February 14, 2013

Crony capitalists make pitch for industrial policy in defence purchases

Filed under: Business, Cancon, Government, Military — Tags: , , , , , , — Nicholas @ 11:02

Canada doesn’t really have a defence industry — certainly not in the sense of Britain, France, or the United States. We have some companies which happen to make products of use to the military (armoured vehicles, for example), but our government is not tightly tied to the fortunes of these companies in some sort of maple-flavoured Military-Industrial Complex. Some movers-and-shakers want to change that:

It goes without saying that the proposal to siphon funds to defence contractors is gussied up in industrial-policy jargon. For instance, we’re told how defence industries are “important sources of technological dynamism and innovation [and] leading-edge participants in global value chains.” (Who today isn’t part of a global value chain?) Also in keeping with current industrial-policy trendiness, the government is instructed to be strategically selective in KIC-starting the sector. “KIC,” you see, stands for “Key Industrial Capabilities,” which is what we’re told we should focus on.

But despite the alluring bells and whistles, the message to firms selling to the government is clear: Either pay up or forget about getting the contract. From now on, if the committee gets its way, how you plan to spread the industrial booty around the Canadian economy will weigh directly in the balance with how your product performs. The new fighter jet doesn’t accelerate quickly enough to elude missiles? Well, never mind that, it comes with a new plant in Mississauga. Shells pierce the new tank’s armour? Too bad. But the innovation spinoffs for Thunder Bay are just too good to pass up.

You might think that interpretation extreme. Surely safety for our soldiers and value-for-money for our taxpayers come first. But what else could be meant by the recommendation that bidders specify the industrial benefits they’re offering as part of their bid itself, rather than as an add-on after the performance characteristics of their product or service have won them the contract?

Suppose that instead of causing defence contracts to be inflated with offsets for Canadian industry, this committee consisting of a high-tech CEO, a former chief of staff at national defence, an IP specialist in a defence company, a retired general and Paul Martin’s one-time policy guru recommended levying a 5% tax on all government defence purchases and using the revenues thus generated to subsidize Canadian defence contractors?

I sent the original Globe and Mail URL to Jon saying, “The very last thing Canada should be attempting is to use government money to build a ‘defence industry’. Let the military buy what they need on the open market — regardless of country of origin — at market prices. The fetish to have a domestic defence industry is pure crony capitalism clothed in a “patriotic” fig leaf.”


  1. This is not new news, although it may be new to many. The industrial benefits has been a part of procurement for years. Just go to industry Canada’s website and you will find all kinds of info on regional spending.

    Comment by Dwayne — February 14, 2013 @ 18:12

  2. Well, yes, you’re right. The “news” is that the government is being pushed to make even more opportunities to ladle out the pork barrel to the usual suspects.

    Call me a cynic, but I’d rather the military got the best tools available for the job rather than the best that can be made in Canada at a higher price (as long as they are located in key swing ridings for the governing party). Under that kind of policy, the military frequently gets less capable equipment (or fewer units than they really need) at a higher price. Winner: political cronies of the government. Losers: the taxpayers and the military.

    Comment by Nicholas — February 14, 2013 @ 18:16

  3. The problem is that the military has next to no say, no matter what the media says. The other thing is that no matter what the government buys, the media will make a big deal of the cost. And if that money is not spent in Canada, or that Canadian companies don’t benefit from the spending, then the media cries about that too. It is a lose, lose for the military when procurement is in the news.

    Comment by Dwayne — February 15, 2013 @ 00:01

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