By Mark Milke, Fraser Institute
Back in 1962 John F. Kennedy had been president of the United States for one year, four lads from Liverpool were about to hit it big in the music world, and a Saskatchewan lawyer, John Diefenbaker, was in his fifth year as Prime Minister of Canada.
In retrospect, 1962 was also notable for another reason: it was the start of a trail identifying corporate welfare recipients, many of whom have sought subsidies from the federal government ever since.
“Corporate welfare” occurs when governments transfer tax dollars to companies, not in exchange for some good or service, but simply to give or loan money, and on a variety of justifications such as supposed job creation, the desire to create or buff up some sector, or so-called “regional development.”
Recently, I asked Industry Canada for information on disbursements to businesses since the early 1960s. The department could only provide information stored electronically over the decades. Still, what was available was fascinating.
The result of that request revealed the hollowness of one claim often advanced in support of subsidies to business: that “acorns” will grow to “oak trees,” i.e., from small businesses into large corporations, and then cease taking handouts. Instead, what is evident from the data is that many “oak trees” never stop asking for handouts.
Over the five decades, it turns out $22.1 billion was handed to business (all figures inflation adjusted to 2012 dollars) with half of that granted or loaned to just 25 companies.
The earliest recipient of corporate welfare from Industry Canada was Leigh Instruments. Its first cheque arrived in 1962, a $3.4 million conditional loan. That company harvested a total of $54 million from government up until its last disbursement in 1989.
The most frequent and most lavishly rewarded of the subsidy-seekers over the decades was the aerospace company Pratt & Whitney, a division of U.S.-based United Technologies.
Starting in 1970, Pratt & Whitney made 75 requests to the department of Industry and received almost $3.3 billion in grants or loans. Its most recent cheque arrived in 2010 in the form of an $80.4 million conditionally repayable contribution (a loan that might or might not have to be repaid). Last year, the parent company had net income of U.S. $5.2 billion.
Bombardier, next on the Top 25 list, started asking for money in 1966. It has received just over $1.1 billion from the Department of Industry. Its most recent cheque was a $102.5 million conditionally repayable contribution in 2009. Bombardier’s most recent reported net income was $598 million in 2012.
On the other end of the scale, apparently there is no business too small to be considered for taxpayer assistance: between 1962 and 2010, $856,570 went to 24 ice cream shops; 43 pizza joints received $1.3 million and 379 gas bars and convenience stores received $15 million. Even hot dog entrepreneurs received taxpayer cash: four split $66,194 including someone from Toronto who, in the application, told the government they wanted to “design a barbeque hot dog roller for home use”.
The records I accessed are only from Industry Canada. This is really just the tip of the iceberg for this five-decade stretch: the $22.1 billion excludes money handed out by other federal departments (such as Finance, Natural Resources and others), and every province and municipality.
The last time I looked at the entire business subsidy take, using Statistics Canada data from 1994 to 2007, it turned out $202 billion had been disbursed by all levels of government in that 13-year period alone.
Space does not permit an in-depth examination, but as I’ve written about previously in six reports, the justifications for corporate welfare are multiple, flawed and fail real-world examinations of how subsidies work (or more often, do not). They range from unsupportable claims of job creation (corporate welfare redistributes jobs among businesses, it doesn’t create them) to the oft-heard excuse that other countries subsidize their aerospace, automotive, energy or mining sectors so Canada must do the same.
Nonsense. If France, for example, wishes to have French taxpayers subsidize airplanes so they can sell them to Canada cheaper, that would be unfortunate for the French treasury. It doesn’t mean Canada’s taxpayers should continually be dragged into the taxpayer-subsidized fight so Canadian planes can be sold more cheaply to Americans or Germans.
This is especially true given that multiple companies have sought subsidies since the 1960s. It is long past due for governments to let such “oak tree” companies exist without additional billions in taxpayer support.
Mark Milke is a Senior Fellow with the Fraser Institute and author of six reports on corporate welfare including his most recent, Corporate Welfare at Industry Canada since John Diefenbaker.