What is the cost of the federal and Ontario governments’ contribution to bailing out General Motors? We know what it is in dollar terms: $10.6 billion, or about one-fifth as much as the United States Treasury has kicked in. But how much is that?
Here’s one way to think about it. In exchange for their investment, the governments of Canada and Ontario will together receive 11.7 per cent of the equity in “New GM,” the slimmed-down company that, it is hoped, will emerge from Chapter 11 bankruptcy protection some months from now. On its last day of trading on the New York Stock Exchange, GM closed at US$0.75 a share, for a total market capitalization of about $494 million in Canadian funds. Subtract from that $10.6-billion price of the overall bailout package the roughly $1.6 billion in loans, and our governments paid $9 billion for an equity stake worth just under $58 million.
But it’s okay: over the next nine years, our governments have pledged to sell off their stake, a little bit at a time. So if the stock, say, quintuples in value in that period, we could get back as much as two cents on the dollar.
Here’s another way of looking at it. This year, GM and Chrysler, whose earlier bankruptcy filing was supported by another $3 billion from the Canadian taxpayer, will sell about 400,000 vehicles in this country. So you could say that every one of those vehicles was subsidized to the tune of about $32,000, or slightly more than the average price of a new car in Canada. Our governments could have bought every one of those cars—retail—for less than they have actually pledged.
Or here’s yet a third way. By the time GM has completed its restructuring, it will directly employ about 5,500 workers in Canada, just over half its present workforce, and down from 20,000 four years ago. Had our governments not forked over the cash, we are told, GM would have picked up all of its production and moved it to the U.S. But with the infusion of $10.6 billion in public funds, we have a reasonable prospect—no guarantees, mind you—of saving those remaining 5,500 jobs.
So, if we assume that those jobs will in fact still be there five years from now, and if we assume that GM would indeed have closed down its entire Canadian operation in the absence of such largesse, and if we assume that no additional infusions of public funds are forthcoming—each one highly debatable—then the cost of each job saved comes out to a little under $2 million.
Foul, cry the bailout’s defenders. What about all those suppliers that depend upon GM and Chrysler? And what about all the spinoffs beyond that? The Ontario premier, Dalton McGuinty, estimates 85,000 jobs would have been lost in the province had governments not stepped in to save GM. His federal counterpart, Stephen Harper, put the overall job loss had both companies closed their doors at “hundreds of thousands.”
We’ll never know, of course: it’s impossible to say how many jobs “would have” been lost had something not happened that in fact did. But two can play at that game. For there are spinoffs in both directions: the jobs that subsidy saves, and the jobs that subsidy just as surely destroys. Keeping GM and Chrysler in business means keeping capital invested in those two companies that might otherwise have been invested in other firms and other industries. It means diverting consumer dollars to purchasing their cars that might otherwise have been spent on other goods and services. As such, it means the jobs saved at GM and Chrysler come at the expense of other jobs, in other companies. We can’t know exactly how many, but we do know they would be at companies that could compete without the benefit of $13-odd-billion in public support.
And of course the total figure will come to more than that—much more. Because every single one of those dollars is borrowed. That shocking leap in the deficit Jim Flaherty announced the other day, from $34 billion in the budget to $50 billion? The greater part of it was due to Ottawa’s roughly $9 billion share of the bailout. Ontario’s deficit has likewise swelled nearly $4 billion, to $18.5 billion. So to that initial layout of $13 billion, add billions more in interest. Either spending will have to be cut on other programs to make room for this, or taxes will have to rise.
Let us suppose the latter. Is it to be doubted that a tax increase of $13 billion—roughly the cost of another two percentage points on the GST—would destroy many thousands of jobs? Would there not be a great hue and cry over this? Yet let the money be borrowed—that is, a delayed, but larger tax increase—and suddenly it’s free money. No one counts the jobs destroyed across the economy; only the jobs saved at GM and Chrysler.
And it was all so unnecessary. GM is in bankruptcy today; it could have been six months ago. Instead, it dithered, partly in hope that government aid would preserve it from this fate, which it presented as an unthinkable calamity. And all the while it went on losing money, at a rate of about $100 million a day. All the billions we are pouring in now do not even cover the losses incurred in the interim. All we will get for our money is the right to pour in more in the years to come.