TORONTO – Ontario’s stance that the days of governments quietly watching over the economy have ended and the time to intervene has come is a product of its battered economy and it’s unlikely other provinces will follow suit, experts said Tuesday.
Ontario, which along with Ottawa is providing billions in financial aid to GM and Chrysler, wants to further invest in sectors that have growth potential to ensure they flourish, Premier Dalton McGuinty said.
“If you take a look around the world, the strongest economies have governments playing an active role,” said McGuinty.
“Free markets are alive and well, it’s just they have a new partner, and that’s the government.”
Although he stopped short of pitching “reverse Reaganism” – a reference to the former U.S. president who once called government the problem and not the solution to America’s woes – McGuinty said the “days of governments kind of quietly presiding over the gradual evolution of the economy are behind us.”
The premier’s message was more tempered than that of his economic development minister, who on Monday told a business audience that the government was ready to pick winners and losers to compete with an increasingly interventionist American government.
“It’s more a case of us choosing particular sectors which lend themselves to growing strength in Ontario,” McGuinty said Tuesday. “I’m a little more reluctant about picking specific businesses and I’m much more open to the concept of trying to find businesses within specific sectors.”
That distinction meant little to Niels Veldhuis, an analyst with think-tank The Fraser Institute who called the plan “troubling.”
“Governments have a long history of trying to invest in start-up companies, subsidizing, bailing out, lending money to existing companies and have not seen the type of performance that taxpayers should see from those funds going into those companies,” Veldhuis said.
Whether it’s companies or sectors, he adds, it still comes down to the government choosing who to subsidize instead of letting the markets dictate success or failure in a competitive environment.
McGuinty’s comments came just days after Ottawa and Ontario announced plans to invest a total of $3.8 billion in insolvent Chrysler LLC to help the company restructure its operations and save thousands of jobs.
The deal also gave the governments a two per cent stake in the company and a seat at its board – a plan that Prime Minister Stephen Harper called less than ideal but far better than the alternative, letting the company fail.
Henry Jacek, a political scientist at McMaster University in Hamilton, said the biggest motivator behind the interventions is a fear that companies, or talent, will leave the country during a severe recession and never return – especially in the face of a $787-billion stimulus plan in the United States.
“Right now a lot of governments want to do what the Obama government is doing in Washington, big time,” Jacek said. “Nobody wants to lose business or important business projects that may have commercial value.”
The Ontario government has been moving in this direction over the past five years as it transitions away from manufacturing, he added, while Quebec has had a variation of the same type of policy over the last few decades.
“This is not a strategy that Harper likes very much, this is more compatible with things that the Liberals or the New Democrats would do,” Jacek said.
“The problem is that circumstances have really forced him to do this (in the case of Chrysler).”
McGuinty said he wasn’t looking to own equity stakes in any other firms and simply wanted to support industries that showed good promise, such as green technology, digital media, and information communications technology.
He said he never expected to end up with a stake in Chrysler and won’t necessarily be demanding General Motors to so the same when it presents its restructuring plan by the end of this month.
Veldhuis said he doubted many provinces would follow in Ontario’s footsteps, noting governments in the West and in New Brunswick have opted for making their investment climates more positive for all businesses rather than favouring one particular sector.
“It’s very troubling what the federal government has done with Chrysler but the fortunate thing there is that the government, at least, seems a little bit uncomfortable going that direction, so I don’t see it spreading to many other companies or sectors,” he said.