Dr. Jekyll and Mr. Harper

Here's how the Globe & Mail describes the justification for an additional $9.5 billion public investment in bankrupt GM:

"Driven by a desperate fear of losing the bulk of Ontario's auto manufacturing sector, Prime Minister Stephen Harper and Premier Dalton McGuinty have insisted they have little option but to help in the restructurings of GM and Chrysler LLC. Without Canadian government involvement, the U.S. government would insist the companies relocate assembly operations south of the border in order to prevent American taxpayers from subsidizing Canadian jobs, they argue."

But today the paper reports that "Ottawa is set to launch an unprecedented ad campaign aimed at selling Canada to potential corporate investors in places like Japan, Britain, Germany, France, and even the troubled United States."

What kind of policy objective can be met by engaging in these two opposing strategies? Harper's government is distorting the market to keep a defunct and anachronistic automaker afloat, thereby saving a few thousand jobs in vote-rich Ontario. At the same time, it is trying to attract new capital investments from foreign firms. But has it not occurred to them that by giving preferential treatment to the Detroit Three, they are discouraging foreign automakers from setting up shop in Canada or from expanding their operations here?

Suppose we ignore GM and Chrysler's pleas for cash. What would happen? Perhaps some plants will close. Maybe they all will. But if Southern Ontario is really an efficient location to build motor vehicles, than all that idle plant and equipment (not too mention raw labour and human capital) will be an attractive buy for other automakers, e.g. Toyota, Honda, Nissan, Hyundai. Wouldn't it be better to have solvent and dynamic companies producing cars in Canada rather than basketcase companies run by the Obama administration?

The federal government's plan to attract greater foreign direct investment is a sign that they have not abandoned all their economic principles. But the taxpayer-funded stake in GM is a more telling sign that this government's commitment to sound economic policy is tenuous at best.