William Watson: This dragon/shark doesn’t have enough fire/teeth
Like many of you, I expect, I received a very encouraging email this week from the “Kevin O’Leary Media Department.” O’Leary, of course, is the businessman star of the reality TV shows Dragon’s Den and Shark Tank who’s running for the leadership of the federal Conservative Party. I’m not quite sure why I’m on his mailing list but my experience is that if you’ve ever at any time given as little as $5 to a political party, you get their email for life, probably longer.
What was most encouraging was the headline to the press release reproduced in the email: “O’Leary government will end corporate welfare.”
Good! And not a moment too soon.
It was in 1972 that federal NDP leader David Lewis ran against “corporate welfare bums.” His campaign was so popular he ended up holding the balance of power during the second government of Pierre Trudeau (1972-74). But despite the Lewis campaign’s success and the term’s resonance and durability, the aid hasn’t stopped. By some estimates the federal government gives $6 billion a year in support of business.
Unfortunately, the rest of the press release climbs back down from the bold headline. It turns out an O’Leary government, like all federal governments for the last 150 years, will still give money to corporations. But it will insist on “two strict conditions: 1) issuance of a productivity dividend; and 2) a return on investment to Canadians.”
Deal with the second strict condition first. OK, so the government will insist on a rate of return. Suppose it insists on a market rate of return. Then the company will be indifferent between borrowing from the government and borrowing from the market. It may even prefer the market, since there’s less red tape and less likelihood of a political ambush down the road. So the government will probably end up asking for a below-market rate of return. Which means that although the largesse won’t be as large as if it required no rate of return there’s still a margin of free money between the market rate and whatever rate the government ends up insisting on. Since many governments these days are desperate to be seen to be helping “create jobs” my bet is they will seldom ask for very high a return.
And then there’s the required productivity dividend. What is that, exactly? We lend you money only if you promise to, or actually do, improve your productivity? So how do we measure productivity? And tell me again why the government should be in the business of informing businesses they’ve got their productivity levels wrong and need to raise them? If Canadian businesses aren’t smart enough to figure out their own productivity needs for themselves, do we really want to support them with government money?
And one final question about this strict productivity requirement: How does the emphasis on productivity square with the shot O’Leary takes in the rest of the press release against the recent Bombardier deal, to wit: “Trudeau didn’t use this money to protect the over 2,000 people in Canada that Bombardier is laying off. Instead, he is basically rewarding them.”
Trouble is, laying people off may well increase a company’s productivity. The most common measure of productivity is output per person. If you dump 2,000 low-productivity people, or if you dump an unprofitable product line that employs 2,000 people of varying productivities, that could easily increase your company’s average productivity. But if you take money from the O’Leary government, you aren’t going to be allowed to lay people off? That’s certainly going to reduce the demand for such funds. In the end, that could be a good thing. But it’s a strange way of getting to the happy outcome of less corporate welfare.
I can’t believe such a convoluted business plan would make it through a dragon’s den or shark tank. On the other hand, a budget planning session, you never know.
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