Government Subsidies – Who do they help?

Posted on January 28, 2011 by admin No Comments

Over the past few years, there have been several high profile attempts at subsidies to aid various industries. The majority of these have failed, which prompts the question: can business subsidies work?
From a free enterprise point of view, subsidies create an unfair competitive advantage – benefiting a few at the expense of many. While the basic premise of subsidies and concessions – preventing failure and aiding through difficult times – may be noble, it is self-defeating. Failure is required for progress. Without failure, there is no success. Without failure, you can’t learn from your mistakes. Without failure, energy and money continue to be thrown at initiatives that achieve no good without looking at ways to achieve better efficiency.
The government aid package that was intended to assist Canada’s cattle ranchers following the ‘mad cow’ crisis didn’t provide much relief to the people who needed it most. It did enable the middle men to pad their pockets. Alberta’s three largest meatpacking plants nearly tripled their earnings since May of last year when the crisis hit.
Meanwhile, consumers wanting to show support to the farmers by purchasing more beef paid normal prices, with the profit being shared between the packers and the retailers. Once again, big business benefited and the ranchers whom the subsidies and the media campaigns intended to assist were left with nothing.
In another recent example, the City of Edmonton and Edmonton Economic Development Corp. provided Dell with generous incentives to open a call center in Edmonton. According to media reports, the deal is worth $6 to $10 million and includes exemption from property taxes for five years and a 20-year lease of City owned land for $1 per year.
Yes, it is great to have a company like Dell come to our fair city, but not at the expense of the companies who have been here for years, paying into the tax base and employing hundreds or thousands of Edmontonians. Incentivizing Dell to set up shop in Edmonton is a slap in the face to these ‘loyal Edmontonians’ who are here because of the great things the city offers and not due to tax concessions and sweetheart deals offered by the city. In addition, it gives Dell an unfair competitive advantage while their presence here will drive up the cost of doing business for others, particularly with respect to attracting and retaining employees due to increased competition.
Competition is a good thing when it is the way it is meant to be…when the company with the best product, produced most efficiently wins, not when the company with the most government leverage wins through incentives.
Typical of the ‘polite Canadian syndrome’, we are selling ourselves short and perpetuating a myth that we are a second-rate city. These types of incentives confirm that we don’t believe that what we can offer as a city will stand on its own. Edmonton does have many great assets – talented resources, first class education, great quality of life, low cost of doing business – and that should be enough. We shouldn’t need to resort to bribery. In fact, in the age of close public scrutiny and attention to good governance practices, the Code of Ethics that most corporations adhere to would not allow such a practice in business – why should it be allowed in government?
The danger of providing public subsidization of a private enterprise to lure them to our city is that any other company considering coming to Edmonton will want to receive a similar subsidy.
The only form of subsidy or concession that fits with free enterprise is a ‘consumer subsidy’ in the form of reduced taxes, which enables consumers to buy more. Consumers get the best product and are able to purchase more, and the enterprises that can produce most efficiently while meeting consumer demand grows.
Does this fit somewhere?? Ontario – Auto manufacturing – concessions to keep auto makers there and save jobs. A better strategy for economic progress would be to allow those plants to go where it make the most business sense and put the money into retraining those who will lose their jobs for new, more advanced roles.

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