A failed policy is running on fumes

Crise politique canadian

There was a time when Quebec suffered from a corrosive case of Ontario-envy. The 1965 Canada-U.S. auto pact, enshrining free trade in cars and a decades-long bull run for Ontario's car plants, generated fanciful conspiracy theories about a federal plot to impoverish Quebec. The chronic five-percentage-point gap in the unemployment rates between each province was chalked up to a single factor: car-making capacity.
No wonder successive Quebec governments sought desperately to make the province a kind of Ontario-lite. There was an interest-free $220-million loan ($375-million in current dollars) extended to General Motors in 1987 to keep just one plant in Quebec. There were massive subsidies offered and/or paid to Hyundai and Toyota to build assembly plants in the province.
It was all for naught. The Hyundai plant, which began assembling the first Sonatas in 1989, closed less than five years later.
The facility in Bromont, Que., which sat empty for more than a decade, is now home to AAER, a locally owned company that assembles wind turbines.
Toyota, meanwhile, never took Quebec's bait, choosing in 1985 to make Ontario its Canadian beachhead.
And General Motors shuttered its Quebec plant in 2002 - with that loan still outstanding.
Today, the old GM site is home to Faubourg Boisbriand, a sprawling residential-commercial real estate development that already generates more in municipal taxes than the auto plant ever could. And the unemployment rate in bustling Boisbriand roughly matches the Quebec average, which is now almost a full percentage point lower than Ontario's.
This tale of economic transformation should make Ottawa and Ontario sufficiently leery about extending more aid to GM and Chrysler. But it also explains why they, along with Washington, have no choice but to prop up the car makers for a while longer.
Ontario, like Michigan, has allowed itself to remain so dependent on the auto industry that it has little or nothing lying in wait to replace it. In rhyming off the Ontario auto industry's statistics - 150,000 direct jobs, 340,000 indirect ones, 14 per cent of Canada's manufacturing output and 23 per cent of its manufacturing exports - federal Industry Minister Tony Clement may have thought he was making a case yesterday for saving car plants. But those statistics are also an indictment of sorts.
When any industry so dominates the economy of a single region as the auto assembly sector has in Southern Ontario, it has a levelling effect, draining labour and capital from every other sector. In the growth phase, this creates a virtuous circle, as evidenced by the Ontario of the 1960s. But when that sector begins an irreversible decline, as the Big Three most certainly have, the circle becomes a vicious one.
Everyone seems to agree that the costs of not bailing out the car companies would be catastrophic - for individuals and the economy alike. But few policy makers seem willing to admit there is also a huge opportunity lost in propping up the sector. It may seem callous if not crazy to say, as layoffs loom, but every job saved at a Big Three car assembly plant means one less potential job in a more productive sector of the economy.
Neither Mr. Clement nor U.S. President Barack Obama could bring themselves to acknowledge that yesterday - at least not publicly. Mr. Obama, in particular, set the bar fantastically high in aiming to "make America's auto industry in the 21st century what it was in the 20th century." Besides being an unrealistic objective, why would the U.S. or Canada ever want to recreate the conditions that made the auto industry the motor of their economies? Sweden, wisely, has said no to saving Saab.
We have pressed our pedals to the metal in our attempts to rethink the role of the automobile in our lives. We are, on purpose, making our cities less and less car-friendly. And, yes, even the suburbs finally get the concept of public transit. These trends will accelerate.
If that were not a good enough reason for Ontario to think twice about perpetuating its dependence on the auto sector, HEC Montréal management professor Louis Hébert offers an even more compelling one: It just can't compete.
Despite all the talk about a future-oriented auto sector focusing on fuel-efficient hybrids or all-electric cars, we are still talking about assembly line jobs. No matter how good Ontario's workers are, they will face inexorable pressure from new competitors in the developing world.
"The car industry is essentially a mature industry, so technology becomes standardized very quickly," Prof. Hébert says. "Once the design is completed, the principal cost is manufacturing. On that front, there will be more, not fewer, competitors in the future."
Mr. Obama, Mr. Clement and Ontario Economic Development Minister Michael Bryant no doubt know this. Mr. Bryant hinted as much, acknowledging that a restructured GM and Chrysler "will mean less production and fewer jobs than in the past." But the politicians are still trying too hard to shield us from the truth. They know assembling cars is a dead end. It's just that they still haven't come up with a better idea.
kyakabuski GUv globeandmail.com

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