Open this photo in gallery: Prime Minister Justin Trudeau tours the Stellantis Windsor (Chrysler) Assembly plant in Windsor, Ont., on Jan. 17, 2023.NICOLE OSBORNE/THE CANADIAN PRESS
Jim Hinton is an intellectual-property lawyer and patent and trademark agent with Own Innovation.
Canada’s electric vehicle manufacturing subsidies are not “investment” – they are economic illusions. There has been over $40-billion worth of Canadian federal and provincial handout announcements, including up to $15-billion for Stellantis and LG, up to $16.3-billion for Volkswagen, $7.3-billion for Northvolt, and a continuing race to give billions to Honda and others. As Dutch, South Korean, German, Swedish, and Japanese companies build their value chains using Canadian taxpayers’ dollars, what’s in it for Canada?
The government has not shown any analysis of the positive and negative economic spillovers of billions of dollars from EV subsidies. Politicians praise the creation of jobs, regardless of reports that show Canada has no shortage of technical jobs but rather faces a shortage of people to fill them. At best, these jobs reshuffle already-employed skilled talent. At worst, the government is helping foreign firms poach skilled talent from Canadian companies – using their own tax dollars.
Canada’s politicians and policy makers are promising economic outcomes based on futile economic strategies from a bygone era.
Policy makers incorrectly hope that these subsidies will create “good middle class” jobs for Canadians. Yet most of the work at these factories will be done by machines – robots and automation technologies, with the value flowing to the foreign owners of the automation technology.
Where specialized human resources are needed, a significant amount of those employed will be foreign workers. The current subsidies for those jobs – $15-billion for 3,000 – is around $5-million per job. Canada’s economy would be better off if we deployed funds to domestic companies who could create jobs for a fraction of that amount.
Further, these factories will not create significant “economic spillovers” for supply chains that Canadian companies can plug into.
Decades ago, factories built industrial bases, providing positive local spillovers in management and technology, incentivizing the development of local supply chains and expanding Canada’s tax base. In 1975, 83 per cent of Standard & Poor’s corporate value was held in tangible assets such as factories, land and inventory. Today, that percentage has plummeted to 9 per cent, with over 90 per cent of the value now in intangible assets such as intellectual property (IP) and data.
These intangible assets, and their associated taxable income, move with a click of a mouse because today’s companies compete in global value chains – not old-fashioned supply chains.
Moreover, in the automotive sector, original equipment manufacturers (OEMs) do not like to depend on sole suppliers, so they force component providers to make their parts non-proprietary. This means that Canadian parts manufacturers who supply these factories are not making high-margin proprietary technology for big companies but instead serve as low-cost manufacturers or developers for hire, with customizations owned by the OEM.
In today’s economy, companies compete in global value chains with their ability to collect economic rents based on IP ownership. In an IP-intensive industry such as EV factories, employees are restricted via their employment contracts from sharing IP with those developing competing technologies. And we’ve seen in a recent Globe and Mail report how when publicly funded Canadian researchers invent great battery technology, Canada has ended up giving it all away.
This issue of IP ownership is also why other arguments in favour of these billion-dollar subsidies are misguided.
Proponents say that these factories need to be in Canada because we have the critical minerals. Yet the value of critical minerals is less in the physical resources and increasingly in owning the technologies and processes for extracting them. Canada’s critical minerals strategy makes no mention of the necessity for Canadians to own IP or any strategy that aims to increase Canadian freedom-to-operate in this field.
These subsidies are not needed to keep up with U.S. CHIPS Act, which is designed to support its semiconductor and automotive manufacturing base. Americans subsidize headquarters of automakers like GM and Ford because the economic value of their IP assets and data holdings accrue to and enrich the US domestic economy. Because of the zone of competition has moved from supply chains to global value chains, countries hosting branch plants don’t get the same benefits. This is particularly true for Canada, whose domestic companies own very little valuable IP.
There are many other myths sold in this expensive tale of a new industrial strategy. Given the size of taxpayer funds committed to these initiatives, Canadians need to see governments provide a fulsome analysis of economic spillovers – both positive and negative. This analysis needs to be grounded in the 21st century economy, not the economy of the 1970s. There also needs to be a section on national security implications because critical minerals and energy polices are part of national security considerations, especially in today’s IP- and data-driven world.
Canada is capable of building its domestic EV industry. But delusional expectations will drive us nowhere fast.