Bombardier bailouts – by definition – are economically regressive

Lee Friday – February 11, 2017

Bombardier, a Quebec based manufacturer of planes and trains, appears to have the Quebec government, and the Federal government, firmly in its pocket. The company has received several bailouts over the years, decades actually. In their financial statements, there must be a line item labelled ‘Corporate Welfare.’

In 2016, Bombardier received a $1 billion bailout, sorry, “investment” from the Province of Quebec. In 2017, the Canadian Federal Government said it would give the company a bailout, oh, sorry again, an “interest-free loan” of $372.5 million.

In this BNN article, commenting on the announcement of the federal bailout, Aaron Wudrick, Federal Director at the Canadian Taxpayers Federation, said “we’re sad to see that the government, in our view, is wasting $372 million”. I agree. Wudrick also said “This government started out with some encouraging talk about ‘value for taxpayers,’ but it’s now the same old approach of giving big taxpayer subsidies to powerful corporate interests.”

Naturally, the government has a different view. As reported by Ross Marowits of The Canadian Press, “Innovation Minister Navdeep Bains said the money will preserve thousands of high-paying technology jobs in Ontario . . . and Quebec . . .”

IS  THIS  THE  RIGHT  WAY  TO  “PRESERVE  JOBS” ?

Numerous politicians and bureaucrats insist that preserving jobs through taxpayer funded bailouts is supportive of economic growth. They are incorrect, and their ignorance of basic economic principles harms taxpayers, and triggers economic regression.

When a company is losing money, this means it is inefficient and/or consumers are unwilling to purchase a sufficient quantity of its products to allow it to be profitable. As such, the company is wasting resources – raw materials and human labour. If the company is unable to improve efficiency or convince consumers to buy its products, losses will persist, and the company is eventually forced out of business. Consumers have the final word.

Losses are just as important as profits on the free market. Environmentalists, take note – losses are the market’s way of telling companies they are wasting resources. Consumers are saying they do not approve of the way the company has refashioned the resources it is using. In other words, the ‘final product’ is worth less than the sum of its parts. Continued losses eventually forces a company out of business, thus conserving these resources for someone else who can make better – profitable – use of them.

The market rewards efficient firms with profits and punishes inefficient firms with losses. Inefficient firms must be allowed to die. When the government bails out the losers, this prevents the reallocation of these resources into lines of production (other jobs) which are more likely to satisfy consumer preferences. Thus, we get economic regression.

The inefficiency of Bombardier is reflected in its inability to attract investment from the private sector. Private investors know a loser when they see one. The solution is not for the government to override the decisions of consumers and private investors, and seize tax dollars in order to support a loser. It is easy to spend other peoples’ money. If they are so confident in Bombardier’s prospects, politicians and bureaucrats should invest their own money in the company i.e. put their own money where their mouths are, and allow citizens to keep their ‘tax dollars’ to deploy as they see fit.

It is not the government’s role to preserve jobs in any particular sector. Consumers will decide which jobs to preserve. This is crucial for a healthy, prosperous economy.

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