Montreal, August 15, 2008 • No 258

  

THE EMPEROR'S DERRIÈRE

 

Harry Valentine is a
free-marketeer living in Eastern Ontario.
 
 

ONTARIO SEEKS WAYS TO REDUCE POVERTY
 

by Harry Valentine

 

          A series of workshops are underway in Ontario, workshops to which members of the public were invited for the purpose of contributing ideas on how to reduce poverty. The government of Ontario is apparently preparing a poverty reduction strategy and the workshops are one of the ways for the public to have some input. Over the past few years Ontario's manufacturing sector has lost over 300,000 well-paying jobs.
 

          A major proportion of these losses were in the automotive sector. General Motors recently reported a quarterly loss of $15.2 billion while the Ford Motor Company posted a loss of some $8.7 billion. Over the two years that preceded these losses, the federal and provincial governments came to the aid of Ontario's automotive sector by providing almost $1 billion to domestic manufacturers to improve productivity. The downturn in sales of pick-up trucks and sport utility vehicles has resulted in General Motors having to close its production line. There were outcries from the automobile unions about the job losses, and references were made to the generous support that GM received from various government sources.
 

What Is Seen and What Is Not Seen

          Following the luminous insight of Frédéric Bastiat in economics, there are events that are seen and events that are unseen. The visible event was government having generously provided money to Ontario's automotive industry. What was unseen was the source of that revenue, which would have been spent elsewhere in the economy. Government economic strategists were evidently unable to forecast the rapid rise in world oil prices, nor its impact on Ontario's automotive sector. Government generosity did not prevent the job losses in the automotive sector.

          What is unseen by the general public is that government action prevented private investors from using their revenue to quietly generate new economic growth and alternative jobs elsewhere in the less glamorous but more productive areas of the economy. Ontario's private sector operates under handicaps imposed on it by government. A recent report by the C.D. Howe Institute indicated that Ontario imposed the highest level of business taxes anywhere in Canada. The province also recently raised the minimum wage, and at the very same time a downturn began across the North American economy.

          Many free-market and libertarian writers have expounded about state-legislated minimum wage levels creating added difficulties for businesses and increasing unemployment. Marginal business will be the first to lay off workers and possibly close during the tough economic times that lie ahead. The likely effect of Ontario's new minimum wage will be fewer workers earning a slightly higher wage. Laid off workers may now have the opportunity to contribute ideas on how to reduce poverty in Ontario.
 

"Following the luminous insight of Bastiat in economics, there are events that are seen and events that are unseen. The visible event was government having generously provided money to Ontario's automotive industry. What was unseen was the source of that revenue, which would have been spent elsewhere in the economy."


          Canada's federal Finance Minister recently criticized Ontario's corporate taxation levels. There is much evidence to support the theory that lower corporate taxes can benefit the business community. Ontario shares borders with jurisdictions that offer tax breaks to new businesses. Marginally higher corporate tax rates combined with the rising strength of the Canadian dollar against the US dollar puts many businesses in Ontario at a competitive disadvantage. Ontario's manufacturing industry has long depended on markets in the United States to purchase its productive output.
 

Dark Days Ahead

          However, the American economy is in the early stages of a prolonged and severe market correction. America's military involvement in Iraq and Afghanistan could cost in excess of US$1 trillion and may extend into Iran. World oil prices could escalate to over US$200 per barrel after a pre-emptive US/Israeli strike on Iran. America's Federal Home and Mortgage Corporation holds an estimated US$5-trillion of mortgage debt as the American housing industry undergoes an economic meltdown. A prolonged economic downturn in America will adversely affect a large segment of Ontario's population.

          Many people could turn to the underground or informal economy as a way to survive. But the public sector is front and center at the poverty reduction workshops that are now underway across Ontario. Ontario's poverty reduction strategy will likely be based on a framework that includes subsidies to economically-challenged businesses at the expense of other businesses; restrictive economic regulations; high corporate tax rates; and higher minimum wage levels. It is within such an economic framework that interested citizens are being asked to attend community workshops where they may submit ideas on reducing poverty in Ontario.

          Given its framework, it's unlikely that Ontario's poverty reduction strategy will be of any help to citizens if we do have a severe economic downturn.
 
 

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