Hewers of wood, drawers of water and givers of handouts.
It’s the sad, but all too common, story of single-industry towns in Canada.
Thanks to the largesse of the Nova Scotia government, an oft-bailed out paper mill in Port Hawkesbury is back in business this week, cranking out rolls of glossy magazine paper for the first time in more than a year.
But the rescue doesn’t come cheap.
Nova Scotia is contributing incentives worth as much as $156-million, including the cash it has already spent maintaining equipment since the Cape Breton mill went bankrupt in 2011.
That’s the equivalent of $470,000 for each of the 330 jobs saved. If those workers earn an average of $45,000 a year, Nova Scotia will essentially underwrite the mill’s entire payroll for more than a decade.
Nova Scotia Power is also chipping in with discounted power rates, presumably paid for by other rate payers in the province.
The new owner, Vancouver-based Pacific West Commercial Corp., is paying $33-million to buy the mill out of bankruptcy. Pacific West is controlled by Winnipeg-born lawyer and investor Ron Stern, president of private equity firm Stern Partners Inc., which owns an array of businesses, including other paper mills, the Winnipeg Free Press newspaper, clothing retailers and real estate.
You can’t blame Mr. Stern for demanding government help. His company was the lone bidder for the shuttered mill and every previous owner got subsidies.
Various companies have been making paper at the Port Hawkesbury site, dating back to the 1960s – Canadian, American and Finnish owners. And all of them have repeatedly gone to the government trough when the mill was unprofitable, threatening closure if the money wasn’t forthcoming.
There are records of subsidies going to the mill, dating back to the 1970s. The mill was already getting government aid in 2007 when the mill’s previous owner, NewPage Corp. of Miamisburg, Ohio, bought the company from Stora Enso of Finland. The province had offered a seven-year, $65-million to keep the plant open until 2014. Even that was not enough.
It wouldn’t be so disturbing if Port Hawkesbury were an isolated case – one mill in an area plagued by chronic underemployment. But the Canadian corporate landscape is littered with these pay-us-or-we’ll-walk sagas.
And they rarely work for long. Plants close, owners fail, workers and pensioners lose.
All Canadians lose when the money is squandered.
“If we learned anything from the history of these deals is that you can’t turn a dying company into a sound company by giving it government money,” said Brian Lee Crowley, managing director of the Macdonald-Laurier Institute, an Ottawa-based think tank.
Mr. Crowley, who founded the Atlantic Institute for Market Studies in Halifax and once taught at Dalhousie University, suggested that the province’s money would be better spent subsidizing flights between Cape Breton, where jobs are scarce, and Fort McMurray, Alta., where many oil sands jobs still go unfilled. Thousands of Atlantic Canada workers already commute back and forth, sending their pay cheques back home and contributing to the regional economy, he pointed out.
These kinds of bailouts raise a troubling question about the limits of government regional development policies. What price is too high to save a job?
Nova Scotia is expected to run a deficit of $250-million this year. Money for the mill means it must go deeper into debt or spend less on other priorities, such as education.
Bailouts don’t occur in a vacuum. More money for troubled businesses inevitably means less money for something else.
The Port Hawkesbury mill’s salvage also causes ripple effects throughout pulp and paper markets. More capacity means stiffer competition and potentially lower prices. Mill owners and politicians in neighbouring Maine are already grumbling about possible trade action on the grounds that subsidized paper will wind up in the U.S. market.
When plants close, policy makers don’t seem to make the obvious calculation. What’s a better use of taxpayers’ money – saving jobs that will likely vanish when the subsidies run out, or making investments that will pay dividends for decades, such as research-and-development or higher education?
It’s a choice between real work and artificial work.