Back in 2009, Ontario's Liberal government was ready to do almost anything to lure the burgeoning video game industry to the province.
The manufacturing sector was reeling from the recession. The auto industry was facing an existential threat. Every month, it seemed, brought fresh waves of layoffs.
Former premier Dalton McGuinty wanted to spawn a "new kind of manufacturing," and to build a new economy. And he saw the answer in Ubisoft SA, the French maker of popular video games such as Assassin's Creed, Watch Dogs and the Tom Clancy series.
The province offered Ubisoft $264-million in subsidies over 10 years. In return, the company promised to invest $500-million of its own money to open a new gaming studio in Toronto, creating roughly 800 jobs.
It remains the single largest business grant Ontario has made in the past decade, with an eye-popping price tag of $330,000 per job.
"To build a high wage and high standard of living, you need talent," Mr. McGuinty said at the time. "By investing in Ubisoft, we're building Ontario's economy now and for the future."
Lofty goals, to be sure. But we now know – thanks to a report this week by Ontario Auditor-General Bonnie Lysyk – that the province's largesse came with only the thinnest of strings attached. And officials broke numerous rules of its Next Generation of Jobs Fund to steer money to Ubisoft, a profitable $2-billion global company.
Ms. Lysyk' report makes for disturbing reading. Ontario has doled out $1.4-billion in corporate welfare to Ubisoft and other companies over the past decade but has no idea whether the money is actually creating long-term jobs or helping the economy. What's more, the province spent 80 per cent of that money with no public application process or criteria, and instead picked the companies that would receive the payouts behind closed doors.
So badly did Ontario want Ubisoft that it waved the formal application process and sidestepped rules that limit the government's share of project costs to 15 per cent. The government is paying 35 per cent of whatever Ubisoft spends, consisting mainly of furnishing and operating its Toronto studio. Officials ignored a third-party expert who recommended against the grant because Ubisoft's project contained "no technological innovation" – the main goal of the Next Generation fund.
Ubisoft was not required to meet specific job-creation targets, or any other project milestones for that matter. Officials from the Ministry of Economic Development, Employment and Infrastructure never bothered to track whether its money has done anything to achieve the stated goal of fostering a digital media cluster in the province.
So far, Ubisoft has created 322 jobs, invested $106-million and pocketed $42-million in provincial funds. The more it invests, the more cash it will get.
Ontario's gaming sector remains a speck in the global gaming industry, and it's still well behind much larger Canadian clusters in Montreal and Vancouver.
There is a lesson here – not just for Ontario, but for the whole country.
As the Ubisoft case shows, governments are prone to irresponsibly scattering money around the corporate landscape, promising all manner of admirable results, such as innovation, economic growth and job creation. But after the splashy announcements and ribbon-cutting ceremonies are over, governments do a dismal job of ensuring their ambitious goals are ever met.
The federal Liberals, for example, are promising a revamped innovation agenda, which will help steer billions of dollars to businesses. Ottawa must also decide whether to bow to demands from aircraft maker Bombardier Inc. for as much as $1-billion (U.S.) to help get its new C Series plane to market.
It's not as if there aren't problems that need fixing. Canadian businesses have a deteriorating record of investing in R&D and new technology, in spite of generous tax incentives and other subsidies. Spending by Canadian businesses on R&D has continued to fall over the past decade, slipping below 1 per cent of GDP, ranking Canada 26th out of 41 rival countries, according to the Science Technology and Innovation Council's State of the Nation 2014 report.
And too often, the incentives dangled by one province simply steal jobs from another province, without any net gain to the Canadian economy. Without money from Ontario, it's reasonable to assume Ubisoft would have expanded its main Canadian hub, located in Montreal, taking advantage of Quebec's generous tax breaks for multimedia companies.
At a bare minimum, governments owe it to tax payers to ensure that the billions they spend make a difference. Otherwise, why do it?