This article originally appeared in the Hub.
By Aaron Wudrick, May 15, 2023
In a recent Hub dispatch on reactions to the federal and Ontario governments’ $13-billion subsidy to Volkswagen to build a massive electric vehicle battery factory in St. Thomas, Ont., several conservative voices expressed support on the basis that it would help strengthen the local community.
Ontario Labour Minister Monte McNaughton suggested that supporting the announcement means being “pro-good jobs. Jobs where you can raise a family. Jobs with a retirement plan, or pension, and benefits. Jobs that build communities. Like auto jobs”.
Similarly, former federal and provincial Conservative staffer Mitch Heimpel observed that the announcement means “a significant imprint from that company on the community. These larger manufacturers do more than just employ people. There’s a whole culture that gets created around it.” He argued that conservatives should care “just as much about the social fabric and small communities as the free market”.
Like Mitch, I grew up in Kitchener, about an hour’s drive from St. Thomas. The downtown neighbourhood where I lived was gritty but friendly. Most of my friends’ parents worked blue-collar jobs at places like Budd Automotive and Schneider’s Meats. The latter’s factory was so close to my high school that the smell of bacon filled the air, taunting us during football practice. Most of these employers died off or moved away over the years, and the lost jobs caused real pain to many families and the broader community. So I certainly agree with those, like Mitch and Minister McNaughton, who argue that being focused on creating good jobs and strong communities are things that conservatives—all policymakers, really—should be seized with.
There is a danger, however, in romanticizing the past and assuming that the conditions which once gave rise to plentiful blue-collar work can be easily recreated on the back of government largesse. Far from laying a sustainable, long-term foundation for these communities, substituting political intervention for market processes risks setting them up for future devastation by binding their fate to the need for perpetual taxpayer subsidies.
Historically, businesses that served as the “backbone” of a town did so because there was mutual interdependence, a reciprocating circle of virtuous benefit between the employer, employees, and by extension, the broader community. In many sectors, including manufacturing, the economics of this arrangement started to break down in recent decades, when companies began to realize that, between automation and offshoring, they could cut their costs dramatically. Suddenly, many employers needed their community a lot less than the community needed them.
Injecting corporate welfare into this equation only serves to mask the underlying problem: companies that come to town because they are receiving a massive subsidy, as Volkswagen is doing in St. Thomas, aren’t coming because they care about the local community. They’re coming because of the spigot of guaranteed cash flowing from Ottawa and Queen’s Park.
What happens when the tap turns off? Defenders of the Volkswagen deal insist that, ultimately, this “investment” will pay for itself. What they don’t want to talk about is that the historical record suggests otherwise, that more often than not, similar “incentives” have only led to perpetual economic hostage-taking situations. In recent decades we’ve seen countless instances where companies like Bombardier or big automakers have not-so-subtly implied that “jobs are at risk” if the government doesn’t pony up yet another handout.
We shouldn’t kid ourselves. The last thing Canada needs is even more businesses reliant on corporate welfare. You could argue that any company which builds public subsidies into its business model is not a “business” at all, but a kind of ersatz quasi-Crown corporation—part-private, part-public Franken-entities, dependent on the success of their lobbyists for survival.
It’s also a mistake to assume that helping struggling communities requires a wholesale abandonment of market economics. Conservatives tend to be pro-market not because it’s important to worship something called a “market” for its own sake, but because they believe there is value in being attuned to important signals—such as prices—that only markets can produce. In this way, conservative support for markets merely reflects a recognition that there are limits to the ability of even well-intentioned experts to design and manage economies.
But rejecting corporate welfare as bad policy doesn’t have to mean that conservatives just throw up their hands and do nothing. There are many other useful ways to advance the broader goal of creating good jobs and strong communities.
First, conservatives must resist the temptation to secure instant headline-grabbing “success stories”, and instead focus on policies that build incremental, long-term resilience. Creating an environment where economic dynamism will thrive insulates communities from the pain of failure by ensuring that new businesses will be certain to rise in their place. It avoids putting all of a community’s economic eggs in a single employer’s basket. Reforms in this area might include policies that make it easier to start a business; easier to declare bankruptcy; and simpler, lower taxes.
Second, rather than getting into subsidy bidding wars where Canada must expend vast public resources in order to attract manufacturing that could be located anywhere, conservatives should advocate for a focus on sectors where we have a natural advantage that cannot be easily matched by competitors, sectors such as agriculture, critical minerals, and forestry.
Third, conservatives should get behind a push to develop the legal and physical infrastructure to make Canada a more attractive destination for investment. There are many things governments can do to help businesses and their future employees that don’t involve sending them taxpayer dollars, such as streamlining regulatory processes; building infrastructure like ports, roads, transit, and bridges; or reforming our health and education systems.
Finally, when it comes to “strong communities”, conservatives should consider whether plentiful jobs alone will reverse the difficult challenges confronting communities that are currently struggling. A new factory setting up shop in town is not a magic bullet that will reverse alarming trends in family breakdown, substance abuse, and a growing sense of alienation, especially amongst younger Canadians.
Which way the lines of causality run with these challenges is a fair question for debate, but it’s worth noting that even Canada’s largest and most economically vibrant cities still suffer from these challenges.
Conservatives are right to worry about ensuring there are good jobs for regular people. And they are right to focus on building strong communities. But they must resist the false god of corporate welfare that offers only temporary, artificial illusions in place of real long-term resilience.
Aaron Wudrick is the Director of the Macdonald-Laurier Institute’s Domestic Policy Program.