Corporate Canada and Our Fiscal Life-Jackets

Commentary, Role of Government

Since the age of industrialization, companies have soared and crashed for a variety of reasons.

Chimney sweeps in England were mostly put out of business with the advent of electric heat and less coal usage. Horse and buggy makers were deposed by Henry Ford who built the automated buggies we now call automobiles.

Change is inevitable. But so too apparently is the political impulse to intervene to fix what is unfixable: companies that make products, which not enough people will buy at the price now offered.

Enter federal Finance Minister Jim Flaherty. When Flaherty is not busy preparing Canadians for the return of deficits — this thanks to his government’s overspending binge — he’s busy prepping us for a likely bailout of the automotive sector, which will only deepen the scarlet in his future red-ink budgets.

This past week, Flaherty said even his own Ontario riding constituents don’t care for such schemes. He should listen. Unfortunately, in the same breath, Flaherty said money is available for what he called “transformational” support for the auto sector.

Too bad such “transformations” rarely occur precisely because such bailouts help corporate Canada avoid tough choices. That includes slimming, cuts to excessive pay and benefits packages on the assembly line that most Canadians can only dream of, merging, or bankruptcy court when the first two options are not chosen.

Such “transformation” financing has occurred before and with predictable results: good money chases after bad management or lousy markets. As the Canadian Taxpayers Federation pointed out this week, General Motors, Ford, and Chrysler, have received or been promised $782-million from Canadian taxpayers since 2003 alone. That doesn’t include previous public money. Apparently trough-seeking is addictive.

As an example of how dumb it is to send more public money to poorly performing companies, recall how in 2004 Ottawa provided $100 million to Ford to build a factory in Oakville, Ont. Two years later, Ford announced plans to shutter 14 plants across North America. Back then, Ford said it would eliminate up to 30,000 jobs, some of those in Canada, and including 215 workers in Oakville.

As everyone except North Korea’s great leader now knows, the world’s financial situation has only deteriorated since 2006. But the auto sector yet wants more “help” so it can take public money with one hand and hand out pink slips with the other.

It’s regrettable when any company fails and employees lose their jobs. But that’s why unemployment insurance, re-training allowances, and student loans exist: to help people transition into a new life. Corporations will always rise and fall; they shouldn’t be given help to grab life-jackets from the rest of us on the way down.

Between 1980 and 2005, in just the top three industries (retail, construction and food and accommodation services) 174,655 businesses went bankrupt in Canada, with an innumerable number of employees who were forced to find new work. No doubt they would have liked government help. That would be folly. Such support would have only knee-capped other, healthier businesses and their employees.

Which is why among the many good reasons not to bail out any business, the impossibility of “rescuing” a particular company from a slump in demand is one of the best.

A bailout will only allow for an extra supply of automobiles, which consumers either don’t want or can’t afford. Do that and every automobile company will hurt. Layoffs that might not take place at General Motors will instead occur at Toyota. It’s akin to the problems created in U.S. airline business where airlines can enter a temporary bankruptcy stage, reorganize, come back and thus continue to flood the market with too many seats. If the number of airlines permanently shrank, there would be fewer problems with profitability. It’s the same in the automotive sector.

Bailing out automobile giants in 2008 is no smarter than what Alberta’s politicians did in the 1980s when more than $2.3 billion was eventually lost because of government loans and loan guarantees to businesses, all in a failed attempt to rescue specific companies.

Politicians who engage in corporate welfare force the wider public to pay the bill for bad management or collapsed demand. Unfortunately, the invoices for such “help” are then sent to everyone, and usually when their own bills and layoff notices arrive.