Wednesday, March 18, 2009

State intervention in the economy

I am feeling depressed and down because of this rise in the idea that the state is able to, and should, be running businesses. The idea that the state is a good steward of business is one I simply have seen no evidence that will convince it makes any sense.

I have liked the work of Joseph Schumpeter, the idea of creative destruction as an important tool in improving the economy. The danger with government control of business is that government is very conservative by nature and not going to take risks with a business to make it better. We can see the global effort by governments at the moment to 'save' the car manufacturers. The problem is that by helping the companies we have numerous unintended consequences.

Saving the Car Industry Will Cost Us Jobs
First of all, government support of the car industry means we reward business managers that did not prepare for the future. The companies that have done the best now have to compete with ones that messed up.

Secondly, government support means we are paying higher taxes with no direct benefit to the public. Should we all be paying more taxes to convince Chrysler to stay in Canada?

Third, the money going into the car industry could have been used by individual Canadians in companies that have a strong future. Instead the government takes the money from us to give it to failing companies.

Fourth, if the car companies fail, something will emerge from their ashes. Someone will take over the factories and do something new. A slimmer and radically restructured car industry may deliver to us some amazing new cars. Supporting the status quo is not going to get us any further forward.

All of these things will reduce economic growth and reduce the number of jobs new industries could create.

We Need More Trade
The one most important truth since the end of world war two has been that more free trade has always brought us more economic growth. The time is now to embrace dropping trade barriers that still exist and make the world a single market. We Canada are better off when people in China are wealthier. Trade is not a win/lose proposition as so many protectionists seem to think, it is one in which there is benefit for all. Governments are talking about 'protecting' jobs in their countries by not allowing free trade, that fundamentally scares me.

We Need More Freedom For Entrepreneurs
I know many people will flip at this, but the easier it is for people to start businesses and find niches that are profitable, the more wealth that will be generated. Regulation is important and has to be done well by government, but it has to be done in such a way as to not waste too much time of the people in business.

I also would like to see more aspects of government done by the private sector. A government monopoly in most cases leads to a status quo that will not innovate and seek efficiencies. Allowing the private sector to take on these roles will make government cheaper, faster and more effective. It will also offer more opportunities for people to operate businesses, it would make more people entrepreneurs.

Have Government Regulate and Govern
Smaller government that is focused on god governance and regulation would be much more ideal set up. The historical oddities of some of the businesses that government has taken on defies rational explanation. We are willing to accept private companies running our airplanes but we think the government should operate the ferries.

Anyway, I find it depressing they way many people are talking and the implications this has on our general well being. The idea that most of us should have a lower standard of living because of bad government policies is just not acceptable.

Addendum on March 19th
William Watson addressed many of my fears in this column in the National Post.
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