Alabama.

That will blunt the intended punitive tariffs of nearly 300 per cent that were soon to be imposed by the U.S. Commerce department on Bombardier jets; that related to allegations from Boeing that Bombardier was unfairly subsidized by Canadian governments.

For those unaware, Investissement Québec is Quebec's provincially owned "investment" agency. It deposited $1-billion (U.S.) in this same partnership just 16 months ago, for a 49.5-per-cent stake, while Bombardier held the remaining share.

The new agreement with Airbus, for no extra investment, thus substantially dilutes the share of both Bombardier and the Quebec government.

That injection of cash from Quebec taxpayers came in addition to other taxpayer grants and loans over the decades. From what can be found and totalled, Bombardier's first disbursement from the federal government arrived in 1966. In the decades since, and including merged companies and adjustments for inflation to arrive at consistent dollar figures, about $4.1-billion (Canadian) has been granted, lent or "invested" by the federal government.

That includes $350-million announced in 2008 by the Conservative government for the C-Series program and $372.5-million this past February by the Liberal government, with part of that funding also for the C Series.

No one who reads the academic, peer-reviewed economic literature on government subsidies to business can arrive at any conclusion other than what such literature routinely finds: When governments attempt to pick winners and losers with tax dollars, they inevitably lose money; the ostensible economic effects pointed to by subsidy supporters are almost always overstated; most "investment," "targeting" or attempts to build "clusters" – "super" or otherwise – merely displace capital flows, economic outcomes and employment and tax revenues from one jurisdiction to another; government attempts to game the market often end up with negative economic outcomes. The flight of part of Bombardier's taxpayer-subsidized C Series production to Alabama is only the latest example.

Taxpayer-financed incentives are, of course, merely another form of protectionism. So while Bombardier made this move to ward off the U.S. government's intended tariffs, the company itself can hardly complain given Canadian government support over the decades. The Boeing ploy was just tit-for-taxpayer-financed-tat.

One positive in all this: The Bombardier-Airbus deal finally rips away the pretense that corporate welfare is about domestic job creation.

Politicians, worldwide, have used taxpayers as a prop for their political and interventionist games at a cost to real people and over useful domestic priorities for such money, for decades.

For example, it is indefensible that Brazil, the poorest country among the jurisdictions that compete to subsidize the aerospace sector, spends tax dollars on "its" aerospace companies while richer countries such as France, Britain, the United States and Canada do the same for their so-called domestic companies.

Which points to a remedy: stronger free-trade agreements that ban taxpayer financing for corporations. That remedy would free up tax dollars for what should be domestic priorities. Here's one Canadian example: more defence spending for a military that has been neglected for decades.

The response to this is often that governments will never change course. That is simply untrue. The 1990s-era provincial governments of Mike Harris and Ralph Klein both dramatically reduced spending on corporate welfare.

Also, governments can co-operate on ridding the planet of unhelpful policy when they choose to. Internationally, as the OECD reported just last week, governments around the world are "rapidly dismantling harmful tax incentives worldwide," i.e., uneconomic preferential tax treatment.

In addition, since the 1940s, countries through various international bodies and agreements have steadily lowered tariffs and duties on each other's goods and services.

Point: Progress is possible, including on ineffective, unproductive subsidies that cost taxpayers, in every country, their money. The avenue to such an end is likely through strengthened free-trade agreement.

The Globe and Mail, October 19, 2017

Mark Milke is the author of multiple reports on subsidies to business



Mark Milke