Business
More government interventions hamper capitalism
From the Fraser Institute
By Philip Cross
In his fourth book, What Went Wrong With Capitalism, investor and author Ruchir Sharma eloquently details how advanced market economies for decades have increasingly strayed from the basic principles of market-based competition and pricing, resulting in persistently slow growth which causes many to question whether capitalism works anymore. However, what is often attributed to market failure is often a failure of government.
Collectivists have successfully installed the narrative that the Reagan and Thatcher era in the 1980s ushered in an era of neoliberalism and government austerity. Nothing could be further from the truth. Keynesian counter-cyclical government spending was supposed to support the economy during a recession; instead, it is used to support the economy at every point of the business cycle. At most, the Reagan and Thatcher regimes only slowed the rate of increase of government spending. Combined with a growing public resistance to paying higher taxes, this created permanent budget deficits. Policymakers remain stuck on the stimulus treadmill: former European Central Bank head Mario Draghi recently recommended the EU spend an inconceivable US$900 billion a year to revive its flagging economy.
Moreover, the slowdown in the growth of government spending did little to stop a tidal wave of government rules and regulations, many of which favour entrenched interests and firms. Sharma’s observation that being “pro-business is not the same as pro-capitalism, and the distinction continues to elude us” is especially true for Canada. He documents the increasing use of government subsidies and bail-outs, which helps fuel the growth of so-called zombie firms—unprofitable companies that stay in business thanks to support from governments or lending institutions (who know problems caused by bad loans will be bailed out by government), which prevent labour and capital from moving to areas with better long-term growth potential. Most recently, we have seen governments embrace higher tariffs and industrial policy, notably for green energy projects in Canada and the United States.
Increased government meddling in the marketplace reduces competition and slows the process of creative destruction that is the lifeblood of capitalism by allowing “new firms to rise up and destroy the complacent ones, making the economy ever more productive over time,” according to Sharma. This was most evident during the pandemic, when business failures declined as government hand-outs outweighed the impact of unprecedented shutdown of large parts of the economy. But the decline in business startups and failures has persisted for decades.
Steadily rising government intervention in the economy results in lower productivity and slower growth. This pushes policymakers to resort to higher fiscal deficits and easy money policies in a forlorn attempt to boost long-term potential growth.
It is often said that the recent slowdown of productivity reflects a lack of business investment. That is certainly part of the problem outside of the U.S., especially for Canada over the past decade. However, Sharma notes it is the efficiency and not just the level of investment that is the problem. Pervasive government interventions in the economy distort prices and the allocation of capital, resulting in what the libertarian economist Friedrich Hayek called “malinvestments.” This is especially true for Canada, which for over a decade has shunned clearly profitable investment opportunities in the resource sector while pouring tens of billions into expensive public transit systems, which nevertheless failed to persuade commuters to leave their vehicles at home.
One theme Sharma does not develop is that this growing inability of governments to efficiently deliver results is not due to a lack of resources. Governments have expanded their workforce, their spending, and their regulatory power. Nevertheless, government programs falter because of bad management, chronic political meddling for short-term electoral gains, and a workforce which increasingly serves its own interests and not public’s.
Sharma concludes on both an optimistic and pessimistic note. He examines the ability of capitalism to thrive in countries such as Switzerland and Taiwan by balancing “a business-friendly environment alongside social equality.” Nevertheless, he’s concerned with the “supreme irony: modern voters, particularly the young, now demand that leaders show respect for the fragility of natural ecosystems… [but] at the same time, leaders are riding a popular wave when they propose to intervene in the economy—the global ecosystem in which 8 billion people do business.”
As disillusionment with capitalism spreads due to slow growth, the temptation is to increase government interventions, which only worse the economic outcome.
Author:
From the Fraser Institute
Myths, fallacies and ideological rhetoric continue to dominate the climate policy discussion, leading to costly and ineffective government policies,
according to a new study published today by the Fraser Institute, an independent, nonpartisan Canadian public policy think-tank.
“When considering climate policies, it’s important to understand what the science and analysis actually show instead of what the climate alarmists believe to be true,” said Kenneth P. Green, Fraser Institute senior fellow and author of Four Climate Fallacies.
The study dispels several myths about climate change and popular—but ineffective—emission reduction policies, specifically:
• Capitalism causes climate change: In fact, according to several environment/climate indices and the Fraser Institute’s annual Economic Freedom of the World Index, the more economically free a country is, the more effective it is at protecting its environment and combatting climate change.
• Even small-emitting countries can do their part to fight climate change: Even if Canada reduced its greenhouse gas emissions to zero, there would be
little to no measurable impact in global emissions, and it distracts people from the main drivers of emissions, which are China, India and the developing
world.
• Vehicle electrification will reduce climate risk and clean the air: Research has shown that while EVs can reduce GHG emissions when powered with
low-GHG energy, they often are not, and further, have offsetting environmental harms, reducing net environmental/climate benefits.
• Carbon capture and storage is a viable strategy to combat climate change: While effective at a small scale, the benefits of carbon capture and
storage to reduce global greenhouse gas emissions on a massive scale are limited and questionable.
“Citizens and their governments around the world need to be guided by scientific evidence when it comes to what climate policies make the most sense,” Green said.
“Unfortunately, the climate policy debate is too often dominated by myths, fallacies and false claims by activists and alarmists, with costly and ineffective results.”
Kenneth P. Green
Senior Fellow, Fraser Institute
This article supplied by Troy Media.
By Roslyn Kunin
Tariffs, inflation, and falling incomes sound bad, but what if they’re forcing us to finally fix what’s broken?
Canada is facing serious economic headwinds—from falling incomes to rising inflation and U.S. trade hostility—but within this turmoil lies an opportunity. If we respond wisely, this crisis could become a turning point, forcing long-overdue reforms and helping us build a stronger, more independent economy.
Rather than reacting out of frustration, we can use these challenges to reassess what’s holding us back and move forward with practical solutions. From
trade policy to labour shortages and energy development, there are encouraging shifts already underway if we stay focused.
A key principle when under pressure is not to make things worse for ourselves. U.S. tariffs on Canadian steel and aluminum, and the chaotic renegotiation of NAFTA/CUSMA, certainly hurt our trade-dependent economy. But retaliatory tariffs don’t work in our favour. Canadian imports make
up a tiny fraction of the U.S. economy, so countermeasures barely register there, while Canadian consumers end up paying more. The federal government’s own countertariffs on items like orange juice and whisky raised costs here without changing American policy.
Fortunately, more Canadians are starting to realize this. Some provinces have reversed bans on U.S. goods. Saskatchewan, for example, recently lifted
restrictions on American alcohol. These decisions reflect a growing recognition that retaliating out of pride often means punishing ourselves.
More constructively, Canada is finally doing what should have happened long ago: diversifying trade. We’ve put too many economic eggs in one
basket, relying on an unpredictable U.S. market. Now, governments and businesses are looking for buyers elsewhere, an essential step toward greater stability.
At the same time, we’re starting to confront domestic barriers that have held us back. For years, it’s been easier for Canadian businesses to trade with the U.S. than to ship goods across provincial borders. These outdated restrictions—whether on wine, trucks or energy—have fractured our internal market. Now, federal and provincial governments are finally taking steps to create a unified national economy.
Labour shortages are another constraint limiting growth. Many Canadian businesses can’t find the skilled workers they need. But here, too, global shifts
are opening doors. The U.S.’s harsh immigration and research policies are pushing talent elsewhere, and Canada is emerging as the preferred alternative.
Scientists, engineers and graduate students, especially in tech and clean energy, are increasingly choosing Canada over the U.S. due to visa uncertainty and political instability. Our universities are already benefiting. If we continue to welcome international students and skilled professionals, we’ll gain a long-term advantage.
Just as global talent is rethinking where to invest their future, Canada has a chance to reassert leadership in one of its foundational industries: energy.
The federal government is now adopting a more balanced climate policy, shifting away from blanket opposition to carbon-based energy and focusing instead on practical innovation. Technologies such as carbon capture and storage are reducing emissions and helping clean up so-called dirty oil. These cleaner energy products are in demand globally.
To seize that opportunity, we need infrastructure: pipelines, refining capacity and delivery systems to get Canadian energy to world markets and across our own country. Projects like the Trans Mountain pipeline expansion, along with east-west grid connections and expanded refining, are critical to reducing dependence on U.S. imports and unlocking Canada’s full potential.
Perhaps the most crucial silver lining of all is a renewed awareness of the value of this country. As we approach July 1, more Canadians are recognizing how fortunate we are. Watching the fragility of democracy in the U.S., and confronting the uncomfortable idea of being reduced to a 51st state, has reminded us that Canada matters. Not just to us, but to the world.
Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.
Troy Media empowers Canadian community news outlets by providing independent, insightful analysis and commentary. Our mission is to support local media in helping Canadians stay informed and engaged by delivering reliable content that strengthens community connections and deepens understanding across the country.
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