Fraser Forum

Let’s consider a unilateral ceasefire on aircraft subsidies

Printer-friendly version

My friend, Michel Kelly-Gagnon, and his colleague Mathieu Bédard have a nice Montreal Economic Institute Viewpoint out on how to avoid a world airliner subsidy race, which a relatively small player like Canada is bound to lose. The big players in aeronautics are the United States, Europe, Russia and China. Canada, Japan and Brazil are smaller fry.

Our economy is actually bigger than Russia’s, so if it came to a subsidy war with our traditional hockey rivals, we do have the wherewithal—i.e., the billions of dollars—to match any and all of Vladimir Putin’s aeronautic ambitions. But Brazil’s economy is a little bigger than ours (in “purchasing-power parity” terms). Japan’s is more than three times bigger, China’s more than seven times bigger and the U.S. and Europe’s each more than 10 times bigger.

If we get into a spending war with these countries, we lose. Or we tax ourselves much, much more than these bigger competitors do, to try to keep up with them. Is there really any sense in that?

Reading Bédard and Kelly-Gagnon’s analysis of the problem, I’m reminded, if the comparison isn’t in bad taste, of the bloody First World War battles we’re commemorating on their centenaries this summer. Not just because it was then that aircraft came of age and along with them government support for national airplane producers, but also because the modern-day finance ministers and treasury secretaries of the big aircraft-making countries are a little like Great War generals. They understand it makes no sense to spend so much money that ultimately ends up in somebody else’s pocket, whether of the world’s air travellers or of shareholders of its airline companies. But they are locked into the struggle and can’t figure out how to stop the senseless waste.

Bédard and Kelly-Gagnon suggest an armistice, a Canadian-led re-negotiation of the Aircraft Sector Understanding, an international agreement dating from 1986 that does try to discipline what countries spend on their sectors. It’s best not to be naive about such agreements (and the two authors aren’t). The day new rules are agreed to, governments start working on ways to get around them. But such ceasefires—or, strictly, “reduce-fires,” since they won’t eliminate subsidies—will cut the losses at least a little and help make the industry safer for countries, such as Canada, that don’t have the deep subsidy pockets economically bigger countries do.

Bédard and Kelly-Gagnon don’t ask the ultimate policy question, however. What if we can’t get an updating of the Aircraft Sector Understanding? Multilateral cooperation on trade matters seems a remoter possibility in the Trump-Brexit era than it has in recent decades. What if efforts to strike a new Understanding fail? Do we just keep spending, no matter what it costs?

The Great War generals kept on spending lives, hundreds of thousands of them, well after most of them understood the terrible lunacy of it. But pride, national honour, patriotism, the validation of earlier sacrifice and in some cases national survival were involved. Countries slogged on until one side surrendered.

The costs of excessive airplane subsidies aren’t anything like the costs of war. But then neither are the benefits. Our national honour and survival definitely are not on the line, despite what industry lobbyists may say. So do we simply keep paying and paying, even as the net benefit of new subsidies goes to zero or below? Or at some stage do we declare a unilateral ceasefire and put an end to the waste?

 

Blog Category: