Canada's Corporate Welfare Bums Are Ripping Us Off: An Interview With Author Laurent Carbonneau

A new book critiques the long history and present practice of corporate subsidies — and reveals what they really cost us.

Canada handed out roughly $40 billion in corporate subsidies, or about $800 per person, in 2023-2024 alone, with little to show for it. Laurent Carbonneau, friend and author of At the Trough: The Rise and Rise of Canada’s Corporate Welfare Bums calls that corporate welfare. He’s echoing former NDP leader David Lewis, who railed against “corporate welfare bums” in the middle bit of the last century.

At the Trough is available now online and wherever fine books are sold.

Was it always this way in Canada? Did the country always fund coteries of corporate laggards who in turn charged consumers high prices while refusing to invest in research and development or to innovate? Yes. Yes it was. Will things change now that Canada faces a changing world alongside threats from its longstanding ally and primary trading partner? Maybe! Let’s find out.

This interview has been edited for length and clarity.

David Moscrop
What is corporate welfare and what forms does it take in Canada?

Laurent Carbonneau
There are two stories about this, and I frame it this way in the introduction to the book. First, you hear about the ArriveCan thing, and that’s a good example of the kind of scandal where rules or proper contracting procedure are not followed in the process of giving public money to a private business. That’s part of the story here, but I think it's more interesting to zoom out and look at the practice more generally, to look at how and why public money is given to private companies and for what reasons in the first place.

Canada has made a lot of big bets over the last century-and-a-half, bets on on “transformative” investments by private companies, often largely subsidized by us in ways that are meant to change the country. The theory is that this practice would make things better for everyone. More often than not, this has not worked out as advertised. And “corporate welfare” is a provocative way of looking at it. You can be more clinical and call it industrial policy or business subsidies, but I think there's a nice, pre-built, Canadian frame in talking about from the corporate welfare bums campaign that David Lewis ran in the 1970s.

David Moscrop
Are we talking about tax credits, programs, direct cash subsidies? What's the primary vehicle here? The tax code?

Laurent Carbonneau
The tax code is the most generous of those you list. Then there's direct grants, contributions, and tax credits. There's also subsidized credit through organizations like BDC and EDC, which is also a pretty big chunk. But yes, the tax code is a vehicle for a lot of this.

David Moscrop
You mentioned that we’re making big bets on the companies we subsidize. Why do we do it? Do we think this is how you build a country? Is it because we're next to the United States? Is it because the business lobby is strong?

Laurent Carbonneau
All of the above. I start the book with the transcontinental railways, in particular the Canadian Pacific in the 1870s through the 1880s. Building it was a strategic decision made by the new government of the dominion of Canada, in part because they had to do it. They had agreed as a condition of British Columbia entering Confederation to build the railway within 10 years, which they didn't end up doing in time. But they also realized that if they were going to do this whole independent country thing, they needed a Canadian route for transcontinental railway. They believed that building one as fast as possible and paying a premium to do so would bring a wave of settlement that would consolidate the country.

It was this very big strategic vision, and the vehicle for it turned out to be these established railway players in the Canadian Pacific. The interesting thing, and where this takes a turn for the worse, is the way the railroad was financed was not just that the companies got a tonne of public money on very favourable terms, but also how it was paid for. To raise the revenue to give to the Canadian Pacific Railway, the government introduced quite a large tariff, which was a regressive tax on virtually every Canadian. So, everyone was paying these higher prices on everything, and at the same time you had these railway barons who structured the company such that they were essentially paying themselves a really high rate of interest.

David Moscrop
Good work if you can get it.

Laurent Carbonneau
Oh, extremely. And these barons were insulating themselves from losing control of the railway and also taking a bunch of this public money and land and speculating, trying to drive their competitors back east out of business. From their point of view, they're playing with house money. And the net of this is that yes, the railway got built, though, as I mentioned, it got built later than scheduled. But the government overpaid through the nose to do it on an accelerated timeline, and the hoped-for wave of settlement didn't really materialize at the pace they thought and hoped it would, which further kind of blunts the value of the premium we paid. And what happened after that is that the government had these very big debt service obligations, which locked us into this pattern where the only thing that the railways were interested in was ripping and shipping.

So Canada didn't develop the finance organizations that would play leading roles in industrial development like in other countries. Instead we had this kind of railway extraction finance. It was a very big bet and it locked us into this really long-term pathway. I'm not saying the railway was a bad idea, but we did overpay for the benefits that we thought we were going to get and it created these long-term vulnerabilities.

And if I can pivot slightly, I want to talk a bit about the big battery plant commitments that were made in the last couple of years. These are little different because the money in those cases was back-loaded towards production subsidies, so we may not end up having to pay them. But it’s a really, really, really big amount of money. If we put them all together, it's about $30 billion over 10 years. And the idea there, once again was, to make a big bet on transforming our end of the North American auto industry. But I think the trillion dollar question there was did we believe we were going to be competitive globally? I think now you're looking at the cost curves on these Chinese EVs and thinking maybe not. That was a big bet. I could go on, but I'll stop myself there.

David Moscrop
You've touched on what corporate welfare looks like today compared to what it looked like at Confederation. It’s broadly similar. Is it also why companies don't innovate, why they don't invest in research and development?

Laurent Carbonneau
I think that's right. In many cases, I frame it this way: we have companies that are big and competitive, and we have companies that are big and innovative, but we don't really have companies that are big, innovative, and competitive. Our natural resources sector is big and it's globally competitive in the sense that a lot of these companies do business all over the world. Are they particularly innovative? Not really, not by global standards. And then if you look at, for instance, our big banks and telecoms, are they innovative? Yeah, actually, in the sense that they spend a lot on research and development, which is an indicator people like to look for. But are they competitive? Of course not.

So, having firms in that sweet spot is a bit of a problem for us. And I think you get there downstream of these political economy problems, where we're locked in long-term to this path that we set early on towards primary resource extraction and agriculture. And then on the other side, we've created these protected oligopolies for orthogonal public policy reasons.

David Moscrop
There are arguments for state subsidy of industry. In the book you mention Taiwan and South Korea. It's hard to imagine either of those countries being economic powerhouses or even self-sustaining without a lot of state support, particularly in the middle of the last century.

Laurent Carbonneau
Totally.

David Moscrop
So there are, in theory, legitimate and efficient uses of state money for industrial development, and I think we would call that industrial policy. Is there a difference between industrial policy and corporate welfare? Or is it just a matter of outcome?

Laurent Carbonneau
Yeah, industrial policy is when you don't inhale.

David Moscrop
*laughs*

Laurent Carbonneau
No, no, it's a totally fair point. At the end of the day, I’m not actually against industrial policy as a sort of starting point. I don't look at our situation and think we can solve it wholly with a totally free market. I don't think that's the case. I don't think that would've worked for Korea. For small, open economies like ours, we have to find ways to specialize internationally, and sometimes the government playing a coordinating function is useful. That certainly was the case with Taiwan, and certainly the case with Korea. Sweden and Finland are some other examples I like to point to. Denmark has this world leading wind power industry that didn't pop up out of nowhere. There was a lot of state involvement in that.

The problem I see, and I think this is not a new Canadian problem, is that it's a big country and it's a country that faces historic divisions that are cultural and regional. It's very hard for countries like that to do concerted industrial policy over the long-term because people can't make credible long-term commitments.

We also have a public service or a federal state that is organized on this Westminster model where everything is accountable to ministers, which is obviously good from a democratic accountability point of view, but it means that it's hard for state bodies to make independent decisions. If you look at countries like France, they have state organs that are quite powerful in and of themselves, that don't really have the same level of a minister showing up at Question Period to answer for their operations. It's just a little different.

There's a really good book that came out in the 1980s by Michael Atkinson and William Coleman called the The State, Business, and Industrial Change in Canada. What they argued, really convincingly to me, is that lobbying- and corporate-welfare-based industrial policy systems are what you get when you don't really have the ingredients to do a more anticipatory model of industrial policy, which, right now, I don’t think we have institutionally. My view is that industrial policy is a lovely thing if you can pull it off. But I don't think we have the ingredients in place in Canada right now. And I think it would behoove us to work on fixing that.

David Moscrop
Instead of just making it up on the fly.

Laurent Carbonneau
Well, making it up on the fly and making it a system that rewards whomever is loudest and most recently in the room or best organized at an industry or firm level. It basically turns into lobbying versus turning it into a real concerted policy effort.

David Moscrop
And then we have to spread out the benefits over the different regions.

Laurent Carbonneau
That is a classic Canadian problem as well.

David Moscrop
You mention in the book the example of Canada’s superclusters plan, that we’re going to fund five superclusters and we're going to create these northern Silicon Valleys. You note that, well, there's only one Silicon Valley in the United States and we were going to try to make five of them with a tiny amount of money.

Laurent Carbonneau
A tiny amount of money by Silicon Valley standards, yes.

David Moscrop
It was a fantasy. But now there's a new government, and everyone's high on it. There's this hope, this ‘home by Christmas’ optimism. Is anything really going to change?

Laurent Carbonneau
I hope it does. That’s answer number one. Answer number two is that I live a lot in the innovation space, and one thing innovation-heavy countries like Finland, South Korea, or Taiwan have in common is a difficult neighbour. I think having a difficult neighbor is not fun, but it can be a useful prod towards making things work and communicating to people that there are actual stakes when it comes to the decisions they make.

David Moscrop
It interrupts complacency.

Laurent Carbonneau
Yes, exactly. So, I would hope that the outcome of all of this, or at least one outcome, is that we start to look at things a bit more seriously. The other thing is that money isn't free anymore. After the global financial crisis, we were trying to push the economy out of this prolonged slump where we had rock bottom interest rates and very slow growth, and that’s not quite the case anymore. Money is expensive again, and it means that you really have to think hard about how you're spending it on a quality dimension. Ten years ago you could make a pretty good case for helicopter money, but that’s just not where we are anymore.

David Moscrop
Where do workers and unions fit into all of this?

Laurent Carbonneau
I grappled with that question throughout this project. I've talked about the Nordics a little bit, and one reason that they can make this work is because labour is a credible, independent political actor with a lot of its own independent autonomy and strengths. And here it's not quite the same. If you look at places that have had successful industrial policy drives, especially in continental Europe, it's in part because business gets together with one voice. They have to, because labour is at the table with one voice. So people can make these big, credible commitments to each other because they're used to getting in a room. It's more like a corporatist or conservational model, or whatever you want to call it. But it means that not everyone is constantly trying to defect and get their own side deal. So, labour has a really useful discipline function there. I also think if labour doesn't play a role, it's really missing a trick as we get into this era of renewed interest in industrial policy and the idea that we have to steer the ship a little bit.

David Moscrop
Would things be different if we had more of an industrial democratic model, like in Germany where you have unions sitting at the table in these spaces, directing things more?

Laurent Carbonneau
Yeah, I do think so. One element of the Nordic economy that’s really interesting is they have this different notion of job security versus employment security. Here when we talk about industrial policy, it's often framed in like ‘Well, we have to keep this kind of less competitive, less profitable industry running because of the jobs involved’.

The Nordics have somehow achieved a social model where people understand that your job may not be forever, but you will be employed on the whole. And there's a lot of union infrastructure that goes into making that the case. I think that that's a very interesting model. Once again, it’s big country here, it's tougher to manage than Denmark in lots of ways. But I do think the notion of moving away from the idea that we must keep a specific facility running and towards one in which we make sure people are employed and have fresh skills is a healthier way to think about things.

David Moscrop
But then you might risk losing a riding in London.

Laurent Carbonneau
Well yes, yes. This brings the whole territorial and two solitudes dimension of things into it. I recognize this is not an easy thing, but we can choose to do things the way we've always done them, which hasn't worked very well, or we can choose to do things differently, and it might work better.