Sunday, February 21, 2016

stop bailing out failing companies

In the market economy companies which accurately forecast consumer demand and provide valued goods and services to consumers at reasonable prices make profits while inefficient and wasteful firms that cannot compete post losses and eventually go bankrupt. This entire process is phenomenally healthy.  It's not really a big deal when a company does go bankrupt because while there might be some temporary pain as the employees have to find new jobs the capital doesn't simply disappear into thin air; it is instead acquired by a firm that can put it to more economic use. Now while it is true that government intervention in the marketplace has hindered the dynamism of the capitalist economy and made the rapid reallocation of capital more difficult the solution to that problem is not a massive scheme of corporate welfare and subsidies to inefficient firms but instead for the Canadian government to adopt a laissez-faire approach to economic affairs.

Bizarrely the attitude of intellectuals, newspapermen and politicians has been to savagely attack businesses which do a good job and make profits while coddling and bailing out the incompetent enterprises that lose money. This is completely backwards and needs to stop. Enter Bombardier. Bombardier, which has already received one billion from the Province of Quebec and has been the recipient of billions of dollars in government subsidies in the past, is about to once again get assistance from Ottawa. But why should the taxpayer be soaked to prop up an inefficient and failing enterprise?  If a firm cannot compete in the market place then let them go bust. This creative destruction is a vital component of the free enterprise system.  There is no such thing as too big to fail. When the government starts picking winners and losers in the economy taxpayers, consumers and competing companies all suffer.

The market economy is a dynamic place; consumer demand shifts rapidly and it's important that there be limited (or no) government intervention in the economy so that entrepreneurs and investors are able to rapidly reallocate resources in order to satisfy this shifting demand. Various policies such as the corporate income tax or regulations on an industry can impede the dynamism of the capitalist order by freezing in investment or preventing a firm from adapting to changing conditions. Markets work best when they are untaxed and unregulated. It is hubris to imagine that the government should try to lock in the economic status quo by bailing out failing enterprises or imposing regulations which crush small competitors who are trying to innovate and out compete established business interests. Over time, under the influence of foreign trade or simply because of the vagaries of the market economy, industries which were once dominant will fade and capital will be concentrated in new areas of production. This is a natural and healthy process which should be respected and allowed to occur, not fought with handouts and subsidies to dying corporations. Prolonging the inevitable simply retards economic growth and hurts both consumers and taxpayers.

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