Thirteen billion dollars.
It is, in Canadian currency, what the United States was ready to stretch out for Volkswagen to build a battery factory for electric cars on American soil.
As in poker, Canada evened the bet. And he won the factory.
It will therefore be built in St. Thomas, Ontario.
Friday, a long skewer of politicians marched on the site of what could become the largest factory in the country. We are talking about an area of 378 American football fields.
PHOTO CARLOS OSORIO, REUTERS
The site chosen for the construction of Volkswagen’s battery plant in St. Thomas, Ontario. With an area equivalent to 378 football fields, the plant could become the largest in the country.
No possible doubt: it’s a big blow. A very big blow.
There are, however, two hiccups.
The first is the price paid – arguably the largest amount of financial aid in the country’s modern history.
The second is that we are fooling ourselves if we think that the arrival of Volkswagen will solve the fundamental problems of the Canadian economy. This remains undermined by weak innovation, lagging productivity and anemic private investment.
Of the 38 OECD countries, Canada is heading for the weakest economic growth by 20601.
To create a true 21st century economye century, Canada has a lot of work to do. It must invest more in research and development, better link university research to the market and create an environment that encourages business investment.
The high-tech plant that Volkswagen will establish in Ontario will bring undeniable dynamism, but that also comes with a risk: that of thinking that we can save ourselves the basic work by simply buying a modern economy with billions.
It would be an illusion. Because at this rate, we will quickly run out of money.
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The scale of the aid awarded to Volkswagen may well be unmatched.
Bombardier, which operates in a highly subsidized sector around the world, has been repeatedly accused of siphoning off public funds. It has received many endorsements from governments over the decades, but none as large as the amounts announced this week, even in today’s dollars.
The Canadian government did throw a $13.7 billion lifeline to automakers during the 2009 financial crisis. .
The purchase of the Trans Mountain pipeline? Everything suggests that it will be a monumental financial disaster orchestrated with taxpayers’ money. But the Trudeau government still acquired an infrastructure. He didn’t just rain down the billions.
The financial assistance to Volkswagen therefore takes us into new territory.
It is true that in the face of the billions deployed by Joe Biden to create a green economy, Ottawa cannot simply sit back and watch the train go by.
It is also true that the financial assistance granted to Volkswagen is cleverly articulated. In addition to a 700 million subsidy for the construction of the plant, the rest is conditional on Volkswagen producing batteries.
And the more it produces, the greater the help will be. This greatly reduces the risks of supporting a white elephant. The famous amount of 13 billion will therefore perhaps never be reached.
Ottawa also negotiated its contract so that Canadian aid would match the American aid contained in Joe Biden’s famous Inflation Reduction Act. If a future US government slashed that aid, Canada would slash its support for Volkswagen by the same amount.
It’s well thought out.
The fact remains that we have to ask ourselves questions when we see so much public money being channeled into the pockets of private companies.
Barely ten days ago, Canada’s Finance Minister, Chrystia Freeland, warned against the temptation of different countries to embark on a “race to the bottom” to attract investment in green technologies.
A corporate subsidy war might benefit some shareholders, but it would drain our national treasuries and weaken the social safety nets that are the foundation of effective democracies.
Canada’s Finance Minister, Chrystia Freeland
Words full of common sense…
The other risk is the precedent we have just created. Businesses have now taken note that Ottawa is ready to dip into its bank to attract them. And you can bet that the other provinces have also noted in a notebook that Ottawa has just released 13 billion for Ontario…
The risk of overbidding is real.
We are promised that the arrival of Volkswagen will prevent Ontario’s auto sector from moving en masse to the United States. That it will attract a swarm of suppliers. That it will create 10 indirect jobs for each of the 3000 direct jobs.
If all this proves true, Canada may have won its game of poker. But we know how much the future sometimes turns out to be very different from these projections in the form of fairy tales.