Montreal, March 15, 2003  /  No 121  
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Harry Valentine is a free-marketeer living in Eastern Ontario. He can be reached at
by Harry Valentine
          The impending layoffs at Bombardier's aerospace division indicate that even Canada's most politically favoured businesses are not immune from market upheavals caused by loose monetary policies. The high-tech, telecommunications and information sectors experienced these upheavals first, courtesy of once rampant state investment and government-business partnerships in this sector. 
          There were plenty of announcements of the downstream and related jobs that would be created by such state action. After the high-tech malinvestment boom collapsed, plant closures, business slowdowns, layoffs and downsizings became the norm in this sector. Its downturn is now propagating into other sectors, such as the transportation sector. Both airline and aircraft makers are now being adversely affected by this downturn as well as a host of other state related factors.  
          The malinvestment boom in the high-tech and telecommunications sector increased demand for business airline travel by players from this sector. This in turn increased demand for aircraft such as Bombardier's regional jet. The airline industry responded to these misleading signals along with their suppliers, irrespective of whether they were genuine or artificial. The state then assisted in the manufacture of new regional jets under the guise of creating jobs in their government-industry partnership, evidently an example of downstream jobs that state investment in another sector had created. Simultaneously, the transport department increased its visibility with an airline deregulatory (regulatory) regime and an airport pseudo-privatization debacle. 
Taxes and regulation 
          Rising fuel prices have raised air fares while fewer high-tech sector personnel now travel by air. Security delays in most airports have added to travel times, while airport user fees are now being charged to airline travellers using Canadian airports. Several major airports are now highly-taxed and operate as "independent" non-profit authorities, whose activities are overseen by and subject to political persuasion from neighbouring municipalities.  The high airport tax rate paid to Transport Canada, airport improvement costs and airport user fees are ultimately paid for by air travellers using Canadian airports. 
          These higher cost and increased travel times make air travel on short intercity routes less attractive, something now being revealed by the airline financial situation. Despite the federal government's air travel deregulation farce, hidden and indirect regulation still exists to hinder airline business planning freedom, adversely affecting the viability of airline companies and their suppliers. 
     « By artificially stimulating foreign demand at Canadian taxpayer expense, money is being transferred from other productive wealth creation sectors to the politically favoured sector. »
          Most of Bombardier's big-ticket customers for transport sector equipment are either state regulated or state-owned, with several being heavily subsidized. Canada's Export Development Agency offers such potential foreign customers low-interest loans to buy equipment from Canada's favoured manufacturers. By artificially stimulating foreign demand at Canadian taxpayer expense, money is being transferred from other productive wealth creation sectors to the politically favoured sector. Such action ultimately curtails the creation of new wealth in these other sectors. 
          State officials respond by pointing to the availability of government grants and low-interest loans as a remedy for such a situation. Except this is exactly what caused the high-tech boom and malinvestment boom, followed by that sector's subsequent slowdown. Canadian state stimulation of foreign demand for domestically made products can send misleading market signals to domestic producers and their suppliers, causing them to malinvest as a result of these signals. 

          Despite the availability of government grants and loans, as well as low-interest commercial bank loans, the high-tech, telecommunications, airline and transportation manufacturing sectors are all undergoing slowdowns and staff lay-offs. The recent downturn of Bombardier's aerospace division ultimately results from government regulation and manipulation of several other sectors in the domestic economy, combined with the effects of the state using low interest loans and grants to stimulate market demand outside of Canada. 
          The echo of the high-tech malinvestment boom has begun to adversely affect the transportation industry and now seems to be trickling into the construction industry and their suppliers. This sector is now reporting new growth and new hiring, with much of it being propelled by public sector spending. Unsurprisingly, this was followed by political announcements about our strong economy. 
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