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Konrad Yakabuski (Fernando Morales/The Globe and Mail)

Konrad Yakabuski

(Fernando Morales/The Globe and Mail)

KONRAD YAKABUSKI

Time to put the brakes on big, honking auto subsidies Add to ...

Urgent memo to Jim Flaherty: The auto-industry jobs Canada needs are not in assembling minivans. They’re in the development of vehicle-to-vehicle communications systems that allow cars to talk to each other. They’re in high-tech software and engineering jobs that depend on skilled workers, not subsidies.

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The federal Finance Minister seems to be in too much of a hurry to notice. Mr. Flaherty is by all indications preparing to exit politics and doesn’t want his parting shot to be through the heart of southern Ontario’s bleeding manufacturing sector. He must know that he’s only buying these assembly plants a bit more time before their troubles resurface and we’re all held hostage again.

With each new cycle of auto-sector handouts, taxpayers pay more and get less. But the alternative – the closing of plants in Windsor, Oakville or Oshawa, and the sudden redundancy of thousands of middle-aged men who could never find another job at a comparable salary – is too scary to contemplate. Especially a year before a federal election that Ontario will decide.

Hence, Mr. Flaherty’s latest, and perhaps last, budget includes another $500-million for Ottawa’s so-called Automotive Innovation Fund, increasing the total to $1-billion. The funds are supposed to be doled out in “repayable contributions to automotive firms that are undertaking strategic large-scale research and development projects focused on new vehicle technologies.”

Don’t be fooled. About as much R&D goes on in Canada’s auto sector as in my kitchen. The AIF is a slush fund used to subsidize the wages of auto workers whose “quality,” according to a 2012 study by the Institute for Research on Public Policy, has “not proven to be an important factor in productivity growth in motor-vehicle assembly over the past 45 years.” Yet, Chrysler reportedly wants up to $700-million from Ottawa and Ontario to assemble a “new generation” of minivans in Windsor.

Mr. Flaherty has been here before. As Ontario’s minister of enterprise, opportunity and innovation in 2003, he created a $625-million fund that was supposed to enhance research and training in the auto sector, but which was really just a campaign promise to win Southern Ontario votes on the eve of a provincial election. His party lost anyway.

The Liberal government that took over did Mr. Flaherty one better. Between 2004 and 2008, Ontario and Ottawa (where Mr. Flaherty became Finance Minister in 2006) gave almost $1.3-billion to the auto sector. Some of these “loans” were converted into outright grants or forgiven, and job commitments ignored, when the North American auto industry cratered in late 2008.

The Big Three automakers were failing well before the financial crisis hit. For years, they bought labour peace by granting wage and benefit increases that exceeded productivity growth. That was bound to catch up with them. Ford was lucky enough to refinance its debt just before the crisis struck, but General Motors and Chrysler were caught when the bond markets froze.

The result was the mother of all government bailouts. According to the IRPP study by economists Leslie Shiell of the University of Ottawa and Robin Somerville of the Centre for Spatial Economics, the rescues cost Canadian taxpayers more than $500,000 for every job saved. The bailouts were deemed a “success” in the same way that surrendering your wallet to an armed mugger is a success. The alternative would be bloodier.

But resuming the subsidies game now, when Mexico is poised to eat Canada’s lunch in the assembly business, reeks of laziness. Are governments in Ottawa and Ontario so bereft of ideas and courage so as to again submit to blackmail? To save jobs that, increasingly, only hinder our transition to the kind of economy Canada needs to sustain and enhance our quality of life?

“Buying one person’s wages with another person’s taxes is not a recipe for growth in the long haul,” Mr. Somerville offers.

This is not to diminish the dilemma facing Mr. Flaherty and Ontario Premier Kathleen Wynne. According to Statistics Canada, of the almost 50,000 auto-assembly jobs in Canada, about 45 per cent are held by men over 45 . Most could never find jobs this lucrative and many would drop out of the work force if they lost them. As citizens, we all have an interest in looking out for this group.

But at what expense? Giving false hope that assembling cars is a road to prosperity instead of a dead end? Is it that, nearing his swan song, Mr. Flaherty is on cruise control?

Follow on Twitter: @konradyakabuski

 

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