OPINION: Canada donates billions to electric car makers, but is blinded by economic delusions

Jim Hinton is an intellectual property attorney and patent and trademark agent at Own Innovation.

Canada’s electric vehicle manufacturing subsidies are not an “investment” but an economic fantasy. More than $40 billion in total federal and provincial benefits have been announced, including up to $15 billion for Stellantis and LG, $16.3 billion for Volkswagen and $7.3 billion for Northvolt. The race for billions of dollars in donations to Honda continues. others. Dutch, Korean, German, Swedish and Japanese companies are using Canadian tax dollars to build value chains, but what does that mean for Canada?

The government has not provided any analysis of the billions of dollars in positive and negative economic spillovers from EV subsidies. Politicians are praising the job creation despite reports that Canada is facing not just a shortage of skilled jobs, but a shortage of people to fill them. At best, these jobs will redeploy skilled talent already employed. At worst, the government is helping foreign companies use their own tax dollars to poach skilled talent from Canadian companies.

Canadian politicians and policymakers are promising economic results based on the wasteful economic strategies of a bygone era.

Policymakers mistakenly hope that these subsidies will create “quality middle-class” jobs for Canadians. But most of the work in these factories will be done by machines – robots and automation technology, and the value will flow to the foreign owners of the automation technology.

When specialized human resources are needed, a significant portion of the human resources employed will be foreign workers. The current subsidy for these jobs is $15 billion for 3,000 people, or about $5 million each. The Canadian economy would be better off if we put money into domestic companies that can create jobs at a fraction of that cost.

Additionally, these factories will not have significant “economic spillovers” to the supply chains that Canadian companies can connect to.

Decades ago, factories built an industrial base, created positive local spillover effects in management and technology, encouraged the development of local supply chains, and expanded Canada’s tax base. In 1975, 83% of Standard & Poor’s corporate value was held in tangible assets such as plant, land, and inventory. Today, that share has plummeted to 9 percent, with more than 90 percent of the value accounted for in intangible assets such as intellectual property (IP) and data.

Because today’s companies compete in global value chains rather than traditional supply chains, these intangible assets and their associated taxable income move with the click of a mouse.

Additionally, in the automotive sector, original equipment manufacturers (OEMs) do not want to rely on a single supplier, forcing component providers to make their parts non-exclusive. This means that the Canadian component manufacturers supplying these factories are not producing high-margin proprietary technology for large companies, but rather low-cost manufacturers with OEM-owned customizations or It means that you are functioning as a developer for hire.

In today’s economy, companies compete in global value chains for their ability to collect economic rents based on ownership of intellectual property. In intellectual property-intensive industries such as EV factories, employees are restricted through employment contracts from sharing intellectual property with companies developing competing technologies. And we learned in a recent Globe and Mail report that even though publicly funded Canadian researchers have invented great battery technology, Canada may eventually abandon it all. I saw what happened.

This intellectual property ownership issue is also why other arguments in favor of these multi-billion dollar subsidies are misguided.

Supporters say these plants need to be in Canada because of the availability of critical minerals. However, the value of critical minerals is increasingly less about the physical resources and more about owning the technology and processes to extract them. Canada’s Critical Minerals Strategy does not address the need for Canadians to own intellectual property or any strategies aimed at increasing Canada’s freedom to operate in this area.

These subsidies are not required to comply with the US CHIPS Act, which aims to support the semiconductor and automotive manufacturing base. Americans subsidize the headquarters of automakers like GM and Ford because the economic value of intellectual property assets and data they hold enriches the American economy. As the field of competition has shifted from supply chains to global value chains, countries where branch factories are based no longer enjoy the same benefits. This is especially true in Canada, where domestic companies own little valuable intellectual property.

There are many other myths peddled in this expensive narrative of new industrial strategy. Given the scale of taxpayer funding invested in these efforts, Canadians should expect the government to provide a thorough analysis of the economic ramifications, both positive and negative. This analysis should be based on the 21st century economy, not the 1970s economy. A section on national security implications is also required, as critical minerals and energy policies are part of national security considerations, especially in today’s IP and data-driven world.

Canada has the ability to build a domestic EV industry. But delusional expectations alone won’t get us anywhere fast.