Ottawa is spending $1.7M for 10 new jobs at a pasta plant. Are such loans and government aid worth it?

When the federal governmentsaid earlier this week its$1.7 million loan to aBrampton, Ont., pasta plant wouldcreate 10 jobs, some questioned whether that taxpayer money was being put to good use.

One economics professor tweeted he was "legit astonished" by the investment in Italpasta.

"Do they not understand just how insane this is? That spending north of $170k for *one job* is an embarrassment, not an achievement?" wrote Stephen Gordon of Laval University.

And that was just a fraction of the billions of dollarsin subsidies that were announced recently for the creation of electric vehicle-relatedplants in Ontario.

While some economistssay they understand the political motives for such corporate government assistance, they say theymake little economic sense.

"Thereisreally no underlying economic rationale," said Robert Gillezeau, assistant professor of economics at the University of Toronto's Rotman School of Management. "Ithinkthose spendsare more about politicsthan they are about economic development.

"You'reintroducing an economic inefficiency to the market."

The $1.7 million loan toItalpasta Ltd., billed asthe largest pasta manufacturer in Canadawill help it "increase production to keep up with growing demand," according to Filomena Tassi, the minister responsible for the Federal Economic Development Agency for Southern Ontario.

"Investments like these are making a difference in our economy & helping businesses grow," Tassi tweeted.

Herpress secretary says the money is a 100 per centrepayable loan that Italpasta will use to buy new equipment.

"[That] allows them to triple the production of their pasta products, all while reducing their energy consumption and carbon footprint," Edward Hutchinson said in an email to CBC News.

Meanwhile, thebenefits of such government corporate assistance on a much larger scale weretrumpetedby bothPrime Minister Justin Trudeau and Ontario Premier Doug Ford last month.

The two leaders stood togetherat a Honda plant inAlliston, Ont., to announce the creation offour manufacturing and assembly facilitiesin the province, includingthe construction of Honda's first EV assembly plant, a new stand-alone EV battery plant and two battery parts facilities.

The federal and provincial governments will contribute $5 billionin direct subsidies and tax credits to the $15-billion project, an investment, itsays, that will translate into1,000 new jobs.

That comes on top ofboth governments' previouslyannounced billions of dollars forthe Stellantis-LGESEV battery plant in Windsorand the Volkswagen plant in St. Thomas.

But some observers have questioned whether jobs created this way are worth the money.

If we take the creation of new jobs as the main measurable pay-off for government investment, the pasta plant loanworks out to $170,000per job while the $5 billion in EV subsidies translates to $5 million per job.

'Fairly irresponsible'

"It is fairly irresponsible to be using this money and defending this on a job creationargument," said Kent Fellows,assistant professor of economics at the School of Public Policy at the University of Calgary.

"These aren't new jobs. We don't have any evidence that the people who would be in these positions wouldn't be working in another sector otherwise."

WATCH |Trudeau touts EV investment:

'Historic' Honda EV investment will boost economy for generations, says Trudeau

4 months ago

Duration 3:05

Prime Minister Justin Trudeau praised Honda's $15-billion EV investment as an example of 'Canada building the kinds of solutions the world needs' before taking aim at his rivals, and suggested the announcement would not have happened under a Conservative government.

Fellows says another argument can be made against the assistance for the pasta and EV plants.

"These are not new technologies. We're not funding R&D that's going to spur new economic production," he said.

Even with the current unemploymentrate (6.1 per cent), there isn't a really big unemployment problemin the country, Fellows says. In fact,somesectors have labour shortages.

In that kind of economic environment, then, what the government is really doing with its corporate fundingis just reallocating jobs, reshuffling the deck and trying to move jobs around the economy, which is not necessarily a good thing,Fellows said.

"You could take a worker that is very productive in an industry that pays a reasonable tax rate and ismaking good returns on its capital andnow you're allocating them to an industry that either requires a subsidy or requires a tax break to locate here," he said.

"That's not efficient. That means that we're getting less out of the sort of the macroeconomic factors of production we have than we could otherwise be doing."

Officials have also said that thousands of spin-off jobs will becreated because of thenew EV plants, which include positions created throughnew supply chains for the plants.

'Do the plants need to be located here?'

But Fellows says, underthe free trade agreement, a lot ofauto parts will pass back and forth across the border multiple times before they end up in a finished product.

"So the question really is, do the plants need to be located here for us to get the spin-offs?" he said.

"It's costing a lot in subsidies to do that. Where do we stop? Because we can't afford to go toe to toe with the U.S. We just do not have the fiscal capacity as an economy."

Aaron Wudrick, director of the Macdonald-Laurier Institute's domestic policy program, says he believes any spin-offswould also have to be subsidized.

"So for EVs, you're subsidizing the main plant, you're subsidizing the parts. You're subsidizing the purchase of the vehicles. So, like, the entire ecosystem is subsidized," he said.

"We're subsidizing [a] big thing and all the little things feeding into the big thing as well."

Gillezeausays it's likely the government could probably find a better use of those dollars that would have a bigger impact on economic growth or redistribution.

That would include any type of baseline infrastructure that is broadly available to all firms,he said.

"Ifwe think about things like the power grids or the rail network or roads those things are going to yield much larger returnsquickly,"Gillezeausaid.

"You could go out and ask a bunch of economists, and you'd probably find hundreds of programs that would do a lot more for economic growth thangiving a couple of tens of billions of dollars to the auto companies."

As for the pasta plant,Wudrick questionsthe government's insistence that the money being spent is a "repayable loan."

'They're called banks'

"If you ask most people if they needed to get a loan, we have institutions for that. They're called banks. What is the reason that you need to use the government?"

He says one could argue that there are times when the government is the lender of last resort.

"Does anyone want to say to me that this [pasta] company, which apparently is booming and doing so well, it just needs to triple production, they can't get a loan from the bank?" he asked.

"This is a private business making pasta. What does the government have to do with this?"