Abolishing business subsidies is such a no-brainer that it should be the first thing done by a newly elected conservative government.
We know that they make no sense from an economic point of view. In a free-market economy, either a business is profitable, and then it doesn’t need government subsidies. Or it’s not profitable, and in this case it should be restructured, or sold, or shut down, so that it stops destroying wealth instead of creating it.
Free-market economists unanimously decry subsidies as inefficient and a waste of taxpayers’ money. They bring a misallocation of resources and distortions in the economy. They create a constant demand for government intervention.
Abolishing them would force companies to compete for funds in the capital market instead of wasting resources filling in questionnaires and lobbying the government. And it would free up a lot of money to lower taxes equally to every business, thus making them all more competitive and boosting our economy.
But that’s not all. Subsidies are also grossly unfair, which should offend not just conservatives, but everybody with a sense of fairness.
When a small business or a self-employed worker are having financial troubles, they can’t hire a lobbyist to meet ministers and bureaucrats in Ottawa and ask them for a hand-out. They have to take hard decisions or close their business and do something else.
So why should they be forced to pay taxes to funds subsidies to Bombardier, or GM, or any other business run by millionaires? Is it fair to have struggling businesses across the country compete for resources with well-connected or trendy industries that can outbid them with the help of government grants?
Corporate subsidies are the opposite of capitalism: they are crony capitalism.
Yet, governments continue to distribute billions of dollars to businesses every year.
The federal government directly puts money in new investments, bails out failing companies, and offers dozens of different incentives, tax credit and tax deductions for all kinds of reasons. A study by the School of Public Policy at the University of Calgary found $16 billion in various types of direct and indirect subsidies to businesses in 2013.
Several of these measures may be worth keeping, such as those that encourage research and development. But many others are just inefficient ways for the government to choose winners, bail out unprofitable ventures, promote some bureaucratic fad, or buy political support with taxpayers’ money.
So why is it so difficult to get rid of these subsidies, even when conservatives are in power? Why do so many politicians who claim to be conservative contradict their basic principles by continuing to support subsidy programs?
Economists and political scientists of the School of Public Choice have tried to explain this dynamic. Their research shows how particular groups have a strong interest in getting organized to put pressure on politicians. These special interest groups want not only subsidies, but also trade protection, more generous social programs, a fiscal or legal privilege, regulation that favours them and keeps out competition, etc. Any favour they get from the government can potentially bring them huge benefits.
It’s very hard for politicians to say no to these lobbies because they have the means to hijack debates, quickly mobilize support and fuel controversies in the media. Politicians want to be liked and re-elected. They prefer to hand over the cheque and pretend they are saving jobs, rather than do nothing and be held responsible for bad economic news.
On the other hand, nobody hears what the silent majority have to say, even if it is the one paying the bill.
So, there is a fundamental imbalance in political debates. On one side, you have concentrated benefits to special interest groups who have a strong incentive to do their lobbying; on the other side, you have dispersed costs that fall on society at large.
That’s how government grows and grows. That’s how we become less and less free. And more and more dependent on government.
We, conservatives, have to give voice to this silent majority, the one paying the bill. We should defend our principles and values more forcefully and stop being manipulated by interest groups. There is no other way to build a conservative future.