National Post (National Edition)
Liberal crony capitalism
Just call it `innovation' policy
As soon as the Americans passed the ludicrously named Inflation Reduction Act, the shameless begging in Canada for the Liberals to bring in their own plan would make the most seasoned con artists wince. Everyone has their hand out, demanding their cut. Carmakers, universities, unions, oil and gas companies, renewable energy companies and anyone who believes lobbying Liberals is preferable to satisfying customers has dollar signs in their eyes.
The Liberals are embracing the idea with equal parts enthusiasm and panic. A wiser government would recognize that just because the Americans want to spend enormous amounts of public money for little benefit, we are not obliged to follow.
U.S. President Joe Biden's US$370-billion (C$494-billion) climate-change plan will distort the economy, make private firms less competitive and American life more expensive, as it sprays massive subsidies and tax credits in an attempt to speed up and expand production of solar panels, wind farms and electric vehicles.
It is not clear that the act will accomplish any of its objectives, or have much of an impact on carbon emissions. One thing it certainly will not do, though, is reduce inflation.
The act is, more than anything, a plan to bring swaths of the U.S. economy under the umbrella of the government. It's a racket. If you think American pork-barrel politics was bad already, just wait.
Yet there is a fear that U.S. subsidies will drive investment away from Canada. To compete, it is argued, Ottawa must spend billions in public funds or risk economic ruin. This is what the $15-billion Canada Growth Fund is supposedly intended to do and what Finance Minister Chrystia Freeland means by “muscular industrial policy.”
Subsidizing companies or “innovation,” we are told, generates revenues and contributes to the economy.
However, this completely ignores the fact that higher taxes are needed to cover these costs, and also ignores the reality that subsidies discourage companies from investing based on what is happening in their market and shields them from competition.
These programs are inevitably politicized and favour companies that have oriented their business models entirely toward getting subsidies. All of which has a negative effect on growth.
The notion that a private firm should have to raise capital from private investors and develop products and services that others want to pay for is completely absent from the discussion.
For a typical example, a long feature in the Globe and Mail last weekend carried the headline: How The Liberals' Multibillion-Dollar Tech Plan Created `Chaos' Instead Of Growth. While “growth” may be the intended goal of such policies, these plans ultimately exist to provide a mechanism for distributing public money to favoured corporations and causes.
During roundtable discussions last summer, industry groups, according to the Globe's reporting, groaned at the government's plan for the Canadian Innovation and Investment Agency. “I wasn't overwhelmed at all” said one participant.
“How is this going to differ in terms of its effectiveness? Others haven't been so effective,” said another, in reference to any number of other similarly nondescript Liberal plans, such as the Canada Advanced Research Projects Agency, or the superclusters program.
The Globe writers do note that the programs have been criticized for being “overly politically driven,” but it is presented as if it is a problem specific to the Liberals or unique to Canada, rather than to the very nature of innovation policy itself.
Central to their thesis is that if only the funding could be finetuned enough, or properly directed to the right sources, Canada would find success. No one ever explains exactly how funding for innovation leads to economic growth.
In reality, such plans are usually either utter failures or of limited success.
Industrial policy groupies always point to the creation of the internet, which the American military had some early involvement in developing. But, while the need for a decentralized network that could withstand a nuclear attack led to the first emails ever sent, the early internet is not what we use today.
Almost all of the innovation, especially since the introduction of the World Wide Web, has come from non-government sources.
Under the Clinton administration, pressure to apply traditional media regulation was resisted. Washington's Framework for Global Electronic Commerce maintained that “parties should be able to enter into legitimate agreements to buy and sell products and services across the internet with minimal government involvement or intervention.”
Economist Matthew D. Mitchell summed it up in an essay for online magazine Discourse: “As a result of this generalized policy approach, many U.S. technology companies became household names across the globe.”
Innovation follows when the government steps back, not the other way around.
Progressives on both sides of the border are now, of course, looking to undermine the freedom that allowed internet innovation, such as in Canada where the Liberals want social media companies to be regulated by the CRTC.
When governments do get more directly involved in business decisions, the results are more similar to the doomed European “Google killer” Quaero, or the Foxconn plant planned for Wisconsin, which will bring only 1,500 jobs, instead of the 13,000 promised, or, for that matter, Bombardier's cancelled Learjet program.
Anyone convinced that the Liberals just need to get their innovation policy right, well, I have a shipbuilding industry to sell you.
EVERYONE HAS THEIR HAND OUT, DEMANDING THEIR CUT.