If you analyze the list of grants made to companies, by the provinces or the federal government, you invariably find the same names coming up again and again. In New Brunswick, it was found that 91% of businesses receiving assistance from the Atlantic Canada Opportunity Agency had received it at least once before. Some had been to the trough over ten times in seven years. Similar percentages appear in the other Atlantic provinces.
Of course the defenders of corporate welfare will point to the success stories, and there are a few, as supporting evidence for their continuing use of your tax dollars. If you give money away often enough it is likely that there will be some successes, even governments can't mess things up all the time. The question which won't get asked, or answered, is why should taxpayers' money be poured into any business at a time when we are cutting healthcare and plunging deeper into debt. There are a number of reasons why it is bad business for governments to use taxpayers' money to subsidize businesses and space will not allow complete enumeration.
Subsidizing and its effects
The most pernicious effect of a subsidy is to create an atmosphere where the recipients no longer have an incentive to increase their efficiency. Some years ago, the Financial Post carried a story about a small French language newspaper in Nova Scotia which, that year, had received assistance from Quebec, Nova Scotia and Ottawa to the tune of some three quarters of a million dollars. The paper had been in existence for over half a century but had a circulation of only 3 or
When this paper received all this money, it meant that its competitors, unless they too got subsidies, had to work harder and to find their own money to compete against their subsidized competitor. In effect they are being asked to compete against the government. A similar case occurred in Manitoba where the government subsidized the competitor of an agricultural manufacturer. If you think about it, the government was using the successful company's tax dollars to subsidize its competitor. In the face of such actions is it reasonable to expect any company to continue to operate in an environment where their competition is subsidized with their own money?
Another effect of government subsidies is to encourage bad business decisions. A favourite tool of government is to offer bank loan guarantees. By guaranteeing a loan, the government is taking all the risk, the bank having declined the risk in the first place, and the company isn't assuming much risk and can only gain. The potential loser is the taxpayer.
The other side of that coin is that after being burned a few times with bad loans, the government becomes more cautious and lends money only to projects where the risk of loss seems low.
Invariably these projects would have proceeded using the firm's own money anyway. So government has created a climate where businesses who don't need assistance get it anyway. Over the last sixteen years we have seen large companies such as Bombardier (
Politicians making such loans are always taking credit for alleged job creation. What they don't seem to understand is that all that usually happens is that jobs get redistributed. If I get a grant to open a new restaurant in my town, I create a handful of jobs. My MP or MLA will then wax enthusiastic about the new jobs created. What he or she will not talk about is the restaurant across town that went out of business because of me. So what has really happened is job redistribution at best.
Alberta has outlawed loans over