_Military_ Welfare in Canada

By Erik Poole | 1991-07-01 12:00:00

What drives military expenditures? More generally, what determines defence policy? Beyond the perceived need for national security through well equipped and trained armed forces, there are numerous reasons for governments to spend what they do on armaments and to subsidize defence production at considerable expense to the tax payer.

One theory of the military industrial complex (MIC) argues that a triad of interests-government, industry and the military-collude to keep military expenditures high. Generous military expenditures suit bureaucratic empire builders and garner corporate profits, while ensuring the dominance of the state. Defence economist J.M. Treddenick suggests that defence policy is sufficiently complicated and costly to allow government a relatively free reign in using military expenditures to target regions, industries or companies deemed to warrant economic support.

Industrial patronage and regional vote-buying

These and other explanations all have some element of truth to them. In Canada, it appears that so-called economic arguments play a very important role. Defence expenditures are a tool often used by our social welfare state. While the objective may be industrial and regional economic development and a more equitable redistribution of wealth, the end result is often wasteful industrial patronage and regional vote-buying. Defence analysts such as Dan Middlemiss and the late Rod Byers, have argued that Canada spends more for less defence. And such programs constitute poor economic policy, since better tools exist both for redistributing and creating wealth.

The evidence of welfare defence spending is compelling. Studies by economists, using the interprovincial input-output model of Statistics Canada, show defence expenditures to be evenly spread across Canada with perhaps a slightly greater concentration in the maritime provinces. There exists no good military or economic reason why this should be the case. In fact, a purely rational defence policy would see a very uneven distribution of spending across Canada according to the needs of the Department of National Defence (DND) and the unique industrial strengths of the regions.

Defence Industry Productivity Program (DIPP) grants make up one of the most generous federal assistance programs to private companies. According to Ministry of Industry, Science and Technology statistics, in fiscal year 1988-89, $248.5 million in DIPP grants and loans were made to Canadian arms producers.

Cabinet often interferes directly in the procurement process. Thus Montréal based Canadair received the lucrative CF-18 maintenance contract in spite of a better bid from Bristol Aerospace in Winnipeg. This case is infamous for contributing to the western alienation that eventually helped defeat the Meech Lake accord.

The contract to construct 6 patrol frigates for the Canadian navy was split in two to save jobs at the MIL Davis shipyard, opposite Québec City. Splitting the contract meant a loss of $53 million to Canadian tax payers, according the Auditor General. Since 1987, the federal and provincial governments have combined to bail-out the MIL Group for $140 million. The construction is two years behind schedule and the prime contractors, St. John's Shipbuilding and MIL, are suing each other. The militant workers at MIL Davis know they have the federal government over a barrel and are vigorously campaigning for more government assistance.

A study of government subsidies to industries in Canada found the aerospace and shipbuilding industries, both important defence producers, to be among the six most subsidized industries in Canada. Without defence contracts, MIL Davis and other shipyards in Canada would have closed long ago. The industry remains plagued by excess capacity-far exceeding the demands of the domestic commercial market and far beyond the needs of the Canadian defence industrial base.

Other Canadian military firms have been bailed out by the government in the past: De Havilland in Toronto and Canadair in Montréal were both nationalized, operated at tremendous loss, and then sold back to private firms. Québec-based Bombardier bought the money-losing Canadair from U.S. defence giant General Dynamics in the early 1980s after the federal government promised the DND would buy several Challenger jets from the company that it did not need.

Another costly aspect of government procurement practices is that of demanding "offsets" with major foreign companies. Instead of looking for the best value at the lowest price, the federal government looks for companies that use and promise to buy a predetermined percentage of Canadian goods. The aim is to promote high technology industry at home and encourage access to high technology abroad. The end result is a procurement process that is longer and much more costly to the Canadian taxpayer. Numerous analyses have shown that benefits to the Canadian economy are minimal.

The lure of big defence dollars

How have defence expenditures and subsidies to arms producers come to be used as a tool of the welfare state? Security is the exclusive prerogative of the nation state. Governments can spend defence dollars as they wish without fear of countervailing duties or reprisals through the General Agreement on Trade and Tariffs (GATT). In this era of increasing liberalized trade, there exists a real danger that politicians will turn more and more to defence to satisfy the needs of their electoral clients.

Defence expenditures also lack the stigma of big government or left-wing ideology attached to many government programs. Their justification can be cloaked in terms of "defending national sovereignty or the free world."

Military expenditures and production translate into big dollars spent in small communities or concentrated in often large procurement projects with a disproportionate importance for the aerospace, electronics and shipbuilding industries. Defence production often involves hi-tech state of the art products to which Canadians attach much prestige value (although the economic rationale is often hard to pin-point). Simply put, the temptation for political leaders is too great.

Unfortunately, the negative effects do not stop at wasted tax payers' dollars. It would appear that the capacity of our manufacturing industries to compete internationally is affected. Overly generous hand-outs promote inefficiency. Maintaining excess capacity in tight markets ensures that cost structures stay too high.

Dangers on the horizon

If the political will existed, defence spending and production could be disentangled from these so-called socio-economic objectives and political interference. However, the future does not look rosy. Defence policy-making could in effect become much more clouded than it already is.

The provinces are slowly but surely getting into the business of industrial policy. Through various grants and subsidies, they are seeking to attract manufacturing companies, including weapons manufacturers. Québec has been particularly aggressive in this field, probably because it sees defence production as a good way of reinforcing its emerging aerospace industry (often at the expense of Ontario) and boosting a weak electronics industry. In addition to the problems mentioned above, there is a danger of further balkanization of the Canadian economy.

In 1988-89, 51% of DIPP grants and loans went to Québec, although some of these funds were spent in other provinces. It is one thing to recognize the legitimate rights of Québec to seek powers in the field of language and culture and to support constitutionally entrenched asymmetrical federalism. It is another thing altogether to try to buy Québec's support for confederation through industrial policy handouts and thinly disguised military welfare.

Creating an elected, equal and effective Senate, as proposed by many in Western Canada, would merely ensure a fairer distribution of the federal government procurement pie. It would probably mean that all major procurement projects would have to guarantee work in each region of the country. This makes no economic sense and would reduce Canadian national security policy to the spectacle of elected representatives snorting at the trough (as has often been the case in the US). An enlarged House of Commons, with a proportional voting system similar to the ones prevalent in northern Europe, would ensure us a more democratic system and better policy.

For most Canadians, the debate on defence spending is limited to how many dollars overall go to defence compared to other government programs. Debating the budget envelope is important, but not enough. How defence spending is conducted and how defence goods are procured can also impact on national security policy.

Canada can be proud of its generous social welfare state, in spite of any fine-tuning or improvements it might need. The creation and distribution of wealth is too important to be pursued by the wrong tools. Likewise Canada's national security policy, whether it be pursued by armed forces, free-trade with the South, foreign assistance, our role at the United Nations or a combination of all of these, is far too important to be encumbered by other domestic objectives whose rationale is often more political than not.