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You probably don't want to know

29 Mar 2023 | News Roundup

But even if you do, the Government of Canada has no intention of telling its citizens how much they paid Volkswagen to build a massive EV battery plant in St. Thomas, Ontario. Evidently they did something very special to make it happen, since they gloated that “Today’s news is a major vote of confidence in Canada and Ontario, and in our shared work to position the country and the province as a global leader on the electric vehicle supply chain.” But when asked if that special something was cutting a big fat cheque, estimated by one journalist to be worth around $460,500 per job, per year as part of the subsidy wars triggered by the American Inflation Reduction Act (IRA), they suddenly retreat into the usual Obi-wan Evasion that you don’t need to see those details. Federal Industry Minister François-Philippe Champagne even came up with an answer beyond anything Sir Humphrey Appleby could have dreamt up: “I’ll answer very clearly your question. Canada has to be part of the equation and I’m not going to go into the details.”

The chattering classes are all in on this stuff, and once again too much of the famously skeptical press is cheerleading for big government not interrogating it. For instance one gushed “Say what you like about this Liberal government – and I do quite often – but this is good news for Canada.” Is it? How can we tell if we don’t know how much it costs? The Financial Times reported that Volkswagen was persuaded not to build the plant in Europe because of some $15 billion in subsidies. Which ought to buy a lot of batteries, including ones the private sector evidently didn’t want to make or buy, we can’t help thinking. But it won’t buy any information, apparently.

Champagne, who hailed this plant as “the single largest investment in the auto sector in the history of Canada” and whose job should not exist, told an interviewer “I always say that government has to be part of the equation when you come to these large investments”. And he said “we intend to level the playing field” and “that we would be selective”. But then he said we couldn’t complete financially so you have to peddle our talented workforce and “the fact that renewable energy is the way to go”. To her credit the interviewer then called this response “a really long-winded way of not answering minister the original question that I posed” and pressed him for whether the feds gave them money and if so how much.

Tough luck. Canadian chumps don’t need to see that information on how much of your money I just blew. Ha ha. Why would you? Your job is to pay for it, and vote for us, not to have meaningful input. And they do throw our money around with reckless abandon, and ask us to reward them.

It is worth reminding ourselves of the iron rule of government subsidies: if a project requires subsidies to proceed, that means the costs exceed the benefits therefore it shouldn’t be done. Pushing ahead makes us worse off by definition. If private sector investors won’t invest their own money in a project, that’s a good indicator that the government shouldn’t force taxpayers to either. But just try explaining that to the government.

For instance, says Prime Minister Trudeau, “When we invest in Canadian manufacturing, we invest in workers, in communities, and in our economy. Last year alone, companies invested billions of dollars in our clean auto sector, creating and securing tens of thousands of good jobs and growing our economy.” What a splendid chap. What an achievement. And on that one, the refurbishing of a Michelin plant in Nova Scotia, we know the cost. It’s $100 million. All in a day’s spend. And never mind the burden on taxpayers because “Thanks to the talent and abundance of highly skilled workers and key government investments, we are continuing to build a strong economy that benefits all Canadians. Today’s announcement is yet another step toward a healthier future with clean air and good jobs for generations to come.”

Sadly there’s more where it came from, and the players know it. Thus “Ahead of this year’s federal budget, most Canadian business leaders are committed to integrating environment, social and governance (ESG) practices into their business strategies but say they need more help from government if Canada is to transition to a greener economy, finds a new KPMG in Canada survey.” How much more? The sky’s the limit.

According to Yahoo! Finance:

“‘It is encouraging to see that these business leaders plan to increase investments and resources in their ESG practices this year,’ says Doron Telem, National ESG Leader, KPMG in Canada. ‘However, many may only be able to do so with stronger government support. We expect the federal budget will offer more details on the government’s economic plan to support business and the green transition, with a specific focus on emerging sectors, clean technologies, zero-emission vehicles and batteries, critical minerals and energy sources. But business is not just looking for tax incentives and programs that focus on them. Most (80 per cent) think government needs to support their green business transition by implementing more consumer incentives to further drive consumer demand for change.”

So subsidies to make stuff no one wants then more subsidies to bribe consumers to buy it. The National Post’s Jesse Klein was not impressed, writing that:

“If you thought the amount of money we currently spend attempting to reach pie-in-the-sky net-zero targets is too much, it’s only going to get worse as companies shop around for the biggest environmental handouts, while countries and regions compete for the fabled green jobs politicians have long been promising.”

He conceded that: “It’s true that automakers have been dining on taxpayer largess for decades. But the IRA, and the EU’s forthcoming answer to it, have turbocharged the whole process.”

And the result was not pretty even if the details were hidden:

“We’re not just competing with a spendthrift administration south of the border over who can provide the biggest corporate handouts, but with Europe and China, as well. It’s a race to the bottom of the pork barrel that Canada can’t hope to win.”

Which isn’t to say they won’t try.

To his credit, Campbell Clark at the Globe & Mail also insisted that the matter needed to be addressed, in a piece headlined “How much is Canada willing to pay for a battery plant in the Great Subsidy War?”

As usual, journalists do not write their own headlines. But Clark said it would be a problem if our entire auto industry went south, then asked “How much would a Canadian government pay to stop that? That’s a question the current government in Ottawa seems to think it is facing.”

He called this conviction a “debatable point in and of itself”. But then he said even if you’re convinced EV battery plants are crucial to our auto industry:

“there is an unanswered question: How much should we pay? That question is curiously absent from Canada’s political debate, though the scale of the potential sums is enormous because of the massive subsidies in the U.S. Inflation Reduction Act.”

Yes, folks, it’s Trade War III again. And it’s going to be brutal. He calculates that a decade’s worth of subsidies to just one EV plant would cost $20 billion. “And the thing is, it’s not just about one battery plant, or the auto sector.” Rather:

“The incentives in the U.S. Inflation Reduction Act and the U.S. CHIPS and Science Act include massive subsidies for all kinds of green technology and advanced manufacturing. The Biden administration has embarked on a massive effort to ‘reshore’ manufacturing to the U.S. and transform industry for a low-carbon future. That has launched a great subsidy war that will affect a lot of Canadian industry – not just cars but oil and gas and cement and hydrogen and solar panels. Finance Minister Chrystia Freeland is working on a Canadian response expected in this spring’s budget. Canada is deciding what it will back in the subsidy war, and to what extent, and oddly, there isn’t much political debate about it. The Liberals haven’t revealed sums. The Conservatives don’t seem to have a position.”

He concedes the usual argument about spinoffs, as if our highly globalized economy could not make components for a factory located in the United States. “But the cost is enormous.” Indeed.

He also notes:

“the suggestion that the Inflation Reduction Act and the subsidy war it has launched is something new and different – that it is not just more corporate welfare, but a transition point, and the start of a decade-long scramble in which countries will compete to build their industrial base for the next 50 years. The argument is that those who don’t scramble to buy themselves a comparative advantage won’t have one, and they won’t have an industrial base.”

But when’s the last time in the last 250 years that the mercantilists weren’t convinced this was the strategic moment that would define the next half century? It’s part of their inflated sense of self-importance, and their ignorance of economics. And Campbell is right that, whatever you think of these questions, “at some point, the cost is so high that there are better bets. So how much is Canada willing to pay?”

At this point we don’t know because we don’t get to see the numbers.

9 comments on “You probably don't want to know”

  1. When a person invests in a business, he/she is normally buying shares that have value and they can be traded or sold. It is also normal expected that if you hold onto those shares they will pay dividends in the future. If our government is truly investing in Volkswagen how many shares have we bought. It is time to start using the right word. the fact is we are not investing and apparently we are not loaning, we are just giving away our money in the uncertain hope that 10 years down the road the company will not relocate to next big handout.

  2. It’s a race between neighbors to an economic depression, a glorious ending in which everyone but the elite will share in.

  3. If government planners were capable of making rational decisions on industrial production the Soviet Union wouldn’t have fallen. Canadian, or US, government planners are no better at making these decisions, and to the extent we allow them to will determine how bad our own economies decline, and the point where the government has taken all our freedom.

  4. Climate change and the hunt for net-zero has lead the world to a dangerous tipping point. Not a climate tipping point but an economic/social tipping point, where things are going to go bad in a hurry.

  5. No doubt Europe and the US will engage in massive subsidy wars for the fabled zero-emission future. But already the cracks are showing in the climate change religion. Germany for example has announced it will not end all internal combustion engine (ICE) vehicle manufacturing and sales by 2035 as previously demanded by the EU. So here's a suggestion for the lesser players like Canada. ICE cars and trucks are going to be required for a long time to come, so why not quietly position ourselves to provide them to the world when, as seems likely, the major players dismantle their ICE manufacturing capabilities then learn the hard truth that the world still needs them?

  6. The Liberal Budget included billions available to subsidize green hydrogen which, given its negative return on energy, is emblematic of their notion of benefits and costs. Following the US, a nation that now enjoys debt unserviceable through any rate of taxation at any "normal" interest rate - down the mythically green, energy ignorance driven rabbit hole is a winner for the Liberals as it fits the green theocracy narratives while allowing industrial scale vote buying sufficient to keep the NDP carrying their water. A wiser and moral Canadian government would perhaps lay off the subsidy competition and allow its citizens to "choose" to purchase cheaper (subsidized by others) goods while concentrating on something we can produce without subsidies like real energy.

  7. What you mean "we," Canadian? Rational Americans have the 2nd Amendment to our Constitution, along with other limits to governmental power the Constitution provides.

  8. Sarah Palin , the much ridiculed VP candidate of John McCain in 2008 coined the term ,''crony capitalism'' to illustrate this kind of nonsense. Picking winners and losers in business when strategic national defense concerns are involved can be rationalized as legitimate, think domestic production of basic food, fuel, and medicine. When it comes to this save the planet nonsense with imperfect short sighted technologies at such enormous short and long term costs to tax payers , politicians have dragged the willing and unwilling through the looking glass into fantasy land. When asked how he ended up bankrupt Ernest Hemingway replied,'' slowly at first, and then all of a sudden.'' Corruption, greed , and incompetence can only be afforded so long before the parasitic feeding kills the host. If the USSR could collapse three or so decades ago when the checks started to bounce do not be fooled for a momment that the same thing can happen in Canada, the EU, and the US. It happens slowly over time through apathy and tolerance of the intolerant idealogues, then the weight of over taxation, cost of debt maintainence , demographic change, and corrupted business practices make the end rather sudden. Beware of those who say ,"it can never happen here."

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