SNC-Lavalin: Does 9,000 jobs make it a ‘public policy problem’?

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How convincing was Trudeau’s version of the story?
The credibility of Prime Minister Justin Trudeau and his government are being questioned in light of accusations the PMO interfered in the SNC-Lavalin criminal case. His answers on the controversy may not be enough to help his reputation, or his re-election this fall. David Akin reports – Mar 7, 2019

Nine thousand is a number Canadians have been hearing a lot this week. That’s the number of job losses the Trudeau government says it’s worried about, should SNC-Lavalin be handed a criminal conviction on fraud and bribery charges.

The Quebec engineering giant currently has around 8,700 employees in Canada. Those are the people the government says it was focused on when it talked to former attorney general Jody Wilson-Raybould about offering the company a deferred prosecution agreement.

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A DPA would require SNC-Lavalin to admit wrongdoing, relinquish the gains from unlawful activity and pay a fine but would spare it from a criminal conviction, which comes with a 10-year ban on bidding for federal contracts.

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The Trudeau government has drawn a direct line between a criminal conviction and the possibility that all 9,000 SNC-Lavalin jobs in Canada — along with many others tied to the company’s supply chain — would disappear.

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“When 9,000 people’s jobs are at stake, it is a public policy problem,” Gerald Butts, Prime Minister Justin Trudeau’s former principal secretary, said in his testimony before the House of Commons justice committee on Wednesday.

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PM’s ex-principal secretary on SNC affair: “Nothing inappropriate happened here”

Whether a criminal conviction would lead to the loss of all or most SNC-Lavalin jobs in Canada is a matter of debate. Some financial analysts reportedly believe that the company would have a good chance to survive the blow.

And there are different opinions out there about the implications for jobs and the economy if the company became the target of a corporate takeover or whether it would eventually choose to move its headquarters outside the country — despite a commitment to keep its head office in Canada until at least 2024 under a loan agreement with Quebec’s pension fund manager, the Caisse de dépôt.

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Federal court rejects SNC-Lavalin’s bid to avoid criminal prosecution

The Trudeau government has so far provided scant detail about how, exactly, it believes those jobs would disappear or the broader repercussions on the economy such job losses would create.

But let’s assume 9,000 jobs were, in fact, at stake. Does that, in itself, make the SNC-Lavalin affair a policy question? And if so, is protecting the company the best way to contain the economic damage?

Jobs are always the government’s business

Jobs are invariably the government’s business, said Kevin Page, who served as Canada’s first Parliamentary Budget Officer.

Part of it is because “one of the objectives of government is to grow the economy — as it should be, perhaps,” Page said.

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The other part, of course, is politics: governments want to be seen to be creating or protecting jobs in order to win votes, he added.

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Economists don’t even argue about whether governments should foster job creation and employment, said Jennifer Stewart, a health and labour economist at Carleton University’s School of Public Policy and Administration. What economists do argue about is how governments should go about doing that, she added.

The hands-off approach championed by the many in the U.S. is that government should simply avoid getting in the way of private business, said Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University. The idea is that governments should leave the hiring and decision-making to the companies but try to help with things like tax breaks and investment incentives.

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In Canada, however, the relationship between businesses and the government has traditionally been skewed towards a more interventionist approach, Sands said.

The deal that Canadian governments often seem to be offering business is “we’ll tax you more and we’re willing to help you get business abroad to compensate for the fact that Canada is such a small market — but you have to keep investing in our people and keep your headquarters in Canada,” he added.

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SNC-Lavalin has arguably held up its end of the bargain, Sands said. And the Trudeau government likely felt that “they were fulfilling their end of the social contract.”

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Is 9,000 jobs a lot?

Even in Canada, though, the government isn’t in the business of shoring up every flailing company — let alone those that break the law. The rationale for intervention usually has to do with the number of expected job losses and the potential knock-on effects on the economy.

So is 9,000 a large enough number to justify the government getting involved?

This past February alone, the Canadian economy created nearly 56,000 net new positions, Page noted. But that in itself doesn’t mean 9,000 isn’t a significant number, he added.

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ANALYSIS: Despite protests from top Trudeau aide, Wilson-Raybould was right — SNC-Lavalin is about politics, not jobs

Job losses that happen all at once in the same geographical area generally have more serious economic repercussions, said Burkard Eberlein of the Schulich School of Business at York University.

But there isn’t a firm metric to define what constitutes a large or concentrated job loss. SNC-Lavalin has around 2,500 employees in Quebec, including 700 at its head office in Montreal.

Another parameter economists use to weigh the economic effect of large job losses is to look at what kind of jobs would be lost. Specifically, what is the chance that laid-off workers would find comparable employment somewhere else in a relatively short amount of time?

Some believe any job-bleeding from SNC-Lavalin would be quickly reabsorbed by the economy.

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“The economic forces underpinning those jobs won’t disappear if SNC-Lavalin does,” Stephen Gordon, an economist at Université Laval, told Global News via email.

“It’s far more likely that [the company would] be bought out by another firm, and the people currently working there would continue to work for the other company,” he said. “It’s the loss of a head office that’s worrying people, not the loss of jobs.”
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“Of course, the people who would lose their jobs — senior executives — can be forgiven for being anxious,” he added. “But I don’t see that as a huge public policy issue.”

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Scheer says Trudeau has ‘stage managed’ SNC-Lavalin case

The SNC-Lavalin case isn’t your usual government bailout

When governments intervene to save jobs, it’s usually in the form of cash injections. The classic example is the billions of dollars that municipal, provincial and federal governments of various stripes have slipped to General Motors for decades.

That’s the kind of government intervention that makes Eberlein cringe because politicians ultimately “can’t control what the company will do in the long term.”

In that sense, he’s more comfortable with the Liberals putting up $4.5 billion for the Trans Mountain pipeline. At least, he says, the pipeline can’t go anywhere, and the government has control.

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SNC-Lavalin, though, is a peculiar case because saving the company — again, assuming that is what’s at stake — wouldn’t cost taxpayers a dime, Eberlein said.

Another way in which the SNC-Lavalin conundrum is different is that the company isn’t a case of an economic dinosaur that hasn’t been able to keep up with market forces, said Omar Khan, who served as chief of staff at the office of Ontario’s Minister of Economic Development, Trade and Employment under the government of Kathleen Wynne.

The potential threat to SNC-Lavalin stems from the harsh penalty mandated by laws that were written by the government itself, he noted.

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Jobs vs. justice

The question, then, becomes what constitutes appropriate punishment for the conduct of its former executives, Sands said. SNC-Lavalin faces charges in connection to nearly $48 million in alleged illicit payments to the regime of former Libyan dictator Muammar Gaddafi.

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“We don’t want [corruption], we want to stomp on that,” Page said. But, he added, a DPA would still allow for criminal charges against top executives.

Still, a criminal conviction of SNC-Lavalin would send a powerful message to other Canadian firms, Stewart said.

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The silver lining

Canadians looking for a silver lining in the current scandal may find comfort in the vigorous debate and close public scrutiny of the government that has come from the SNC-Lavalin affair, Page told Global News.

“The justice committee is working very well,” he said.

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What is needed now, he added, is more analysis of how a criminal conviction of SNC-Lavalin would actually impact jobs and the economy.

On Wednesday, when Green Party MP Elizabeth May asked Butts whether he had sought any independent evidence that a criminal conviction of the company would result in a threat to jobs, Butts did not have an answer.

“I can’t recall anything specific,” he said.

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