We’re a few days away from a national election, and party leaders are promising to use the power of government to create new employment opportunities. We should be wary of such promises.
Many years ago, the once-thriving manufacturing sector of Montreal’s east end began to decline, a process that was accompanied by massive losses of employment. In more recent years, the once-prosperous automotive manufacturing sector of Southern Ontario, the engine of Canada’s economy at one time, began to decline, with losses of tens of thousands of well-paying jobs. At different moments, carmakers Chrysler and General Motors both declared bankruptcy, only to be rescued by government aid.
When government distributes generous loans and grants to help various sectors of the economy, it only has one ultimate source of revenue: imposing taxes on private citizens and businesses. In the latter case, those businesses may have allocated their available revenue to improving the product or service they offer to their customers.
Over the short term, government will seek to borrow money by issuing bonds. At one time, the governments of Greece, Argentina, and Iceland have all issued bonds and subsequently found that the taxing power of the state was insufficient to cover their national debts.
The 1990s saw the government-funded boom of the high-tech and information sector of the North American economy, with the head of the Federal Reserve Bank at the time, Alan Greenspan, claiming to have created “a perpetual economic boom.” During the early and mid-1920s, the Federal Reserve believed that the agency could create a perpetual economic boom by printing money. Stock prices escalated until the stock market self-corrected with a crash toward the end of 1929. Likewise, the 1990s high-tech boom culminated in a meltdown.
Over the past ten years, several nations such as Spain, Germany, and the United States have sought to create new economic and employment opportunities through the “Green economy” and developing renewable energy technologies. Hydroelectric power evolved from river-driven hydro-mechanical power and is the only successful renewable energy to have evolved independently of state financing and state involvement. Wind power conversion and solar-electric power are still heavily subsidized in most nations, which also extend tax breaks and indirect subsidies to other forms of energy conversion. Unemployment is still high in nations where governments have invested heavily in renewable energy development.
During earlier times, political parties won popular support by seeking to protect the market for certain industries, sometimes through import restrictions, import tariffs, and even domestic market entry restrictions. When government enacts market protection, it opens government departments and related market tribunals, which are literally controlled by the industries they are meant to regulate. Over time, the quality of the products or services offered by companies that are sheltered or protected from competition deteriorates. In recent years, many governments have negotiated increased freedom of trade, but market obstacles still remain in effect.
Increased freedom of trade applies predominantly to select categories of products that are either grown on farms or produced in factories. Market entry restrictions remain in full effect in numerous areas of higher level service professions that are subject to regulation by committees made up of members of numerous professions, some of which were actually instituted by government authorities. But advanced developments in telecommunications technology offer customers alternatives. In some locations, a radiologist located in one nation may use the capabilities of modern telecommunications technology to provide X-ray services at medical facilities located elsewhere, for instance.
Intergovernmental trade agreements that remove selected barriers to trade create export opportunities for some producers. Removing the obstacle of red tape is another method by which the combination of local, provincial and national governments may open the market to encourage entrepreneurs to develop new services and products. The repeal of a myriad of economic regulations could go a long way toward encouraging new entrepreneurial initiative. A program of tax exemptions for hobby entrepreneurs to allow them to earn a small income, for example, could help develop entrepreneurial talent.
There may be numerous hidden potential markets across Canada, but the emergence and development of such markets would require governments to revise or repeal a multitude of rules and regulations from a bygone era. Repealing such rules and regulations could open the door for new entrepreneurial activity and the related emergence of potentially new services and the development and possible manufacture of new products aimed mainly at domestic markets.
Just Get Out of the Way
Southern Ontario has lost several thousand jobs in the automobile manufacturing sector and related industries. It may be possible for Ontario and Quebec to cooperate to create commercial vehicle manufacturing opportunities in both provinces, using a precedent from the south-central United States where 40% of the states allow passage to extended length trucks. There may be a sufficiently large market in Canada’s two most populous provinces to sustain the annual production of a small number of specialty trucks and a small number of specialty long-distance motor-coaches built in Quebec, courtesy of a revision of commercial vehicle length restrictions.
Government bureaucrats who choose to block such a revision would indirectly stop the possible emergence of production of specialty trucks in Southern Ontario, as well as prevent further evolution of increased efficiency and cost-competitiveness of intercity bus services along main routes across Ontario and Quebec. Ontario and Quebec are among the very few jurisdictions internationally where steer-articulated trucks once operated along the public road systems for over a period of three decades, but these trucks were subsequently restricted to the same length as conventional straight trucks. There may be small markets for extended length highway-capable steer-articulated trucks and extended-length conventional buses.
It is unsurprising that political candidates would want to be perceived as agents of economic change and development. But when government officials actually do take action to benefit any given sector of the economy, their actions may achieve worthy objectives only over the short term before unravelling over the longer term. To truly create new and viable economic activity, the best that government officials could do is to get out of the way of private entrepreneurship and related economic progress.
* Harry Valentine is a free-marketeer living in Eastern Ontario.