|Montreal, November 22, 2003 / No 133|
by Harry Valentine
During the recent Grey Cup weekend, the newly elected liberal leader and future prime minister pledged to work together with Canada's provincial premiers, for the good of Canadian competitiveness in the international marketplace. During the preceding months, business and economic news reports have suggested that Canadian industry was losing the competitive edge. Subsequently, several items appeared in the news media that called upon governments to initiate action to improve it. One academic suggested increased funding to institutions of higher learning as well as increased research funding to various (politically favoured) industries. Some commentators have suggested broadened Public-Private Partnerships (3P), while others even proposed more comprehensive economic regulation of various industries.
Historically, government economic initiatives and programs have consistently
achieved, in the long term, the opposite of what had originally been intended
in the short term. Numerous eminent free-market economic thinkers have
produced an extensive body of academic research that illustrates the ultimate
long-term failure of government economic programs. Programs that were originally
intended to make some Canadian companies more competitive in the international
marketplace may actually now be undermining the long-term economic competitiveness
of other Canadian industries. While 3P programs may benefit some sectors,
it relies on resources being directly and indirectly diverted from other
Such programs involve money being transferred from the taxpayers to the tax department, to the finance department, then to the industry department, which oversees the 3P grants or low interest loans. Every step of the way, well paid bureaucrats who create no wealth, consume large amounts of it. Money that citizens would have spent supporting low-profile and politically neutral businesses, and which would have been efficiently used to create new wealth and new jobs, and develop new products and services in those unglamourous sectors. Government policy instead transferred the funding to more politically-favoured high-risk sectors.
Exercises in malinvestment
During the 2000-2002 economic slowdown, politically favoured and non-favoured companies both lost their competitive edge, courtesy of 3P initiatives that became nothing more that exercises in malinvestment. During the high-tech boom and malinvestment boom years, large amounts of federal funding were squandered as loans and grants in numerous high-tech related ventures which subsequently either downsized or closed down following the high-tech meltdown. Beyond these misguided federal policies, provincial and municipal policies achieve a similar end in undermining the competitiveness of start up companies.
Some years ago, a comparison was made with regards to setting up business ventures in New York State or Vermont, compared to across the border in Ontario or Quebec. Several American municipalities located near the border were willing to give new (entrepreneurial) start-up businesses tax breaks. Canadian municipalities located right across the border insisted on early payment of municipal property and business taxes, a practice imposed on municipalities by Ontario government tax regulations. New start-up and entrepreneurial businesses had the choice to either seek fiscal relief in federal government loans and grants, or locate elsewhere.
The tax-break approach bypasses the inefficient and wasteful regime of government loan and grant programs, while giving businesses greater opportunity to become competitive in the marketplace, both at home and abroad. Several Asian nations such as Indonesia and Malaysia are offering tax breaks and less intrusive economic regulation to new businesses. Prominent American and Canadian companies have been transferring parts of their operations into Asia, just to remain viable and competitive. Despite this transfer, cadres of government bureaucrats still seek to formulate more restrictive economic regulations that can merely be signed into law through order-in-council before being imposed on remaining companies.
Businesses have to stay on top of a continually evolving, expanding and increasingly complex regulatory regime that covers an ever wider range of economic activity. New and revised commercial tax laws, environmental regulations, labour regulations and related economic regulations steadily increases the difficulty of starting up new businesses, the complexity of managing existing businesses and reducing the ability of either to maintain a competitive edge in a rapidly changing and increasingly competitive marketplace. While the future prime minister speaks of wanting to increase Canada's competitiveness in the international marketplace, present governmental behaviour is achieving the exact opposite. The place for him to begin to make Canadian industry more competitive, is to deal with government policies that reduce business competitiveness.
There is considerable potential to increase the ability of Canadian entrepreneurs and business people to compete in the marketplace, both at home and abroad. However, the ability to compete internationally would result from the ability to successfully compete domestically. More students are earning their qualifications using learn-at-your-pace courses of study, offered online from a variety of accredited institutions. More children are being homeschooled and are achieving much higher academic success rates than their public school counterparts. Universities have begun admitting homeschooled students into accredited degree programs, with considerable success.
As the number of graduates holding degrees from online programs increases, the competitiveness of the businesses which employ them also increases. An increase in the number of qualified people entering the economy would inevitably increase competition, lowering prices of several types of professional services. A CNN report aired in September 2003 revealed that online degree holders performed as well in the workplace as their counterparts who received their degrees by having attended regular classroom sessions.
However, politically well-connected fraternities and professional associations are still using political influence to reduce the number of potential competitors entering the market in a variety of professions. In the USA, certain state bar associations have refused to recognise the University of Phoenix law degree obtained through online learning, declaring the graduates ineligible to write state bar exams. Despite Canada's chronic doctor shortage, restricted entry into the medical profession prohibits many experienced, foreign-trained doctors living in Canada, from practising medicine, even to the detriment of the public's health. While a greater proportion of the population can gain an education that could offer economic benefit, an archaic political and bureaucratic regime that will ultimately deny them opportunity still exists and remains unchallenged.
As long as a heavily and comprehensively regulated economic environment is maintained inside of Canada, the competitiveness of Canadian industry in the international marketplace will remain challenged. However, increasing domestic competition will come at a steep political price. It will require the closing down of market regulatory regimes and the tribunals that enforce it, as well as related bureaucracies enforcing economic regulation. The future prime minister has declared his intention to make Canada more competitive internationally; he may not yet be fully aware of the very high political price he will have to pay if he is to achieve anything meaningful in this regard.
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