Having forced firms into dependency, the government dictates terms for their rescue

At most times and in most circumstances, bailing out corporations with public funds makes little sense. If the company is viable, it doesn’t need the money; if it isn’t, all the more reason it shouldn’t get it. At best, it’s a zero-sum game. Most often it’s a net loss for the economy, forcing firms with good business models and sound prospects to pay for the mistakes of their competitors.

These are not, needless to say, most times. Across the country, thousands of firms have had to shut down operations and lay off workers, not for any failing on their part but because the government said they must – because of a global pandemic the government failed to foresee or respond to in time.

The pandemic, fortunately, is likely to be temporary, as is the shutdown. Companies could in principle take out loans to see them through, but with so many companies potentially seeking the same and the banking system stretched to the limit, a lot of otherwise viable firms might be denied financing. In such unusual circumstances, it makes sense for governments to step in to ensure they get the funds they need.

Thus far the latest federal pandemic response program, the Large Employer Emergency Financing Facility (LEEFF), is well considered. Details remain scarce, but it appears the funds would be provided directly by the government, through the Canada Development Investment Corporation, with “the co-operation of the applicants’ private sector lenders.” As the Prime Minister said in announcing the program, “these are bridge loans, not bailouts.” Firms that were headed for failure even before the pandemic will be unlikely to qualify (those “involved in active insolvency proceedings” are explicitly excluded); firms that don’t need the money will be unlikely to apply.

It’s when you come to the list of conditions attached that the trouble starts. Companies seeking support, a government release states, “must demonstrate how they intend to preserve employment and maintain investment activities.” They must also “commit to respect collective bargaining agreements and protect workers’ pensions.” In addition, the program “will require strict limits to dividends, share buy-backs, and executive pay.”

Applicant companies face “an assessment” of their “employment, tax and economic activity in Canada,” as well as their “international organizational structure and financing arrangements.” If a company has ever been convicted of tax evasion, it will be ineligible. Finally, recipients will be required to publish “annual climate-related disclosure reports” indicating “how their future operations will support environmental sustainability and national climate goals.”

Let’s just pause for a moment to remind ourselves of the stated purpose of this program. As the government release puts it, it is “to help protect middle-class jobs,” supporting businesses not for their own sake but “so they can keep their workers on the payroll.” The companies employing those workers were viable before the crisis, and would be viable after. That they might be forced out of business in the interim is, again, not through any fault of their own, but because the government shut down the economy.

The only reason those jobs are at risk, in other words, is because of the government. It is likewise entirely within the government’s power to preserve them, by assuring access to financing. With it, the companies, and the jobs, survive. Without it, they don’t. It’s as simple as that.

Yet rather than accept responsibility for a situation it created, helping firms cope with costs it imposed on them, the government proposes to use the crisis to intrude itself into all manner of corporate decision-making. The companies’ futures, and their workers’ jobs, are to be held hostage to a political agenda that has nothing to do with either.

Most of the conditions, it should be said, are superfluous at best, harmful at worst. What business is it of government how companies choose to pay their executives or compensate their shareholders? How is their “economic activity in Canada” or “international organizational structure” relevant to their creditworthiness?

But even if these were appropriate concerns of government, since when was failure to comply punishable by death? If the government wants companies to file environmental sustainability reports, it has ample regulatory means to enforce its will without making life-saving financial aid contingent on it.

It would be one thing if these were ordinary times, and ordinary bailouts. The firms in question could be said to have made their own beds: Having demonstrated their incompetence as managers, they could have little objection to government substituting its own.

No such caveats apply in the present case.

Rather, having shut down the economy – having acquired, in the process, the power of life or death over some of the nation’s largest businesses – the government intends to exploit that power to impose broad-ranging state oversight of their decisions. Possibly, this will only be temporary.

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