The politics of choosing ‘winners’ and ‘losers’ with taxpayer money

Back to articles
May 17, 2020

The politics of choosing ‘winners’ and ‘losers’ with taxpayer money

Written by Robin V. Sears for the Toronto Star. Click here to read the original.

A time honoured slogan of financial conservatives around the developed world is that “Governments should never pick winners with taxpayers’ money!” It is, not surprisingly, observed more in the breach than in reality even by fiscal hawks. Was the more than $13 billion dollars that the Harper government lavished on the auto sector not the definition of ‘picking winners’?

But in reality should not the appropriate question really be, “Can you ensure that you do not waste taxpayers’ money on corporations that you know are likely to fail?” This is the sharp divide that is making decisions on aid to corporate Canada so hard and so slow. Some conservative pundits attacked the government for making ‘sustainability’ a checkbox to qualify for the assistance package they released this week.

How improbable would it have been for Ottawa not to have not tied improving sustainability performance for access to public cash. Conservatives denounced  it as a plot against the oil and gas sector. However, while it is true that the oil and gas sector have undertaken and will implement very significant emission reductions strategies, they remain huge emitters. So huge that Canada was smacked this week by both the World Economic Forum and the Norwegians’ sovereign wealth fund as climate laggards. We were ranked at 28 among developed countries.

So what should the rules be for access to taxpayer support? First, should be a financial sustainability test. In previous crises, finance and economic development departments did searching tests of who was among the walking dead, and who could make it with an injection of liquidity at the right moment. The Rae government saved Dehavilland’s airplane manufacturing In Ontario and  Algoma’s speciality steel making. They did not then, and veterans today will not now, say who did not make the cut or why.

Alberta knows who their oil sector zombies are, B.C. knows who the weakest in the forestry and mining sectors are, and Quebec knows the weak and the flailing among Quebec Inc. players better than any other government. So keep the stress test results confidential, don’t further damage the enfeebled, but do apply financial survival tests before anyone gets a dollar.

The second question should surely be, “Who matters most?” Size does not determine strategic value. A bankrupt retail chain dumping thousands of employees on the street is a tragedy for the families involved. For the future of the economy, not so much. A failure to offer a financial bridge to the future for a small start-up whose success will deliver transformative change in healthcare, or technology, or climate change would be a tragedy for the next generation of Canadians.

Finally, the sustainability of the scale and breadth of an assistance programme to the public fisc is a crucial question. We are spending money at a rate not seen except in wartime production ramp-ups. The rate and volumes are turning out to be far faster and higher than even left-wing economists would have dreamed possible in the past. But fiscal trees do not grow to the sky.

We do not know when high becomes too high, but we must assume there is a ceiling. This imposes on government decision makers a final test, “Can we slowly close the cash tap, without casting whole regions and sectors into chaos, before we get to a level of indebtedness that we know imperils the entire economy and the currency.”

One of the difficult elements of corporate and social assistance programmes is that they are easy to launch, but they are very painful to dial back, let alone shut down. American conservatives continue to fight Obamacare so improbably in this current crisis because they know there has never been a reversal let alone a cancellation of a social assistance programme in American political history. They always grow in scale and cost.

So the essential questions are probably these: Is your programme ensured, to the extent possible, against backing losers? Does it help sustainability in climate terms, and that of a region or sector of strategic importance in economic terms?

Can it be maintained long enough to ensure we get to the far side of this crisis without bankrupting the government or crushing the currency.

Then there are the social justice tests that many Canadians will also demand. That’s an essential discussion, but sadly for progressives those choices will not come before these broad sustainability tests. Former UK Conservative finance minister Nigel Lawson famously declared, “To govern is to choose.” In a crisis those choices come fraught with great risk.