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Case against government bailouts

Unsurprisingly, Canadian Auto Workers members earlier this weekendorsed the cost-cutting labour agreement paving the way for $6billion in federal and provincial aid for General Motors of Canada Ltd.

Unsurprisingly, Canadian Auto Workers members earlier this week endorsed the cost-cutting labour agreement paving the way for $6 billion in federal and provincial aid for General Motors of Canada Ltd.

Had CAW president Ken Lewenza’s troops failed to ratify this one, their jobs would surely have gone the way of tail fins.

Yet, as GM and its U.S. parent sputter toward bankruptcy, you have to wonder about the rationale for fuelling the company’s ride to oblivion with taxpayer dollars.

Sure, it’s politically inevitable that Canadian governments would be pressed into involvement.

Washington backs a bailout, so non-intervention might result in the relocation of GM Canada’s eventual remains to the U.S., leaving 7,500 or so CAW members out of work and possibly taking out many thousands of other related jobs, mostly in voter-rich Ontario.

But at the risk of being bumped from Lewenza’s Christmas card list, there are five good reasons why Ottawa and Ontario should keep their support to a bare minimum.

First, General Motors has proved that it’s a loser with severe problems in creating marketable products.

Letting it fail, and then restructure in bankruptcy protection, would permit the viable portions of the company to survive and prosper while shedding assets that have no real future.

Second, bailouts get governments drawn into legacy issues — like long-term financing and underfunded pensions — that could become a financial morass. About $2 billion of the money you and I lend the company will go to help reduce a pension deficit currently running at about $7 billion. Under the lending agreement, the company will have another six years to eliminate the remaining deficit. But what if it doesn’t? Who will pick up the slack then?

Third, favouring autoworkers who have comparatively exceptional wage, benefit and pension packages is unfair to the millions of Canadians who work for much lower wages and benefits and have no protection from job losses.

Fourth, propping up failures while ignoring companies that slug it out (Ford) or succeed (Honda, Toyota) is fundamentally unfair. It’s also unfair that other huge industries with problems (forest products for example) don’t get the benefit of such government largesse.

Fifth, money used in bailouts could be used more productively elsewhere, providing the infrastructure, regulatory and tax incentives to support companies and industries that actually have a future. Better that then spending billions on GM with absolutely no guarantee that it will make the company one iota better at selling cars.

Tuesday: Governments’ dangerous flirtation with interventionism.

 
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