National Post
May 26, 2000

Before anybody gloats too much about Canada’s recent “victory” over Brazil in the matter of aircraft subsidies, it might be wise to reflect that little has changed for the main victims of the Liberals’ reflexive urge to meddle in trade and industry — us.

Canada has apparently fiddled enough with its own subsidies to Bombardier to satisfy the WTO. Brazil, however, is still trying to hang onto sales made by Embraer with condemned low-cost loans after a WTO deadline. The WTO has therefore given Canada the green light to impose sanctions.

Donald Macdonald makes a lucid and persuasive case on this page for self-interested magnanimity in our dealings with Brazil. But while the Canadian government may appear to have come out on top in the dispute, it can hardly claim to be lily white. Despite the rap on the knuckles Canada received over both programs used to support Bombardier — Technology Partnerships Canada and the secretive Canada Account provisions of the Export Development Corp. — both remain in place. The “significant adjustments” Canada has made to the TPC program to appease the WTO amount merely to Bombardier not taking any more money from it. But less than a month ago, Magellan Aerospace announced $7.2-million of TPC “investments” toward the development costs of a new regional aircraft engine. If that doesn’t fly in the face of the WTO, what does?

The Canadian government appears to have skated around the WTO rules better than Brazil, without either absorbing or acknowledging the substance of the WTO’s underlying rationale: the destructiveness to everybody of trade tariffs and subsidies. But government subsidies are not merely destructive when they are used to promote trade. Indeed, the only thing they can successfully promote is the government that hands them out.

The EDC’s sinkhole was brilliantly dissected on this page yesterday by Patricia Adams. The TPC remains inherently dysfunctional. Like the HRDC slush fund, TPC is first and foremost an announcement machine designed to win votes by cultivating the impression of creating jobs. But although it may appear less nakedly corrupt because the money is going into the high-tech or biotech sectors, it is still ultimately a job destroyer. Neither wireless bandwidth nor gene-splicing can solve the inherent problems of government “investment” in the private sector: It is prone to corruption, incompetent, and when it comes to exports — as the case with Brazil demonstrates — leads to international strife.

How are companies selected for taxpayers’ involuntary largesse? Certainly, the notion that there is some brilliant corps of techno-mandarins who can cast a Godlike eye over thousands of fast-changing companies and decide the exact spots at which government money can be best injected is a naive fantasy. Failing that, the principles on which the money is handed out fall into a number of unattractive categories: It is given to high-profile companies that do not need it in the hope that the government may gain some reflected glory; it goes to companies that have political connections; or it goes to companies in areas where it is most needed to buy votes. The Liberal government pours money into a minus-sum game because it does not care about the destruction of taxpayers’ wealth as long as voters don’t catch on. Even in the absence of positive voter impact, Old Guard Liberals reflexively press for hand-out programs because it is the only form of industrial strategy they know.

Apart from the $80-million doled out to BioChem Pharma Inc., perhaps the highest-profile, and most controversial, TPC grant this year was last month’s $34-million to wireless wunderkind — at least at that time — Research in Motion.

The government’s mistiming was typically perfect.

RIM’s share price — along with the rest of the Internet bubble — was already in the process of being deflated. When the government announced its “investment,” the shares lurched up $17 to $146. A week later, they fell 44% in one day. Now they are trading close to $40. Of course, we haven’t — unlike RIM equity investors — really lost anything, but that’s only because we were unlikely to get anything back in the first place. The details of the “investment” were never revealed, but such government programs have a long record of being money down the drain.

We can hardly blame the company for taking the money. Those at the technological leading edge are primarily concerned with getting their hands on all the funds they can to achieve their vision, not with debating the pros and cons of economic policy. However, a truly sustainable system is one where companies either generate R&D and investment funds themselves, or have to sell their vision to private investors, not to politicians who carelessly toss in the public’s cash in return for a photo op and a press release.