Why Corporate Welfare doesn't work
Author:
Adrienne Batra
2003/08/20
Remember WinnPort, Isobord and the Winnipeg Jets All of these businesses received public funds and now, they are nowhere to be found. Come January 2004, we may have to add one more to the list of failed government subsidized businesses, bus manufacturer Motor Coach Industries. When the announcement was made by the three levels of government in 2002 to provide MCI with $20 million, the CTF warned that MCI could suffer the same fate as the others.
Too many unanswered questions remain about the deal signed with MCI a year ago. For example, did any of the three levels of government even ask to see MCI's books before pouring millions of dollars into the bus company No. A better question is why is the NDP government so obsessed with corporate welfare Proponents argue that it will create (even save) jobs and will expand the economy. Sadly, there is no real evidence of that. Corporate welfare distorts the market place because a subsidy or tax break for one business comes at a cost to another. It also takes away from more broad-based tax relief which all Manitobans could have enjoyed.
The following are just six reasons why corporate welfare is wrong:
1. Market decisions should be made by the market, NOT by politicians and bureaucrats.
The role of the market is to direct investment to projects. To try and replace or mimic this judgment through government intervention is fundamentally flawed.
2. Corporate Welfare is NOT driven by market imperatives.
Market investments are driven by people who weigh reward against risk. Political investments are driven by job and vote production
3. Corporate welfare is inherently unfair.
Business subsidies create an uneven playing field. Credit and capital are diverted from successful firms to less successful, politically connected firms. In addition, firms that do not receive government assistance indirectly subsidize their government-supported competitors through their corporate income taxes.
4. Corporate welfare runs contrary to free enterprise.
Business owners can become so enamoured and adept at securing government grants that they lose sight of their core competencies, those being the creation of wealth and maximization of product or service value.
5. Corporate welfare creates a culture of dependency.
Business owners become so reliant on government assistance that they actually build the expectations of such assistance into financial plans for various ventures.
6. Corporate welfare means higher taxes.
Inevitably it is taxpayers that end up paying the bill for years of corporate welfare.
Premier Doer now says that there will be penalties if the company does not meet its commitment to paying back the money that was pickpocketed from taxpayers. But that could mean taking MCI to court to recover costs, so once again taxpayers will have to pay. Maybe it is time to remind the Premier that he broke his 1999 election promise to remove direct subsidies to business.
The MCI incident should be a valuable lesson to the government that providing corporate welfare under the guise of economic development does not work.