Bombardier's strange chokehold on the public purse
In today's lexicon, government 'investment' means spending your money on someone else
Has anyone noticed how the word "spend" vanished at some point from the political vocabulary?
Governments simply don't spend anymore, they "invest" on behalf of grateful taxpayers who put up the capital.
The political appeal of this semantic shift is obvious: "investing" has a virtuous ring; it implies prudent choices and a handsome return.
Put it this way, you might actually pay someone to invest your money, but do you really want anyone else spending it?
As for "bailout," well, that term is about as politically acceptable nowadays as a racial slur. You bail out the weak and incompetent. You invest in winners.
So, this week, Bombardier is — once again — a "winner."
- Trudeau's new government to face early pressure on Bombardier bailout decision
- Bombardier looking for federal help after Quebec's $1B bailout
- Don Pittis: Bombardier now launched into battle with aerospace giants
- Bombardier loses $4.9B US in 3rd quarter as Quebec steps up
"This will be a profitable transaction for everybody," declared Quebec's minister of the economy, Jacques Daoust, as he confirmed his government's decision to "invest" $1 billion in the floundering airplane maker, which has been hemorrhaging money and missing delivery deadlines.
In addition, Daoust made it clear he expects "everybody" to include Canada's new prime minister, Justin Trudeau, just as soon as he officially takes possession of the federal vault this week.
"I can assure you," said Daoust, that upon learning the name of Trudeau's new industry minister, "I'll get his or her phone number and put in a call."
Daoust is counselling a nice round "investment" figure for Ottawa, too. Say, another billion or so.
Trudeau hasn't made any commitments, but Daoust's message is pretty clear: You won with Quebec's help, and it's time to help Quebec.
Hardly the first time
As Daoust puts it, "If the federal government comes in, the notion of risk completely changes."
Gee, no kidding. Multi-billion-dollar backstops tend to do that.
So once again, Bombardier can fly on happily, free to make the same sorts of choices that led to its current mess. And once again, it can place huge bets with somebody else's money.
For Bombardier, if the bets pay off, great. The shareholders of one of Quebec Inc's shining stars are happy. So are its many workers and suppliers.
If its next plan is another disaster, well, Bombardier can go back to the government for another investment, which will almost certainly be forthcoming.
The Quebec government hasn't even forced a change in management; the Beaudoin family will keep running things.
"Bombardier is a company that, but for perpetual taxpayer assistance, would have long ago been taken over by a competitor, broken up, or driven out of business," says Aaron Wudrick of the Canadian Taxpayers' Federation.
"This company is like a kid living in his parents' basement."
Wudrick has assembled a spreadsheet of repeated, massive injections of federal money into Bombardier going back to 1966.
And to call them "investments," he says, is a stretch.
"I can't think of many other situations where one could sink $1.3 billion into a company, get 40 per cent of your money back, and then declare it to have been a sound investment."
Such, though, is the happy life of a company that has achieved the coveted status of "iconic" or "culturally vital."
It means there are all sorts of arguments to keep Bombardier afloat.
It employs 45,000 people, many of them skilled and well paid. If the company goes down, both it and its employees cease paying taxes, and a lot of the employees will wind up on social assistance or taking their skills out of Quebec and abroad.
Furthermore, Bombardier's competitors, companies like Europe's Airbus Industrie and Seattle's Boeing, are themselves heavily subsidized by governments. Airbus is in fact a creation of government.
And of course Bombardier is proof that Quebeckers can perform at a world-class level.
But that assumes Canada can afford to be in the airplane-building business.
And as Wudrick notes, every one of those arguments is grounded in politics rather than economics.
The same arguments were made in 2009, when the financial world seemed to be coming to an end, and North American auto manufacturers were dying fast. That was when the Ontario and federal governments rescued them with an "investment" of $13.7 billion.
Some of the money was eventually recovered, but in the end, taxpayers took a $3.5-billion bath. That "investment" netted a return of minus 25 per cent.
Simply too big to fail
The fact is, when governments jump in and save a company, they are distorting the market, deciding who deserves to survive and who should just sink.
Plenty of Canadian businesses are struggling at the moment. They employ hundreds of thousands of people, and some are almost certainly going to go under, and all would appreciate a big government cheque.
But they're invisible next to Bombardier, or General Motors, or Chrysler.
Their workers are less politically important. It's just that brutally simple.
Wudrick, whose federation generally opposes any government intervention, suggests that if a company cannot succeed, it should be allowed to fail.
Inevitably, if sufficient demand exists, another entity will rise to take its place, he says, and that entity may be more efficient, and more successful, and perhaps even revolutionize the business it's in. Tech firms regularly do just that.
But when politicians must choose between such uncertain outcomes versus the absolutely certain consequences of allowing a huge company to fail, there is only one natural choice, even for supposed free-market believers.
Who can forget George W. Bush standing uncomfortably at a podium in 2008, announcing that even though he was "a market guy," he was nonetheless authorizing the single biggest government intervention in American history, saving Wall Street from its own reckless greed and effectively nationalizing the insurance giant AIG, one of the biggest companies in the world?
Michael Moffatt, an economist at the University of Western Ontario's Ivey School of Business, says there is absolutely such a thing as too big to fail, and Bombardier qualifies, and that's that.
But at least, he says, we should call these "investments" what they actually are: "old-fashioned, Seventies-style, direct job creation."
For everybody else, well, good luck.