Governments Already “Stimulate” Business

-- (historic), Commentary, Role of Government, Uncategorized, Welfare

In politics, it helps to have amnesia if one wishes to repeat history’s economic failures but offer them up in the audacious wrapping of something “new.” For example the current financial crisis is often incorrectly blamed on a laissez-faire approach to regulation. But only if one forgets it was the U.S. federal government as far back as the 1970s under President Jimmy Carter which first pressured banks to lend to Americans who were high credit risks, pressure then upped in the 1990s under Bill Clinton, and a practice then defended by too many Democrats and Republicans alike in past eight years.

Now that we’re in the aftermath of the government-engineered credit bubble, too many people think the remedy is a government-engineered “stimulus” package. The numbers should sober everyone up: trillions spent or proposed in the U.S., $30 billion in Canada had the Liberal-Bloc-NDP coalition taken power, and probably still billions in the Conservative federal budget due out in late January, this to save their minority government from a non-confidence vote.

There’s just one problem: Governments have long engaged in such “stimulus” packages and with lousy results. It’s called corporate welfare. Here in Canada, federal, provincial, and municipal governments spent $182 billion on grants to business since 1994 and through to 2006, (the last year for which comprehensive statistics are available from Statistics Canada).

Ottawa’s share of that 12-year stimulus package was $61.4 billion. The provinces spent $98.5 billion while municipalities spent $22.5 billion in tax dollars to subsidize business. For everyone who paid federal income tax in that twelve-year period, $13,269 from their tax hit went to corporate welfare for the aerospace industry, automotive sector, and forestry companies among other recipients, and whose case has been taken up again by the premiers of Quebec, Ontario, British Columbia and plenty of others.

The various versions of the “stimulus” now proposed is merely corporate welfare in the drag of something new, and apparently the Conservatives, first elected in January 2006, will dress up welfare-seeking as an economic necessity. Available data from Statistics Canada for my 12-year survey of corporate welfare ends in March 2006, and the Tories came into office only two months previous to that. However, their position on further bailouts for corporate Canada is obvious: In the government’s November Throne Speech, Ottawa noted the automotive and aerospace industries were “under increasing strain” and pleged to “provide further support for these industries.” That was code for new subsidies, subsidies which have been plentiful in both good and bad economic times.

In the case of one industry now lobbying for a new stimulus package, since 2004, Liberal and Conservative federal governments, along with the Ontario government, have promised $752 million to automakers, including $280 million to Ford, $200 million to General Motors, and $125 million to Toyota—the last of which is the healthiest automotive company on the planet.

If there’s anything new about the corporate begging in 2008, it’s that it is more earnest than ever, be in front of Congress and a nationwide television audience in Washington D.C., or behind closed doors in Queen’s Park and on Parliament Hill.

The plain truth about corporate welfare hasn’t changed: it’s a shell game that transfers tax dollars and employment from healthy businesses to risky businesses. The public, and employees at the shaky firms, would be better served if tottering companies went to bankruptcy court where they could reorganize or be split apart with healthy divisions taken over by others.

Governments have always spent money in poor, unproductive ways in an effort to boost the economy. They have always engaged in “stimulus” of the sort which is now on the lips of almost every politician, columnist, and talking head.

But tax and job-stealing from healthy businesses to weak ones courtesy of massive transfers in the tax system does nothing for the overall economy. It does nothing to stimulate job creation. An alternative approach would be to slash business tax rates in exchange for an end to corporate welfare. In a normal economic climate, that approach would allow a business on the cusp of growing to do just that; in the present environment, such businesses are the ones who will recover, prosper, and create the new jobs quicker than any corporate relic soon to end up in the financial wrecking yard, with or without a government-engineered bailout.