Corporate welfare doesn’t create jobs

Corporate welfare causes an economic loss, exacerbated by the fact that it encourages businesses to devote resources seeking government funds

Matthew LauCorporate welfare handouts are a policy staple of politicians of all stripes – and they’re all wasting public money.

Liberals who mistakenly think government spending is the driver of economic growth love handing out free cash to claim they’re “creating jobs.”

Conservatives say they’re against corporate welfare – but only sometimes, and only if it’s the Liberals are in government.

In Ontario, the Conservatives decried wasteful Liberal corporate welfare from the opposition benches, but have now spent more than a year in government continuing to torch taxpayers’ money on business subsidies.

The federal Conservatives have similarly given lip service to free markets but have no plans to end corporate welfare if they defeat the Liberals on Oct. 21.

One problem with corporate welfare often pointed out by opponents of the policy is that the promised jobs don’t materialize. Take for example the current Liberal government’s Strategic Innovation Fund, which it said would create 56,000 jobs. Yet an access to information request from Blacklock’s Reporter found that only 6,600 jobs were created.

The larger problem with corporate welfare is that even if those handouts did create lots of jobs, the policy would still be a failure.

That’s because creating more jobs, in and of itself, is not an economic benefit. Labour is an economic cost, not a benefit. The benefit is the goods and services produced by labour.

This point is well illustrated in an often told but perhaps apocryphal story of a visit to China by economist Milton Friedman. During the visit, he observed thousands of workers building a canal with shovels and asked the Chinese bureaucrat who was hosting him why they weren’t using tractors and other machinery instead.

The bureaucrat replied that using tractors would finish the work more quickly and with less labour, making those thousands of workers unemployed.

“Oh, I thought you were trying to build a canal,” said Friedman. “If it’s jobs you want, you should give these workers spoons, not shovels!”

Even if the extravagant claims about corporate welfare funds creating lots of jobs are accurate, it doesn’t follow that corporate welfare is a good idea. Taxpayers should keep in mind that whenever there are claims about governments ‘creating’ jobs through corporate welfare programs, there are two possible scenarios.

First, those jobs might have existed even without the corporate welfare, which means the handouts are simply a transfer of money from taxpayers to a few privileged rent-seekers, with the government taking some of the money off the top to pay for the bureaucracy.

Second, if those jobs wouldn’t have existed without the corporate welfare, then the jobs created are actually an economic loss, because the economic costs of these new jobs exceed their economic value. If the opposite were true and the value of the goods and services produced exceeded the labour costs, the jobs would have existed in the absence of the subsidies.

In either case, corporate welfare causes an economic loss, which is exacerbated by the fact that it encourages businesses to devote large amounts of resources to chasing government funds, instead of producing useful goods and services.

So it’s unfortunate for Canadian taxpayers and consumers that there doesn’t seem to be any politicians likely to stop corporate welfare.

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

© Troy Media


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