Why government participation doesn’t work

One of the most ominous aspects of the auto industry bailouts is therenewed blossoming of government participation in the private sector.Including actions in the U.S., this means working partnerships with carcompanies and financial institutions.

One of the most ominous aspects of the auto industry bailouts is the renewed blossoming of government participation in the private sector. Including actions in the U.S., this means working partnerships with car companies and financial institutions.

It’s a degree of government involvement in the private sector not seen since the New Deal of the 1930s.

Desperate times may call for desperate measures, but there are good reasons to question the wisdom of government becoming owners/partners in private enterprises.

In reality, we live in a mixed economy in which government commingles with private businesses in a variety of ways. But as much as possible, the market should be the preserve of private, not public, enterprise. Owners of private companies freely make choices that involve risks, the biggest being loss of capital. Governments are there to preserve and protect the integrity of the marketplace and the interests of individuals rather than take business risks.

Government intervention to prop up particular companies such as the domestic auto uses taxpayer power to disrupt the workings of the marketplace. In the normal order of things, companies rise, prosper and sometimes fail, only to be replaced by younger, more vigorous enterprises. Money and jobs are lost here, but profits and jobs are made there. Call it market Darwinism.

When government messes with this natural order it does a few things. It confers value to stock or debt that might not otherwise exist. It skews the decision-making process within companies. It favours one competitor over another, the latter being the successful player that isn’t being bailed out. It also favours some individuals over the rest of us. It is not what you call fair treatment.

But mostly, as Canadian history illustrates, government participation breeds failure. Starting with the Newfoundland government’s subsidization of the Come-by-Chance oil refinery in the early 1970s, the last generation provides a litany of boondoggles. Think of New Brunswick’s expensive flirtation with the Bricklin, Quebec’s investments in everything from asbestos to steel, and just about everything ever touched by British Columbia Resources Corp.

Federally, consider Ottawa’s failed aerospace adventures with Canadair and deHavilland, the dismal investments of the late and unlamented Canada Development Corp. and high-tech washouts like Consolidated Computer. There are more where these came from. When government lays our money on the line by investing in a business like the now officially bankrupt General Motors, count on them losing it.

Thursday: What government ought to do to help business.

 
 
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