Well, there’s $950 million we didn’t need to spend
Lobbyists, not logic, create Superclusters
If you were to leave $950 million at the corner of Bloor and Yonge in downtown Toronto — in packets of twenties, it would create a pile roughly 1.45 metres square by 2.6 metres high — I can guarantee you the result would be a substantial boost to economic activity.
People in the area would pick up the money and spend it on goods and services. With such a sudden influx of cash in search of something to spend it on, factories would have to step up production; distributors and retailers would take on staff. These new hires would spend their wages on more goods and services, leading to yet more new hires and so on. With such “spinoffs” included, the economic impact of dumping all that cash on the ground could be multiples of the initial outlay.
Of course, other regions might object if the money were deposited solely in Toronto. So you might want to divide the pile into, say, five, leaving them on busy street corners in different parts of the country: maybe B.C., the Prairies, Ontario, Quebec and, oh, what about Atlantic Canada?
And just to be prudent, you might not want to throw away all that money at once. So you might drop it in, say, five annual instalments. And if you did all that you would have something approximating the new federal Superclusters program.
I’m kidding, of course: it’s far worse than that.
If you left $950 million on the street, you could be reasonably assured it would be spent on things people actually want. To claim their share of the loot, businesses would have to make things people find useful at a price they are willing to pay. By contrast, the recipients of Superclusters cash do not have to persuade consumers of the value of what they produce. They just have to persuade the federal Liberals.
To be sure, the five consortium s of businesses and academic institutions selected to receive Superclusters™ funding were the winners of a competition of many months’ duration. But whereas competition in the marketplace rewards those with an acute sensitivity to consumer wants combined with the productive efficiency to deliver at the lowest possible price, competition for government money rewards those with an ability to lobby government.
By precisely what criteria the present competition was decided remains something of a mystery. All that we know is, by a remarkable coincidence, this elaborate process resulted in exactly one Supercluster for each region. By what metrics these will be assessed seems equally opaque; ditto what benchmarks they will be expected to meet or what will happen if they don’t.
But then, the folly of such schemes does not reside in any weaknesses of administration, or even their inevitable politicization.
They could be run by St Francis of Assisi, with a team of Nobel scientists to advise him, and they’d still be a terrible idea. Yes, even if you call them Superclusters.
The Trudeau government would like you to believe that, because it is handing out the money to bunches of businesses in geographic proximity to one another, rather than one at a time, with a university president on hand to pick up the cheque, it is doing something new, and not simply combining two wellknown Liberal predilections, picking winners and regional development, into one.
What gives it a veneer of novelty, if not respectability, is the observation that businesses in similar fields do indeed sometimes “cluster” together, often around a research institution of some kind, and that in some cases this propinquity does result in something that is more than the sum of its parts — attracting top-flight talent, for example, who know that if they are not well-treated at one firm they can almost literally cross the street and find a job at another, or start one themselves.
But it is one thing to observe a thing in retrospect; it is quite another to create one from scratch. The record of governments trying to force clusters into forming is about what you might expect. Of course, with enough money you can certainly create something, possibly even something of value. The question, always, is whether it is of greater value than what might have been created with the same money, put to a different purpose. No one doubts governments can shift resources from one industry to another, just as they can from one side of the country to another. It is whether there is any net benefit in doing so that is in doubt.
Indeed, the presumption should be the opposite, since the resulting allocation of resources would not be the one that investors, risking their own capital and in possession of accurate information about costs and benefits, would have chosen themselves.
Accurate information about costs and benefits is not always available, of course, and sometimes the benefits from an investment do not accrue to the investor. There is such a thing as market failure — hence the case for funding basic research, the kind with no immediate commercial application, but which might lead to some in time.
But industrial subsidy is almost never rooted in any serious claim of market failure. It rests, rather, on the assumption that governments know better than private investors how and where to allocate capital. As such, it inevitably fails a basic test of logic: either a particular project is economic, in which case it doesn’t need the subsidy, or it is not — in which case it shouldn’t get it.
To be clear, I wouldn’t recommend governments dump money on street corners, either. It might have all those spinoff benefits. But it’s still a silly way to spend the public’s money.