“Canada’s New Government” is creating a fine mess for itself out of the C-17 contract, a deepening imbroglio that more and more has the whiff of a very old-fashioned sort of scandal. The ingredients are familiar from past such messes, which seem to attach themselves to the procurement process like zebra mussels to a sewer pipe: questionable contract specs, possible bid-rigging, political interference by regionally-minded ministers, and at the bottom of it all, the usual stone dumb economics. It has raised some very dark memories, and it is not going to go away. If anything, it is going to get worse.
The military’s requirements were straightforward enough: some long-range transport planes, of a kind that might permit Canadian soldiers and equipment to be airlifted into faraway combat zones without, as in the recent past, having to hitch a ride with the Americans. But rather than follow the process that common sense, not to say government procurement rules, might suggest, that is of entertaining competing bids, then choosing the one that offered the most bang for the fewest bucks, the process has been shrowded in intrigue and politics.
In the first place, only one bid, Boeing’s, was allowed, at a cost of $3.4-billion -- just one of a number of sole-source contracts in the last year for expensive military hardware. Moreover, as the Ottawa Citizen has reported, the rules were changed at the last minute last spring to double the planes’ required payload, from 19.5 tonnes to 39 tonnes each. As it happened, only Boeing’s C-17 met the new requirement, leaving its arch-rival Airbus out in the cold.
So far, so dubious. But this is Canada, where an agreement to purchase military equipment merely serves as the signal to start the real negotiations, over the distribution of so-called “regional benefits.” Enter Senator Michael Fortier, the minister of Public Works, whose demands that Boeing allocate a greater share of the “benefits” to Quebec than it had planned have, as reported, threatened to stall delivery of the planes. Quite what business Sen. Fortier has monkeying around in Defence policy might seem as murky as his democratic mandate to hold even the office he has, until you remember that he is also the political minister for Montreal, where much of Quebec’s aerospace industry -- and Tory electoral hopes -- are located. As he told Le Devoir in a recent interview, “we must absolutely make inroads in Montreal [in the next election]. There's no 'maybe' about this. It's more than an objective -- it's a priority.”
The reaction to this crude exercise in regional bigfooting has been predictable. Premier Gary Doer of Manitoba, where the wounds from the CF-18 debacle of twenty years ago are still fresh, has denounced the minister’s meddling in colourful language. The premier has his own political agenda, of course: there’s a provincial election likely this year, and it never hurts to run against perfidious Ottawa. But it’s also possible the premier can sense when the fix is in.
Well. We can all agree the minister should butt out. But the process, as constituted, fairly invites such interference. The problem is not the inevitable regional beard-pulling over who gets what share of Boeing’s largesse, but the very policy that there must be such “benefits” to be distributed whenever the government enters into a contract of this kind.
The feds are not so demented as to insist that the aircraft in question be constructed entirely in this country. Rather, the winning bidder is obliged to spend precisely the amount of the contract in Canada, whether on the construction of that plane or any other, including passenger planes.
First question: Why the same amount? No reason, except that it looks good politically. It makes it look as if the governmentt had contracted with Canadian suppliers to build planes in Canada, rather than paid a foreign supplier to build planes elsewhere. But Boeing didn’t get to be the world’s largest aircraft manufacturer by doing things for free. If it wanted to spend billions of dollars constructing aircraft in Canada, it would. If it has to be forced to, chances are it doesn’t. But of course it can’t be forced to. The only way the government can make it do what it otherwise wouldn’t is to pay it, by inflating the value of the contract.
If Ottawa is, in effect, subsidizing the construction of passenger aircraft, why not do so directly, rather than burying it in military contracts? Ordinarily, it does. But where it’s always politically popular to subsidize a firm that’s competing with suppliers in other countries -- even if the rest of us have to pay for it -- it’s not such a political free kick if the subsidy clearly pits one part of the country against another. Hence the Senator’s backroom machinations.
But it’s still a subsidy. So add it up. First we overpay foreign suppliers for military aircraft. Then we use the proceeds to subsidize the construction of passenger aircraft here at home, to be sold at a discount overseas. This is, you might say, Canadian industrial policy in a nutshell: Buy high, sell low.
