91原创s who don鈥檛 regularly track how governments spend money might be surprised to learn how myths crop up about government expenditures.
Exhibit A is a new report that claims Canada needs even more 鈥渋ndustrial policy,鈥� academic lingo for subsidies to business, and this as if governments had not already long practised such policy, and at a considerable cost to taxpayers.
Industrial policy is more colloquially known as corporate welfare. Proponents dislike that term, as 鈥渋ndustrial policy鈥� sounds more technical and smart.
Space does not permit a full analysis of the Institute for Research on Public Policy report, which urges 91原创 governments to enact a 鈥渟trategy鈥� on corporate welfare. (To be fair, the report acknowledges problems with and critiques of the practice.) Let me instead point out that peer-reviewed, academic research on business subsidies casts doubt on the many claims proponents offer up in defence of the practice.
One of the more comprehensive analyses is from Terry Buss, a professor in Australia and formerly with the World Bank. In a review of studies that support industrial policy, Buss found most were industry-sponsored and/or never peer reviewed, and thus lacked scientific rigour. That led to correlation-causation errors and faulty claims of increased investment and employment.
Such studies, Buss writes, are 鈥渂ased on poor data, unsound social-science methods [and] faulty economic reasoning.鈥�
He concludes such reports, 鈥渃loaked in the legitimacy of what appears to be scientific and economical [rationale], provide politicians and practitioners with justification to award political favours without appearing to be political.鈥�
Back to on-the-ground practice in Canada. With the exception of Alberta, where subsidies have been mainly abandoned since 1996 after a disastrous $2.2-billion loss on 1980s loan guarantees to business, most 91原创 governments are too eager to send tax dollars to corporations. (My 2009 report found 91原创 governments spent more than $200 billion on capital and operating subsidies to business in a 14-year period.)
In contrast, governments are less eager to be frank about the cost of corporate welfare, including chronic government failure on collecting on loans.
Not all of the taxpayers鈥� cash given to companies is paid back. Industry Canada鈥檚 internal reports reveal its repayment forecasts are routinely revised downward.
A 2005 analysis was prepared for Industry Canada by a consultant, who noted 鈥渞epayments are typically less than originally forecasted.鈥� The consultant informed Industry Canada its original repayment estimates 鈥渢otalled about $4.3 billion, while the current repayment estimates total about $2.4 billion, or 55 per cent of the original aggregated estimates.鈥�
In another example of non-transparency, since 2008, cabinet ministers and MPs from the Harper government have announced $550 million in funding from Industry Canada鈥檚 Strategic Aerospace Defence Initiative, the main program for dispensing taxpayer cash to the aerospace industry. The accompanying media releases claimed the $550 million given to aerospace companies was in the form of 鈥渞epayable contributions.鈥�
That language, wrongly, gives the public the notion that such loans are guaranteed to be repaid one day.
In fact, the funds disbursed were 鈥渃onditionally repayable contributions,鈥� in the accurate legal language.
The 鈥渃onditional鈥� descriptor is critical; companies that receive conditionally repayable contributions don鈥檛 necessarily have to pay them back. Repayments depend on a variety of factors, known only to departments and recipients.
If the Harper government included the 鈥渃onditional鈥� word in its public statements, it might flag how billions in taxpayer dollars are sent out with only a chance of a partial return.
Canada鈥檚 governments have never taken a breather in 鈥渋ndustrial policy鈥� and the call for more of it is ill-advised, strategic or not.
Besides, the Harper government is rather non-transparent about the chronic corporate welfare already practised by it and previous federal governments.
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Mark Milke is a senior fellow at the Fraser Institute.
