Using ‘green cred’ to reap outstanding fortunes: Andrew Coyne
The Ontario government subsidized companies to produce power, and it subsidized consumers to conserve it. And when it found itself, not surprisingly, with a huge and growing power surplus, it sold it off at a loss to foreign buyers — effectively subsidizing them to take it. [Photo: Getty images]
The National Post, December 7, 2015
The other day I happened to be in Ottawa. I happened to have a lunch at a downtown restaurant where I happened to overhear a conversation between two businessmen. The subject of their conversation, as it happened, was how to get money out of the federal government.
The one was a lobbyist, the other was his client. The lobbyist was reporting back on his discussions with a ministerial staffer regarding the grant his client was seeking. The staffer had advised him on the kind of supporting documentation the client would need to supply — mostly about job creation — to ensure the money flowed. It didn’t sound like it would be a particularly hard sell.
I imagine this sort of conversation goes on every day in restaurants all over the city, as it did under the previous government, as it will under the next. It is the same conversation that goes on in every provincial capital and every city of any size in the country. It is, perhaps, Canada’s largest industry, but of a peculiar kind. For those employed in it are not in the business of selling products to consumers. They are in the business of buying subsidies from governments.
The name of the company involved in the exchange I overheard does not matter. It might be any one of a thousand. It may advertise itself as being in a particular business — cars, or planes, or ships. And it is true that that is the product it makes. But it does not make it to sell to others — that is only a secondary consideration. Its primary value is as a medium of exchange — for the subsidies it can purchase from government.
For the company is not just making cars, or planes, or what have you. It is making things the politician really wants: jobs, usually, or at least the claims of them, but also association with prestigious technologies, or green cred — anything that will make the politician feel important, or get him elected, or both. And whereas the firm is typically unable to persuade consumers in competitive markets to pay it enough to cover the costs of making its notional product — hence the need for subsidy — the same product will buy it millions of dollars in subsidies.
Indeed, the longer it keeps at it, the more the terms of trade tend to move in its favour. In time, the firm finds it no longer has to create more jobs to keep the subsidies coming. It can simply threaten to withdraw those it has. Subsidies in the past thus become the chief argument for subsidies in the future. For then the politician is implicated. Jobs that are never created never make headlines. But workers, once employed, make admirable hostages.
All this is by way of prelude to last week’s extraordinary double whammy of industrial-policy ineptitude. First came news that the price of constructing 15 new naval warships — part of the much-heralded National Shipbuilding Procurement Strategy — had more than doubled from initial estimates, to $30 billion from $14 billion, with further cost overruns likely to come. This was, you’ll recall, supposed to be the “good” procurement project, after the string of fiascos — helicopters, submarines, fighter jets — that preceded it. Instead, it is shaping up to be the biggest procurement disaster yet.
The head of the Royal Canadian Navy, Vice-Adm. Mark Norman, confessed to the CBC that nobody involved on either side of the exchange had the first clue of what it cost to build the things. “We didn’t have the mature industry and so there was a lot of guessing and speculation going on. And to be quite blunt, we got a lot of it wrong,” he said. Whether the government will cough up the extra $16 billion, or whether the navy will have to make do with half the ships, remains to be seen.
But surely the real question is: why, rather than design and build the ships from scratch in Canada, we did not just purchase them off the shelf from countries with competent military-industrial complexes? And the answer is that governments in this country are not really in the business of buying the best ships for the least money, any more than the companies involved are in the business of supplying them. Rather, it is about, on the one hand, jobs and industrial development, and sucking cash out of the government on the other.
But while we were still reeling from that came news of an even-larger raid on the public till: the $37 billion that Ontario’s auditor general reports the province has overcharged consumers for electricity over eight years. The policy dysfunction was comprehensive and manifold. The Ontario government subsidized companies to produce power, and it subsidized consumers to conserve it. And when it found itself, not surprisingly, with a huge and growing power surplus, it sold it off at a loss to foreign buyers — effectively subsidizing them to take it.
But at the heart of it was a coterie of companies, ostensibly in the renewable energy business, whom the government massively overpaid for power, recouping the costs from consumers on their electricity bills. The fortunes made must be astounding: if consumers were out $37 billion — almost 1,000 times as much as the sums involved in the sponsorship scandal — somebody was in for a good chunk of that. It may be doubted whether consumers would be willing to pay, as the Liberal government did, twice the market price for wind power or more than three times market price for solar.
But then, if the companies involved were interested in selling to willing consumers, they’d be in another line of work. They’re not in the energy business. They’re in the subsidy business.