Rahim Jaffer’s Corporate Welfare Habit: Only 10% of corporate welfare gets repaid

Worth A Look, Public Sector, Frontier Centre


Regardless of what one thinks about Rahim Jaffer’s post-Parliament activities, or his recent testimony about assertions he improperly lobbied former colleagues, few people have noted an obvious point: someone first elected as a fiscally conservative Reform MP in 1997 was eagerly after millions of dollars in taxpayer money. Corporate welfare has been so normalized in Ottawa that it seems the only criticism is of how one gets such cash, not the subsidy seeking behaviour itself.   
Subsidies to business have a long history. Provincial New Democratic governments in British Columbia and Ontario did so in the 1990s; Progressive Conservatives in Alberta gave out tax dollars and loan guarantees in the 1980s and early 1990s—the latter of which cost the province $2.2 billion once many loan guarantees went sour; federal Liberals subsidized plenty of corporations when in power; the Conservatives hand over billions now—to aerospace, automotive, energy, and to the bio-fuel industry, a relative newcomer to the corporate welfare game.
The excuses for corporate welfare are as plentiful as the cash. Corporate welfare is said to create or preserve jobs, to draw investment and to even increase tax revenues. One of the more popular excuses is that “investments” by governments (in the case of repayable loans) take time to be repaid given the long project development time, say of an airplane or new automobile.
The question should be asked about why taxpayers in Canada must be drafted into supporting the aerospace, automotive, energy and other sectors? We should also ask why taxpayers in the U.S., Brazil, France, South Korea and elsewhere must be roped into such corporate battles. Here’s a novel idea: How about governments give all of us a break and not yank us into such “investments”? Free trade agreements have cut down tariff walls over the decades. Why not a serious international attempt to cut down subsidies?
Those remedies aside, let’s examine, domestically, the claim that taxpayers will eventually receive their money back. Not if past history is any guide. In an Access to Information request filed with Industry Canada, this author found that out of $18 billion paid out by the department between 1982 and 2009 (most of it to business) total repayments equal less than $1.9 billion, or about 10.4 per cent.
Even if one strips out the straight grants given out by Industry Canada (just over $1.1 billion out of the $18-billion), a repayment record of $1.9 billion out of $16.9 billion is still just 11.2 per cent.  If such loans are really to be considered “investments” on our behalf, you’d think many of the older, early loans to corporate Canada would have been repaid in spades by now. But no such luck. Repayment records over the decades show depressingly familiar pattern: little and late.
Similarly, none of the other claims in defense of corporate welfare stand up to serious scrutiny. The best studies on the matter—peer-reviewed academic reports not produced at the behest of a particular industry—routinely disparage the practice.
For example, economist D.K. Lee argues that despite their popularity, studies that purport to show a benefit from “targeting”—another term for corporate welfare—have never been scientifically validated. Another economist who writes extensively on subsidies to business, Terry Buss, argues industry studies that claim economic benefits from corporate welfare often violate basic economic reasoning and use unsound methodologies and faulty data.
He asserts—here’s a shocker— that such made-to-order reports produced for companies in pursuit of government cash result in inappropriate political interference in the market. He also points out such subsidies benefit some at the expense of others–again, no surprise; when governments pick winners they make losers out of the competitors who don’t receive the taxpayer cash.
Buss argues that perhaps this is why industry studies are not published in professional economic, social science, or policy studies journals but only appear as unpublished consultant reports, details of which he argues are rarely disclosed, are simplistic and employ meaningless measures. But the excuses for corporate welfare are churned out by the truckload despite how, as Buss also notes, they exclude  inconvenient data, produce conflicting and meaningless targets, exaggerate benefits claims, often double-count and fail to consider opportunity costs.
Still, despite all that, if one can convince a government that your favourite sector should be subsidized, the tens of billions of dollars that flow will attract plenty of lobbyists, registered or otherwise. No one should be surprised that a former Reform/Conservative Member of Parliament might be among them.