Wednesday, December 17, 2008

Distrubing news from Newfoundland

This morning I read a report in the newspaper that the government of Newfoundland and Labradour is going to expropriate the assets of AbitibiBowater in the province. This is Danny Williams' response to the closure of the pulp and paper mill in Grandfalls-Windsor.

I do not even know where to begin with this.

Should the mill be operated if it is losing money? Should AbitibiBowater be forced to produce a product that is not enough demand? Will the province now run the mill at a loss?

It is wildly dangerous for government in intervene in this manner in the market. It kills investor confidence. Who is going to want to invest a couple of hundred million in Newfoundland if the government may suddenly take it away? There will be no private investment in pulp and paper in Newfoundland and this means the mills will get older and less efficient over time. They will not be able to compete.

I am also afraid of where this action will lead in the rest of the country. I expect there to he a dramatic rise in the demands from the left for the government to expropriate resource sector companies. I am afraid where it will lead the BC NDP and their approach to the economy.

The era of state ownership of business is thankfully over. I know there have been throw backs to the past lately, but this has been really all about government temporarily taking over the assets of bankrupt companies. State onwership was a disaster for the companies, reduced government income, and made the economy weaker in general.

I had thought Newfoundland and Labradour was finally out of the era of being Canada's welfare province, but it seems not to be the case. This reminds me of the dumb ass approach Newfoundland and Labradour took to Voisey's Bay.
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