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Corporate welfare doesn't work and must end
The Province
Fri Jan 31 2014
Page: A18
Section: Editorial
Byline: Mark Milke
Column: Opinion

In the land of government plenty - that vast landscape populated with the tax dollars of Canadians - 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 thus 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's corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department of Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from Industry Canada alone. That includes two 2009 cheques worth $233 million.

Most of the money, excepting $55 million in grants, came in the form of "conditionally repayable contributions," conditional loans where repayment depends on the performance of a particular project. That $1.1 billion doesn't 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 repaid back of just the amounts above, they're 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 loaned to the firm.

Some other scraps of information are available, though. In 2008, Industry Canada's department performance report noted a $108.4-million loan guarantee write-off. The department didn't specify which company benefitted when taxpayers covered the loan, but media reports noted it was for government guarantees connected to Bombardier's 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 federal Access to Information Act, the department must, legally, withhold such information if a company might suffer financial loss or have its competitive position undermined. In addition, Bombardier has also filed in Federal Court to prevent access to such numbers.

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 - higher economic growth, more jobs and extra tax revenues - justification for such corporate welfare wilt when examined closely. For instance, one of the world's foremost experts on business subsidies, Terry Buss of Heinz College, Carnegie Mellon University, has noted how the various claims often result from correlation-causation errors. (That the rooster crows and the sun rises, doesn't mean the former caused the latter.)

Also, the government and industry studies that promulgate such myths fail to account for how "gains" 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 - not created - at the cost of taxpayer subsidies.

Corporate welfare isn't inevitable as policy. In the 1990s in Alberta, after a plethora of loans and loan guarantees signed during the Peter Lougheed years went south, leaving taxpayers with a $2.2-billion loss, former premier Ralph Klein's then-government decided it was out of the business of being in business. It was a pledge and a legislature-approved policy to which the Klein government mostly stuck.

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't need to be continually dragged into corporate battles for market share.
Mark Milke is a senior fellow at the Fraser Institute and author of Tax Me I'm Canadian! A Taxpayer's Guide to Your Money and How Politicians Spend It.

Mark Milke
Senior Fellow
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Thursday, January 30, 2014


I must comment on your interview with Gordon Price, who is perceived by many as a transit expert, he is not and not even close. Mr. Price is a graduate City Planner and has very little knowledge of transport mode and its application and operation.

I must state that I am not a transit expert but a layman, who has over the past 30 years have consulted with transit professionals about metro, light-metro and light rail. I was also the chap who was responsible for organizing the Rail for the Valley Leewood report about reinstating the the Vancouver to Chilliwack interurban.
I was once on your radio program in your 'NW days.
So let's look at the transit situation today. SkyTrain is a vintage proprietary railway, which after being on the market since the late 1970's has managed to sell only seven such systems under four different names (ICTS; ALRT; ALM; ART)and only three are seriously used for regional transit, with the other four being a demonstration line and or an airport/theme park people movers, all overseas SkyTrains financed in part by the government of Canada. The vehicle and technological patents for the SkyTrain system are held by SNC Lavalin and Bombardier.
The Canada Line is not really a SkyTrain at all but a $2.5 billion dumbed down heavy-rail metro, built as a light metro and as built has less capacity than a streetcar costing a fraction to build! The Canada Line is also incompatible in operation with the rest of the SkyTrain mini-metro system.
Mr. Price made much hay about the "90 second headways", to which I say; "so what", most European LRT/tram systems operate at 30 second headways during peak hours! SkyTrain's 90 second headways are necessary due to the small cars and small stations which demand short headways to be able to keep up to traffic loads. As an aside, the Canada Line has very small station platforms and was at capacity when it was completed!
Today, it is recognized by transit professionals,(but not Mr. Price or SFU) that modern LRT does indeed have a higher capacity than SkyTrain, that's why no one builds with SkyTrain today!
SkyTrain does indeed carry high ridership, but over 80% are bus passengers forced to transfer from bus to SkyTrain, about twice the industry standard, which conveys the message that SkyTrain's ridership is a forced ridership which is definitely not how you attract new ridership. With the proliferation of a 110,000 U-Passes for post secondary students it is easy to see that our transit system is at capacity on major routes, but with cheap fares, TransLink is going broke carrying the extra loads brought about by the U-Pass.
From 1994 to 2011 the mode share in the Metro Vancouver region has remained unchanged at 57% and transit ridership has increased a mere 3%, hardly a great selling point after an over $9 billion invested in rapid transit.
SkyTrain, with it's puny streetcar sized stations with 80 metre platforms means the mini-metro has met its maximum capacity of about 15,000 persons per hour per direction (the Canada line has 40 to 50 metre station platforms and effectively has about half the capacity!) meaning a Skytrain subway under Broadway will not have the capacity as claimed by the city of Vancouver, TransLink and Mr. Price unless every station platform is increased to 120 metres or more in length which will push the cost for a Broadway subway to near $5 billion! No wonder the SkyTrain Lobby wants road pricing and all the tax revenues they can get their dirty little hands on.
Calgary's LRT has platform lengths of 120 metres, enabling them to operate longer trains and the Ottawa LRT will also have 120 metre platforms, which are designed to be easily expanded to 150 metres, in fact the tram subway in Ottawa already has 150 metre platforms!
I am tired by academics pretending to be transit experts trying to sell dated planning, using dated Skytrain as something wonderful. All I think what Mr. Price wants, is to keep his speaking engagements calendar open for as many dates as possible selling what is tantamount to, is an Edsel.
Malcolm Johnston
Rail for the Valley