Why Governments Shouldn't Treat Companies as 'National Champions'
Canadian Prime Minister Justin Trudeau appears to be having an identity crisis. He seems to think he is Prime Minister of the Montreal-based transportation giant Bombardier. At least in the minds of Canadian governments, the link between Canada and Bombardier has become so tight as to make them indivisible. But are the interests of a country and a company ever truly identical?
Channeling his inner Donald Trump, Trudeau on Monday threatened the Canadian government would not contract to Boeing as long as it pursues a trade dispute with Bombardier, saying: “We won’t do business with a company that’s busy trying to sue us.” But Boeing is not trying to sue the Government of Canada. It is trying to sue Bombardier. Trudeau seems unable to distinguish between the interests of his own sovereign country and those of a private-sector company.
This put on hold the Government of Canada’s agreed-to purchase of 18 Super Hornet jets from Boeing. Trudeau doubled down the next day, publicly pressing Canadian firms that are part of Boeing's supply chain (and depend on government contracts) to pressure Boeing to drop its trade action.
In every way he can, the Prime Minister is acting as an agent of Bombardier, whose interests he seems to see as indistinguishable from those of all Canadians. In fact, on many issues their interests collide. The Canadian Government turned to the Super Hornet not as a favor to Boeing, but because it needed the fighter jets – compatible with Canada’s existing fleet – to fill a projected 20-year capability gap. If the government didn’t believe Boeing’s fighter jet met its needs, it wouldn’t have awarded the company the contract in the first place. By holding up the contract, the Canadian government is threatening to cut off its own nose to spite Boeing’s face. It is also threatening the sub-contracting contracts of 10 Canadian aerospace companies that last month urged Trudeau to approve the Boeing contract.
Boeing, with its proven record of slopping at the government trough, is another example of government favoritism. In fact, the Export-Import Bank is sometimes referred to as ‘Boeing’s Bank.’ A study released two years ago by the non-profit organization Good Jobs First showed that over the previous 15 years, Boeing was one of five triple dippers – companies that received funds from three sources: state subsidies, as well as federal grants and tax credits, and federal loans, loan guarantees and bailout assistance. At $13.4 billion, Boeing had received far more state and local subsidies than any other company. But what has this huge subsidy actually bought for Americans? The aerospace giant has been pruning staff for over a year, sharply cutting jobs in its home base of Seattle and in South Carolina.
Meanwhile, Bombardier has been acting like Boeing’s northern doppelganger, grabbing billions in government largesse – including recent loans of $1 billion and $372 million from the Quebec and Canadian governments respectively. The payback? Last year it delivered pink slips to 7,000 employees. Not only has Canadian governments’ patronage of Bombardier not protected jobs in Canada, it has also not prevented a lot of leakage of jobs beyond Canada’s borders. Bombardier conducts work at over 50 foreign plants in 39 countries on six continents, and outsources to an extensive global supplier network, including companies in the United States and Europe.
Yet Canadian and U.S. governments enable Bombardier and Boeing in their addiction to corporate welfare. Even worse than the direct dollar cost are the indirect costs: Corporate welfarism distorts investment, shifting capital in the markets based not on value but on government favoritism. It prompts more capital to go to big companies with a foot in the government door, drying up capital needed by start-ups and SMEs. It encourages businesses to invest in lobbying government rather than developing new products. And it undermines the process of creative destruction that drives the creation of wealth.
Yet somehow Trudeau has convinced himself that the interests of Bombardier and the Canadian government are parallel. Sue my corporate pet, sue me. In addition to upending a previous procurement decision of the Canadian government, Trudeau has also said he wouldn’t do business with a company (Boeing) that is “trying to put our aerospace workers out of business.” In that case, the Canadian government shouldn’t be doing business with Bombardier, given its record of layoffs. Of course, if Bombardier chooses to wring inefficiencies out of its production process by downsizing and maintaining global production chains, that is to its credit. But why should Canadians pay for the party? And why does the Prime Minister mistake a company for his country?
Governments should not treat companies as national champions for a simple reason – they aren’t. Bombardier does not champion the interests of Canadians, any more than Boeing champions the interests of Americans. They champion the interests of their investors, as they should. Governments need to champion the interests of their people. The best way to do that is to refrain from lobbing subsidies to some favored companies, and encourage an open marketplace for all of them.
