Some Companies Get Subsidies, Others Get Regulatory Fog
Posted October 13, 2017
Some companies get subsidies offered by communities eager to host them. Others don’t want payoffs. They just want permission to make their contribution to the economy.
Consider the case of Amazon, the dominant electronic retailer. On September 7th, it announced a bidding contest for a second headquarters somewhere in North America which would grow to as many as 50,000 employees over 10 to 15 years.
Seattle, with a population of 700,000, is where Amazon began. The city is not uniformly keen on Amazon’s presence there. Its 40,000 well-paid employees have put a lot of upward pressure on house prices. The high pay levels for technology employees has weakened the startup sector, which has trouble competing.
Amazon is skilled at attracting big subsidies. According to the New York Times, it has received forms of public subsidies totaling at least $613 million for 40 of the 77 warehouses it built from 2005 to 2014. A much larger and higher-paying corporate office will be a far more expensive prize.
Initial bids are due by October 19th. North American cities have been falling over themselves to be chosen. The notion that Halifax might be a contender should not be taken seriously. It has less than half the required population base of one million, and the province has been commendably resistant to making big handouts to corporations.
Toronto and Montreal are possible contenders. Prepare to be astounded by the price the winning jurisdiction pays when it is announced next year.
Netflix is a different story but has a similar theme. On September 28th, Mélanie Joly, Minister of Canadian Heritage, announced that Netflix will invest at least C$500 million over the next five years in original productions in Canada that will be distributed across Netflix’s global platform.
At the same time, she promised that “our government won’t increase the cost of these services to Canadians by imposing a new tax.” This is both cynical and illogical.
The primary beneficiary will not be subscribers, but rather Netflix since it will have more competitive room for price increases—a 10% price increase has just taken effect. If Sobeys was granted a 10% tax break compared to Superstore, do you think it would all end up in consumers’ pockets?
The government continues to charge HST and other fees to cable companies. It may be the first time in history that the federal government policy has favoured foreign suppliers over domestic.
Netflix may not have needed the encouragement to produce here, given the low Canadian dollar and the generous support available to the film industry.
Television series Mr. D., season 6, earned combined federal and provincial subsidies of at least $2.8 million, more than half of the $5.5 million expenditure in Nova Scotia. The series is broadcast by another subsidized government entity, the CBC. Nice work if you can get it.
Consider, in contrast, the travails of TransCanada Corp. They don’t want any subsidies, they just want permission to replace shipments of foreign oil with oil piped in from landlocked Alberta.
Having spent perhaps a billion dollars advancing their application, they were told that the rules were changing. The National Energy Board (NEB) would now consider not only the greenhouse gas emissions (GHGs) from the installation of the pipeline, but also those from consumption of the fuel.
Would that be any different than GHGs from Middle Eastern oil? Why does the unlikely event of a shipping disaster, which is causing such angst among environmentalists in British Columbia over the Trans-Mountain pipeline, not receive any mention at all?
Worst of all, TransCanada has no clue what the impact of the GHG evaluation would have on their application. It is doubtful that the NEB commissioners themselves have figured it out.
Nor can TransCanada be confident that the rules will not change again if they continue. TransCanada has given up trying. No sensible business would proceed in such a regulatory fog.
Some commentators have argued that the fundamental economics of Energy East were an obstacle. That may or may not be true, but the uncertainty that has been created will likely disable even the most viable projects.
Amazon and Netflix are well known, successful, megarich corporations. It is not wrong to want them as substantial employers in Canada. It is wrong to throw absurd amounts of money at them.
At the same time, it is crucial that regulated industries such as oil and gas should have clear and reasonable rulebooks on how to propose projects with manageable environmental risks.
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