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Tuesday, January 30, 2007

$336,000 per job created

That's what the Province of Quebec is spending, explicitly and implicitly, to entice Alcan to build a smelting plant in the Saquenay-Lac St Jean region. That is one heck of a lot of money to spend on job creation, for jobs that probably would be created elsewhere in the economy anyway, especially if the province were to cut taxes instead.

I am skeptical, to say the least, of "job creation" statistics and arguments.  If the long-run Phillips Curve and the long-run aggregate supply curves are vertical, we know that job-creation programmes do nothing more than rearrange jobs rather than create them.

As Stephen Gordon says, "Electric Boondoggle du jour".

Posted by EclectEcon on January 30, 2007 | Permalink

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Comments

It's not like Quebec is the only province handing out money to create economic development.

The Feds and Albertians have done it with the oil sands - $1.4 billion a year. Ontario and the Feds hand over cash to the auto industry - over $500 million over the last few years. And nevermind the tax breaks and infrastructure dollars that appear to get an industry to settle in a municipality.

I agree - let's stop it.

Obviously if the auto sector or oil companies need subsidies to make their projects economically viable, they do not make good economic sense.

Posted by: Chris Rickett | 2007-01-30 7:47:48 AM


Didn't Quebec aluminum get smacked down for subsidies in the form of cheap hydro power for it's smelters in the 1990s?

Aluminum in Quebec and heavy oil in Alberta are not in the same league. America is happy to buy subsidized oil but complains to the WTO and the GATT when it comes to subsidized aluminum.

Let's not forget about that subsidized steel industry in the Maritimes either.

The difference is that oil is a sound economic investment, metals are not.
Subsidizing the production of metals amounts to work welfare and vote buying.

Posted by: Speller | 2007-01-30 8:07:09 AM


I should add that the $336k/job number is for each *year* of the project.

Posted by: Stephen Gordon | 2007-01-30 8:11:18 AM


Both Federal and Provincial Government Bureaucrats
used to use a formula "per job subsidies" at one time but all the Provinces use Public resources to subsidize job creation particularly in technology based and aerospace industries, and so do most US States and virtually all the United Kingdom and France. "Job Creation today is a Political Mantra"
N.B. would like to subsidize but does not have the financial resources, and investment development options in NB are predicated by the whims of the Irving Group. PEI industry and NS aerospace and technology industries could not exist without these subsidies. They are not however going to go away. ACOA Atlantic Region are providing more money under the Harper MacKay Regime than at any time in it's history - "the more things change the more they remain the same" MacLeod

Posted by: Jack MacLeod | 2007-01-30 8:16:09 AM


WHY is the Harper Government giving more to ACOA?
WHAT is the upside and WHAT is the downside?
Surely Harper and McKay know the answer to both.

It's like all other political maneuvers, you take your chances.

Posted by: Liz J | 2007-01-30 8:59:52 AM


How does buying (with our tax money) a filthy industrial smelter to put up in La Belle Province, square with Lab Rat Dion's big plan to cleanse our atmosphere?

Let me guess, Quebec is a developing nation and needs the rest of use cut it slack, shut up and pay.


Posted by: Duke | 2007-01-30 9:02:29 AM


Indeed Liz, Why? - well Good Old Fashioned Maritime Pork Barrel Politics, which MacKay is very familier with having commenced his legal "career" with a patronage appointment. Harper and friends are making an enormous error in judgement trusting the Liberal patronage appointees in ACOA, who are behind much of the controversy associated with DND Heavy Lift Contract choices. Our long established group will not talk to ACOA much less deal with them. When asked about ACOA by the media I usually refer to them as scum. It is annoying to see MacKay's Nerd Like features on the ACOA Web Site - the more things change the more they remain the same. MacLeod

Posted by: Jack MacLeod | 2007-01-30 9:11:19 AM


The ROC only sending $7 billion to Quebec this year.

Hey, they obviously need more Canadian taxpayers money to subsidize their corporations.

Posted by: Set you free | 2007-01-30 9:14:05 AM


Sorry to say this, well not really, but handling ACOA and other Pork Barrel enterprises may be better handled by the female gender.
It's well known men tend to think in a straight line, women concern themselves with all the subtleties, twists and turns along the way.

Posted by: Liz J | 2007-01-30 9:49:00 AM


LOL, Liz J.,
Are you trolling today?
8oD

Posted by: Speller | 2007-01-30 9:53:22 AM


Liz,

Perhaps that is why women are so confused most of the time.

Posted by: Duke | 2007-01-30 9:59:23 AM


State-managed capitalism is practiced by many; from China to Quebec.

While the West has learned the benefits of separating church from state; it seems we’re still stuck on the archaic fundamentalist notion of economy and state.

Part of our problem in breaking up this old fundamentalist notion is that the utopian politicians and MSM champion the side of the job creation story and do not disclose the cost side of the $336,000 per job. There is an opportunity cost on that corporate welfare handout to Alcan and its unions.

The other thing is that Aluminum is really a product created by energy conversion. It’s about energy costs. As Bouchard said in his Manifesto and mentioned in L’illusion Tranquille on this blog the other day, Quebec undercharges for its energy and the ROC ponies up money for Quebec’s shortfall in socialist excesses. That story is finally getting told. One way to fix it is to eliminate the 75 seats that Quebec sends to Ottawa mostly filled with Bloc separatists.

At a minimum we should stop paying $1.75 a vote to the Bloc to help it get elected to bust up the country and to enable these excesses in Quebec’s heavily unionized state-managed economy.

Posted by: nomdenet | 2007-01-30 10:12:22 AM


As a matter of fact Liz the President of ACOA is a NB Acadian Woman who was a clerk in the notorious Federal Department of Justice. Most senior ACOA personnel are women who were selected by PEI Liberal MP Lawrence MacAuley known locally for his blatant misuse of Federal resources. Most ACOA personnel are Acadians all are Liberals, most are graduates of Quebec second level Universities and Colleges or
the University of Moncton which was founded to be Bi-Lingual but ain't. They all think the Republic of France is going to liberate them from us Anglos when Citoyen Dion is PM - MacLeod

Posted by: Jack Macleod | 2007-01-30 10:26:07 AM


Hmmmmmm...smelting eh? Not a very Ktoto friendly industry...does earth-mother Stephanie Dion know about this?

Posted by: Wlyonmackenzie | 2007-01-30 4:08:29 PM


I totally agree with nomdenet. As long as Quebec is able to demand and obtain money from us under "equalization" without having to figure in its revenue from hydro, they will continue to live their socialist dream at our expense.

As for Alcan, let us wait and see. There has been more than one company/industry that first went to set up in Quebec due to cash prizes being offered, only to later more its operation elsewhere due to labour problems and provincial government interference.

Posted by: Alain | 2007-01-30 4:22:41 PM


I totally agree with nomdenet. As long as Quebec is able to demand and obtain money from us under "equalization" without having to figure in its revenue from hydro, they will continue to live their socialist dream at our expense.

As for Alcan, let us wait and see. There has been more than one company/industry that first went to set up in Quebec due to cash prizes being offered, only to later more its operation elsewhere due to labour problems and provincial government interference.

Posted by: Alain | 2007-01-30 4:23:27 PM


The calculation of the value of a government investment simply by "divide the indestment by the number of created jobs" is the domain of news writers and other simpletons, like the posters of this forum.

An investment can be worthy for the province, even if it does not create a single job, but it generates tax basis. On the other hand, creating lots of jobs means nothing, if the final result is negative.

Example: British Columbia (successive governments of different colours over decades) invested hundreds of millions in Skeena Cellulose (all together close to $500 million). It was not a huge investment comparable to Alcan, but it was a loss from the beginning. It created *many* jobs, which *always* depended on continuous subventions (in different shapes, to fool the population).

This investment of Quebec in Alcan *may* be a good investment, and it *may* turn out a bad one. Part of that is speculation, part is invisible for us commons, for we don't see the details of the agreement.

The most important aspect of this deal are:

- Alcan is playing out the provinces against each other,

- Alcan can't be trusted with anything. Unumbiguous statements with high penalties for violation have to be included in the contract.

The viability of this project depends on how good the negotiators on the government's side were. For example fixing the price of energy in absolute terms (as it appears in many news) is ridiculous. If Quebec did that, Labrador can say rightly "we idiots are not alone".

As to corporate welfare: despicable or not, depending on your position, it is the reality of day. For example "tax break": some provinces/states may not offer a tax break, but have low taxes. Others have high taxes and make exemptions for some entities.

However, if the provinces engage in an economic war of courting national and supernational corporations, only they (the provinces) can be the losers.

Example: movie making (courting the movie industry with different incentives). Now, Alcan seems to have played out BC and Quebec against each other.

Posted by: Cato | 2007-01-30 5:02:33 PM


Cato, the simpletons you refer to are

Stephen Gordon a professor of economics at l'Université Laval in Quebec City, Canada, found here
http://worthwhile.typepad.com/worthwhile_canadian_initi/

Also the poster at the top is the Eclectecon , Professor of economics, John P Palmer at the University of Western Ontario. His website, which should be a daily read for those wanting to get a touch of reality, can be found here.
http://www.eclectecon.com/

Thank God these guys along with another courageous writer at the Western Standard, Professor Salim Mansur at U of W, will help us make sure our kids won’t be totally into a Utopian Emersion if we still dare to send them to post secondary school.

Posted by: nomdenet | 2007-01-30 5:35:55 PM


Neither of the mentioned professors has dealt with the *overall effect* of this investment (at least not in what I have seen), but concentrated purely on the job creation effect. I was not disputing the figures they had shown.

Posted by: Cato | 2007-01-30 5:56:38 PM


If you read French, there's a related analysis here:

http://www.cyberpresse.ca/article/20070115/CPSOLEIL/70112138&SearchID=73270674422940

The conclusion is that it'd be more efficient to simply export electricity.

Posted by: Stephen Gordon | 2007-01-30 6:43:45 PM


Cato,
"The calculation of the value of a government investment simply by "divide the indestment by the number of created jobs" is the domain of news writers and other simpletons, like the posters of this forum."

Still trying to win friends and influence people, I see.

Posted by: h2o273kk9 | 2007-01-30 6:45:48 PM


Speller - please explain how government subsidies for oil are alright and make "economic sense" and they don't for metals? Obviously if the product requires government subsidies, it isn't economical to produce.

Jack - thanks for pointing out that the Harper/McKay dou are handing out cash for jobs as well on the Atlantic coast.

And I thought corporate tax cuts were going to be met with reduced corporate subsidies.

What ever happened to fiscal conservatism?

Posted by: Chris Rickett | 2007-01-30 6:52:35 PM


"The conclusion is that it'd be more efficient to simply export electricity"

I don't understand French, but I do believe this conclusion as *the monetary outcome*.

However, based on that consideration, it would be the best for Canada to do nothing else but sell commodities, "export the nature". There is no point in educating people, in getting skills, in creating manufacturing plants, etc. It's much simpler, and what is more important, it is more economic to let others do the job. That is, until the reserves of commodities get exhausted and some materials become obsolate or shunned.

Btw, if the negotiators in Quebec aren't on guard, Alcan will pull them over the barrel.

That's what was and is happening in BC. It's a long story, but so much is enough: Alcan promised to build a smelter, in exchange for the permission to reverse a river, build a damm and generate the necessary electric energy. As energy prices sky rocketed, Alcan decided it is more economic to sell the energy (i.e. this idea is not new) than to operate the smelter; they reduced the operations, and make big money with electricity. Now (at end of the last year) they wanted to sell even more electricity instead of operating the smelter.

It would be piece for cabaret if Alcan sold the electricity, which they get cheap from Quebec, which in turn gets it cheap from Labrador.

Posted by: Cato | 2007-01-30 7:18:12 PM


The insight of this post, that won’t be covered in the MSM, is what Stephen Gordon says:

Instead of patronizing the welfare bum Alcan and its unions; by exporting electricity to New York and getting market rates, the proceeds could be used to pay down the immense debt created by Quebec.

That debt is really a deferred tax on the young. They will have to pay that debt off if they stay in Quebec. So Quebec is making a choice to support Alcan and the unions on the backs of its young. If I were a young student in Quebec I would be outraged and I would leave as soon as I got my heavily subsidized education.

What a vicious circle is being created, yet no debate takes place as to the cost/ benefit of this decision. Are Quebec’s MLA’s even capable of digesting the math?

Posted by: nomdenet | 2007-01-30 7:20:34 PM


"Obviously if the product requires government subsidies, it isn't economical to produce"

This is not obvious at all. If some operation is not viable economically because of overtaxation, then it may become viable with lower taxation. If this lower taxation is realized on a case-by-case basis, then it is called "subsidy" or "tax break", or "corporate welfare".

I have a hard time to call lower taxation "subsidy"; rather I call the higher taxation "theft". Unfortunately it became part of the Canadian culture to equate lower taxation ("tax break") with "taking the money of taxpayers" (spouted usually by those, who are net receivers of the system).

Posted by: Cato | 2007-01-30 7:30:47 PM


If you're going to call for lower taxation, it should be across the board - not on a case-by-case basis. I would much rather see lower corporate income taxes across the board, than one-off tax breaks and direct subsidies to certain industries that the government is looking to curry favour with. These one-offs do nothing but bias one market over another and do nothing to create a level playing field for competition.

Posted by: Chris Rickett | 2007-01-30 7:42:30 PM


Chris and Cato I agree, across the board is the only fair way to offer corporate tax cuts. Otherwise harm is being done to those successful companies not getting the cuts. Rewarding weak compannies and punishing the strong is a recipe for disaster.

Posted by: nomdenet | 2007-01-30 7:55:06 PM


Jack: There you go, women are well represented in ACOA and they're still getting the money!

Posted by: Liz J | 2007-01-30 8:13:16 PM


"Otherwise harm is being done to those successful companies not getting the cuts. Rewarding weak compannies and punishing the strong is a recipe for disaster"

I mentioned Skeena Cellulose above. It is such a good example, that it should be taught in schools. BC governments spent several hundred million dollars on propping up a company, which went bankrupt, as soon as the cash flow stopped. In the meantime, another, viable company, a competitor of Skeena went out of business, for it could not compete with the heavily susidized Skeena (while the subsidy came in part from taxes paid by the competitor).

Smaller scale, but everyday examples: municipality services delivered in competition to the free market. Body building equipment, etc. is cheaper in the municipality gym than elsewhere - subsidized partly from the taxes raised from the competitors.

The wheat board, egg board, manure board too belong in this category.

Governments should generally be forbidden to engage in non-arm-length business.

Posted by: Cato | 2007-01-30 8:31:29 PM


Even Paul Martin once said "governments should not do what can be found in the Yellow Pages".

But it takes courage for a poltician to follow through and take the long view versus climbing onto the election machine which has no philosophy other than to win.

That's why conservatives need a Wm F Buckley to keep them thinking and voting with the long run in mind.

Posted by: nomdenet | 2007-01-30 8:55:38 PM


nomdenet:
Great quote attributed to Paul Martin.
Like most of what he said it went the way of all hot air and dissipated.

At this point the Conservatives are thinking long term and making some tough decisions but they can't make a giant sweep. Remember the Liberals govern for votes and are all things to all people, vote for us and we'll make a deal.

It has to be a gradual weaning process to get back to fairness and doing what's right for the common good.

Posted by: Liz J | 2007-01-31 7:16:39 AM


That quote from Martin was in fact written by his chief Pimp Herle, who Martin found in the Yellow Pages. But dedicated Conservatives should ponder on the fact that if Harper and his Bumpkins do not divest themselves of Liberal Style Pork Barrel Politics the public and media will do them in. They announce this am that they will sell off all Public Buildings and Lease Them back, an idea which originated with that Gay Blade Brison, and which makes no sensible business case in any circumstance,
-all these Politicians think that Canadians are stupid . Jeez, Macleod

Posted by: Jack MacLeod | 2007-01-31 7:52:39 AM


Jack, we’re hamstrung by 75 seats in Quebec which in turn is addicted like Pavlov’s dog to puppy chow. Job 1 is to get a majority elected and then to start moving incrementally on turning this country away from Quebec designed policies originated in France which is what you’ll get if Duel Dion gets in. His A team is even more dangerous ..Iggy , Rae , Martha, Gerry.

Why do we want the government in the real estate business? Even the banks decided that’s not what their shareholders expect them to be … i.e. not property managers, so the downtown Toronto skyscrapers were sold to pension funds and cleaned by nice Portuguese ladies on minimum wage.

But if you let the government own buildings you end up with CUPE building operators with rich dental plans and free Viagra pills, like Buzz’s Boys .. that costs the taxpayer a fortune. Harper’s plan is about union busting which needs to go into full swing pronto. The only unions left are pretty well auto and government. I think Canadians are tired of CUPE excesses.

PS, I wouldn't have thought Herle was that smart, too bad there was no follow thru.

Posted by: nomdenet | 2007-01-31 8:41:43 AM


I agree that CUPE is a real and significant menace
which must be disciplined or downsized so that Harper's conservatism can prevail. The flaw in the
massive sell off is the basic incompetence of Brison and the people who kissed his ass in PW&GS Canada
- Herle is. was detested by most Liberals I know
but that still did'nt stop Chretien hi-jacking the
Party on behalf of Professor "Dolittle Dion"You are right about Ignatieff, Finlay and Rae. I know Rae
as a formidable debater from my days in Toronto the Good, Jeez he could even out talk the ponderous Stephen Lewis in those days. MacLeod

Posted by: Jack MacLeod | 2007-01-31 9:30:25 AM


You’ve made me ponder re your Brison info. “The gay blade” stuff aside, I always thought of him as a fiscal conservative. He even wanted to can ACOA once didn’t he? His idea was to replace that patronage cesspool with a tax cut to help all Atlantic businesses that were capable of producing a profit. I thought that made sense.

Oh and at least Brison was one of the Liberals to literally stand up and be counted in the House for Afghanistan. Gosh here I am defending a Liberal, sorry. But just because Brison liked this sale/leaseback stuff with government properties doesn’t necessarily mean it’s a bad idea, is all I’m saying.


Posted by: nomdenet | 2007-01-31 10:26:30 AM


There are no "fiscal conservative" politicians in Canada at the present time. Not acceptable to the public due to Liberal largesse with their (the public's, money). Brison is an opportunist, he attacked ACOA as a Conservative MP prompted by devastating reports from the Conservative Think Tank
Atlantic Centre For Market Studies, all of which were and remain absolutely accurate. MacKay comes from the old typical patronage driven progressive conservatives of Nova Scotia and will continue to dole out ACAO money to secure and increase political support. Will it work, probably. but in fact it spins off into support for Harper. Brison was laughed out of Federal Liberal Leadership because "his delegates were well known Tories"
and all the genuine Liberals in the Montreal debacle knew it, but they still were not smart enough to know Chretien was screwing them into supporting Pinocchio. One thing the MSM don't realize about Chretien; talk to him for ten minutes and one realizes how smart he is. A very shrewd political operator and charmer. Trudeau
and Davey knew this. Macleod

Posted by: Jack MacLeod | 2007-01-31 11:09:54 AM


"There are no "fiscal conservative" politicians in Canada at the present time"

This is a horrendeous side-effect of the politics of the past decades. We arrived at the point, when anything to the right of Fidel Castro is regarded as "rightist". I'm afraid it will take decades to turn this back, to reduce the feeling of "entitlement", to re-introduce the concept of "merit" and "responsibility", to talk about true "accountability".

As of now, for example "responsibility" means, that someone apologizes for the mess (s)he has created. "Accountability" means in worse case, that one does not receive any more huge salary for something, what was worthless to begin with.

"Merit" is a banned word for unions, who have to uphold the principle of equality, the curse of socialism. "Having to pay less tax" means "subventioning from taxpayers' money".

Unfortunately, the CPC government has not shown any signs of a turn (I know, minority government...)

The worse is this dumb GST reduction. I do understand, that Harper felt it was necessary to appeal to the masses of simpletons, who live to have GST, but this was a *very* bad decision.

Instead of reducing the GST, it should be tripled and the personal income tax totally eliminated.

Posted by: Cato | 2007-01-31 1:34:47 PM


I agree with all your points, Caro, but all the current political parties are honed on the phenomenon of "entitlement" which aside from financial perspectives is the basis of multiculturalism. Media are currently focused on Industrial Regional Benefits associated with Major Crown Projects (MCP's) DND Finance concluded in 1991
that IRB's were ineffective and made no significant impact on Canada's GNP. Meanwhile the US Department of Commerce (DOC) has ruled that IRB's are in fact contrary to the Provisions of NAFTA which they are, but Harper got sucked in to
defending them because of his focus on Quebec - he should know better he is after all an economist. If Ottawa is stupid enough to follow through on IRB contracting they will find ahost of US Companies demanding to bid on the MCP's (which I fully expect) - every time I focus on Unions I think fondly on the Peter Sellers Film, "I'm All Right Jack" a classic - not a favorite of Basil Hargrove's I would think. Macleod

Posted by: Jack MacLeod | 2007-01-31 2:05:23 PM



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