In the land of government plenty 鈥� that vast landscape populated with 91原创 tax dollars 鈥� there is no shortage of politicians willing to hand out and defend subsidies to business, and no dearth of corporations willing to take the cash.
Bombardier Inc., which recently announced it would lay off 1,700 people, has been one chronic seeker and a regular recipient of such taxpayer assistance. The Montreal-based aerospace company is a useful example of corporate welfare in action, the tax dollars at stake and the regular, inflated claims about the beneficial effects of such subsidies.
Bombardier鈥檚 corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from Industry Canada. In the decades since, various Bombardier iterations received more than $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.
Most of the money, excepting $55 million in grants, came in the form of 鈥渃onditionally repayable contributions鈥� 鈥� conditional loans where repayment depends on the performance of a particular project.
That $1.1 billion does not include tax dollars received from any other federal department or other governments, including in Ontario, Quebec and even Great Britain ($298 million in the latter case). But if taxpayers wish to know how much money has been paid back of just the amounts above, they鈥檙e mostly out of luck.
Publicly, Bombardier claims it has repaid $275 million on two government loans originally worth $187 million. That ignores the dozens of other disbursements and much larger amounts lent to the company.
Some other scraps of information are available, though. In 2008, Industry Canada鈥檚 department performance report noted a $108-million loan guarantee writeoff. The department did not specify which company benefitted when taxpayers covered the loan, but media reports noted it was for government guarantees connected to Bombardier鈥檚 turboprop aircraft.
Beyond such glimpses, my access-to-information requests to Industry Canada are regularly returned with the repayment records of most companies (not just Bombardier) blacked out. Under the Access to Information Act, the department must withhold such information if a company might suffer financial loss or have its competitive position undermined.
There are even larger corporate welfare recipients than Bombardier, however. For example, Pratt & Whitney has garnered $3.3 billion from Industry Canada since 1970.
Despite the multiple claims for subsidizing businesses with tax dollars 鈥� higher economic growth, more jobs and extra tax revenues 鈥� justification for such corporate welfare wilts when examined closely.
For instance, one of the world鈥檚 foremost experts on business subsidies, Prof. Terry Buss of Pennsylvania鈥檚 Carnegie Mellon University, has noted how the various claims often result from correlation-causation errors. (That the rooster crows and the sun rises does not mean the former caused the latter.)
Also, government and industry studies that promulgate such myths fail to account for how 鈥済ains鈥� to one region are necessarily offset by losses elsewhere.
The simplest example of this substitution effect occurred in 1986, when Industry Canada helped pay for the construction of a new fish-processing facility in Quebec at a cost of $2.2 million. The justification was that an additional 250 jobs would be created when the new plant opened its doors. However, as the auditor general noted in 1995, the nearby existing fish-processing facility (which also received federal subsidies) soon closed with job losses equivalent to those created by the new market entrant. Net employment gains were zero because jobs were transferred 鈥� not created.
There is nothing contradictory about wanting Bombardier, Pratt & Whitney or other businesses to thrive and yet opposing taxpayer subsidies based on the empirical evidence. Corporate welfare is costly, and taxpayers don鈥檛 need to be continually dragged into corporate battles for market share.
Mark Milke is a senior fellow with the Fraser Institute.
