While you were on vacation: more fake job creation from governments

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Appeared in the Financial Post and Calgary Herald
While many Canadians were on vacation this summer, including many journalists and opposition parliamentarians who might notice taxpayer cash dribbling away, our governments continued to hand out more corporate welfare.

In late August, Ontario offered up $2-million to Dana Holdings and $3-million to Centra Industries, both in Cambridge, Ontario. Predictably, the usual flawed justification was offered: taxpayer subsidies will create or preserve jobs.

Similarly, in early August, federal Industry Minister Christian Paradis announced up to $142 million in new tax money for Toyota from federal and Ontario taxpayers. The accompanying news release gave job creation as a justification. But the job angle is not new and the taxpayer cash does little to actually help Canada’s employment picture.

Perhaps no better example exists than the money granted and loaned to Pratt & Whitney Canada. Since 1967, that company has been the largest corporate welfare recipient. Its own website lists $1.5 billion from one Industry Canada program, the now defunct Technologies Partnerships Canada. The company notes its repayment record is $371 million, or about 25 per cent.

Those figures do not include other federal or provincial money given or granted over the decades. It excludes, for example, a December 2010 authorization from another Industry Canada program of up to $300-million.

Regardless of Pratt & Whitney’s exact take, it’s clear that recipients and politicians chatter about jobs only when convenient—at press conferences.

A 2005 news release from the Quebec government announced $75-million to Pratt & Whitney for new engines. The province claimed the money would “help consolidate 280 R&D jobs and create some 300 production-related jobs in Quebec.” In April this year, Ontario trumpeted a $13.9 million taxpayer grant with this justification: it would help Pratt & Whitney “bring new products to market while creating 80 new jobs and supporting 49 existing jobs.”

However, in the company’s response to an Access to Information request (via Industry Canada), one that requested the actual number of jobs created from all that post-1960s taxpayer funding, the company refused to release any estimates. In a recent follow-up request sent directly to Pratt & Whitney, no response was given to me, not on updated and more comprehensive numbers on government grants, loans and repayments, or on the jobs estimate.  

Some historical employment numbers might explain why. Pratt & Whitney Canada’s website notes 6,200 employees in Canada and plans to hire 200 engineers.

That’s positive, but back in 2001 in testimony before Parliament, the company’s president said Pratt & Whitney employed 7,000 people in Canada. So even with another 200 employees, the company will still employ fewer people than ten years and many subsidies ago.    

Beyond Pratt & Whitney, what’s fascinating about the political “we-create-jobs” assertion is that no figure is too small to claim.

Ontario’s announcement of taxpayer cash to Dana and Centra is supposed to create 50 and 100 jobs respectively. Similarly, in May 2009, when Industry Canada announced a $360,285 loan for Toronto-based Sputtek, the accompanying backgrounder said “Sputtek will conduct its R&D entirely in Canada, creating and/or maintaining 15 high-quality jobs in Toronto.”

That same month, in a $3.1 million loan to TransCore Link Logistics Inc., Industry Canada’s news release noted “This project will create and/or maintain an average of 20 high-quality jobs in the Ottawa suburb of Kanata.”

If it seems odd that a department attempts to micro-manage the economy by throwing tax money about for a claimed saving/creation of 50, 100, 280, 300, 80, 49, 200, 15 or 20 jobs, that’s because it is.

Between July 2010 and July 2011, a quarter-million jobs were added to Canada’s economy—thus swamping any federal department attempts to micro-manage the employment prospects of Canadians through corporate welfare. Quebec alone added 60,000 jobs this past year, or 10 times the employment levels at Pratt & Whitney. Ontario gained 108,000 and Alberta added 63,000 jobs.

Industry Canada and the cheque-writing political class won’t admit this, but empirical analyses of subsidies cast doubt on the claim of corporate welfare-created employment gains. For example, economist Timothy Bartik has found that extra job growth in one locale due to subsidies comes, in part, at the expense of reduced job growth in another region.

Indeed. That’s the simple substitution effect too often forgotten: money transferred through the tax system from one business or sector to another—sometimes a direct competitor—doesn’t maintain or create jobs, it merely redistributes them. Perhaps Parliament could follow up on that inconvenient fact when it resumes in September.

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