The province is partly to blame for Kellogg’s plant closure in London, Ont.

The consequences of corporate welfare

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The Kellogg Company announced today that it is closing its London, Ont., plant. The plant has over 500 full-time employees, though only 400 are losing their jobs from this action as last month it was announced that 110 workers would be laid off in January. This is terrible news for a city that has suffered greatly over the past few years with the closures of Electro-Motive Diesel and McCormick-Beta Brands, and particularly for the local food-processing industry with the closure of the Heinz factory in Leamington fresh in everyone’s minds.

Whenever a plant closes there is an undeserved knee-jerk reaction to blame governments at all levels. However, this case may be the exception where such a reaction could be warranted. Questions need to be raised about the Ontario government’s possible role in this plant closure. On the surface it would appear that at least some of the lost London production went to Belleville, Ont., thanks to a $9.7-million interest-free loan in 2008 from the province and $4.5 million in additional provincial funding in 2011 (it is not clear if this money was a loan or a grant). The net effect of this expenditure of taxpayer dollars appears to have been to shift production from higher wage employees in London to lower wage employees in Belleville (though their jobs may not be safe either). This incident is an extreme example of the potential unintended consequences of corporate welfare.

This will not be the last plant closure in Southwestern Ontario, and I suspect the provincial government’s funding of the Belleville plant only sped up the inevitable in London. With the U.S. population gradually moving south and west, Ontario lacks a geographic advantage when it comes to mass consumer manufacturing. Geography gave the region an advantage in the past for goods that are relatively expensive to ship relative to their value, such as breakfast cereal. But as American populations move from Michigan and Ohio to Texas and California, Ontario’s transport-cost competitive advantage over areas such as the U.S. southeast and Asia diminishes, making those areas more attractive due to their lower labour costs. London’s suffering is likely far from over.