The Latest Federal Supercluster Screw-up

Commentary, Public Finance & Fiscal Federalism, Lee Harding

Governments always want to look like they are implementing good ideas and accomplishing important things. For the Trudeau government, the latest razzle-dazzle is the Innovation Superclusters Initiative (ISI). Here, the federal government will throw almost a billion tax dollars at non-profits to create jobs and profits and help Canadian companies dominate the world.

As crazy as it sounds, that is the ostensible reason for $950 million in federal spending over the next five years.

Of course, the ISI website frames the concept with fancier buzzwords: “The [ISI] is a new funding initiative designed to help strengthen Canada’s most promising clusters and accelerate economic growth in highly innovative industries…while positioning Canadian firms for global leadership.”

Ah, so these clusters already exist, but it takes the government to make them “super.” Hmm.  Go on.

“Their close geographic proximity can result in supply-chain benefits, encourage knowledge sharing and collaboration, drive competition and business specialization, and help to attract “anchor” companies from around the world.”

Hold it, hold it, hold it.

What bafflespeak places sharing, collaboration, and competition as contradictory and consecutive goals? And if specialization is such a good thing, will the federal government now please entirely abandon its Western Economic Diversification program, now that we should build on clusters, not diversity? Probably not, but let’s read on.

Point 3 says “The industry-led consortium must be represented by . . . a not-for-profit organization” though point 4 admits it can be a non-existent one, so long as it is made in time for the federal money to start flowing. Why not, since this non-profit will catapult a Canadian company to world leadership?

But wait! Point 5 says a company headquartered anywhere in the world can participate, so long as it is incorporated and active in Canada. Wow. Point 52 even opens the door for the intellectual property that is created to leave the country.

At least taxpayers can be consoled, knowing that all federal (read: taxpayers’) money will be matched by industry. Well, sort of. In reality 25 per cent of that “matching” dollar can be an in-kind contribution at fair market value as defined by the organization itself. Usually a market price includes taxes, it is doubtful these will result in something that would temper the sacrifice made by such contributions. The cash portion can also include private sector salaries, which includes CPP and EI deductions the government was going to get anyway. Amazingly, the matching funds don’t even have to be channeled through the Entity funded by the government.

Meanwhile the government money will also pay for just about anything these companies spend to fulfill the Contribution Agreement, including portions of salaries, supplies, room rental, materials, capital expenditures, and travel costs.

More than 50 applications were made for these sweepstakes, which included more than 1,000 businesses and 350 other participants. Every one of them had to articulate how it would increase female jobs and leadership and encourage diverse recipients in the long-term. Furthermore, the “Expert Reviewers” judging the proposals were themselves chosen by the government “in consideration of Canada’s diversity.”

Minister Navdeep Bains finished this politically correct process by hand-picking the nine finalists  himself. It should surprise no one that the Liberals have a stronghold or at least a foothold in all the finalist cities: Halifax, Montréal, Toronto, Vancouver, Calgary, and Regina. Bains will visit all the finalists to have sparkling public relations events, except for Regina, which, of course, features Ralph Goodale.

With five finalists to be chosen from these six cities, it would seem one of them will be doomed to disappointment, but maybe not. It turns out the geographic component of a cluster isn’t strict either. The “Clean, Low-energy, Effective and Remediated Supercluster,” purported to power clean growth in mining, lists Ontario, Quebec, and Vancouver as its location. Not to be outdone, the “Mobility Systems and Technologies for the 21st Century Supercluster” includes all three of these locations, plus Atlantic Canada! Imagine the political mileage the Liberals could get by naming this the coast-to-coast “cluster” winner.

For all its pretentious claims, the ISI is only the latest installment of the misuse of Canadian tax dollars to pick winners and losers in the marketplace. If the government really wanted to stimulate the economy in the long-term, it would abandon its corporate handouts, deficit spending, and its proposed tax changes to hassle and steal from small business. The innovation and entrepreneurship of Canadians will grow organically if the government doesn’t kill all incentives through burdensome regulations and taxes. Instead,the federal government has initiated a program that will at best be benign, and at worst a Supercluster Screw-up.