Last year Prime Minister Justin Trudeau informed Canadians he does not think about monetary policy. Perhaps instead he thinks about entrepreneurship. If so, it has not done much good. Consider his confused thoughts on the subject last week in a statement to recognize the economic contributions of entrepreneurs. In it he trumpeted the federal government’s $4-billion corporate welfare program for digital adoption, $1-billion investment agency to provide “incentives” for entrepreneurs to innovate, $6-billion Women Entrepreneurship Strategy, and $265-million Black Entrepreneurship Program. If money for entrepreneurship is all it takes, Canada’s entrepreneurs will soon be leading the world.
But to anyone who has thought at all seriously about entrepreneurship one thing is clear: government economic planning, government economic strategies, government subsidies, and government handouts — often on the basis of people’s skin colour or gender — have nothing to do with actual entrepreneurship.
The failure of the federal government’s approach to business and entrepreneurship is seen plainly in the numbers. A chart in its Fall Economic Statement shows that since 2015 real business investment has fallen by around 10 per cent in Canada, a decrease well below the bottom range of other G7 economies, and a stark contrast to the approximately 20 per cent increase in the United States over the same time period. A study this August by William Robson and Mawakina Bafale of the C.D. Howe Institute summarized the data: “Comparing investment in Canada to that in the United States and other OECD countries reveals that, before 2015, Canadian businesses had been closing a long-standing gap between investment per available worker in Canada and abroad. Since 2015, however, the gap has become a chasm.” Among the causes the authors identified: government spending and transfers, uncompetitive corporate income taxes, regulatory uncertainty and unpredictable fiscal policy.
That the Liberal government’s approach — a confused jumble of central planning, affirmative action and general economic ineptness — has yielded dreadful results has not deterred it from carrying on along the same path. The persistence of its failed policies in the face of adverse results illustrates the differences between the government and private sectors. In a free market entrepreneurs face financial constraints. Enterprises that lose money either close down to stop the losses or eventually run out of money to lose, and failing businesses are replaced by entrepreneurs starting new ones. Not so with government, where bureaucratic programs and the beneficiaries of handouts carry on destroying economic value while taxpayers hold the bag.
The prime minister naturally claims his government’s entrepreneurship programs have benefits beyond the financial. In his statement he said federal handouts to entrepreneurs who are women or racial minorities help business owners who face “systemic barriers.” What those systemic barriers are, he did not say, but presumably he means the programs are a form of aid to disadvantaged populations. The problem is that the correlation between being a business owner who receives public funding by appearing disadvantaged and actually being disadvantaged is probably negative. Moreover, the real barriers to entrepreneurship and business in Canada are government failures: regulation of industry and labour where there are no externalities, government overspending, and shoddy school systems that do not properly prepare young people for the work force, to name a few. Expanding government even further to take on responsibility for entrepreneurship is a dubious enterprise at best.
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That Liberals have wrongheaded ideas on economics and entrepreneurship is not surprising. What’s truly inexcusable is that these same ideas are promoted by some within the business community. Thus in a statement from the Coalition for a Better Future, a band of 140 organizations including many of Canada’s highest profile business and industry associations, co-chair Anne McLellan applauded the government’s Fall Economic Statement and argued for government to create “an industrial strategy that is inclusive and sustainable.” This kind of business advocacy for government economic planning is a prime example of what Milton Friedman called the business community’s “suicidal impulse.” The coalition also called for “more federal support,” pointing to the U.S. government’s US$391-billion climate change spending bonanza (part of the deceptively named “Inflation Reduction Act”) as something Canada should try to compete with and it praised “planned government incentives to encourage business to invest in sustainable technologies.”
When Margaret Thatcher was prime minister of the United Kingdom, businessmen exhibiting the same regrettable tendencies as those in Canada today would tell her that “we need more incentives!” To which Thatcher would reply, “You realize that ‘incentives’ means more taxation, do you?” Somebody tell the Coalition for a Better Future! Incentives and government support mean more taxation, and government industrial strategies will not deliver the investment needed for good jobs and economic growth. The business community should know better than to parrot government misinformation on business and economics.
Matthew Lau is a Toronto writer.
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