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:
People criticize capitalism. A recent Axios-Generation poll says, “College students prefer socialism to capitalism.”
Why?
Because they believe absurd myths. Like the claim that the Soviet Union “wasn’t real socialism.”
Socialism guru Noam Chomsky tells students that. He says the Soviet Union “was about as remote from socialism as you could imagine.”
Give me a break.
The Soviets made private business illegal.
If that’s not socialism, I’m not sure what is.
“Socialism means abolishing private property and … replacing it with some form of collective ownership,” explains economist Ben Powell. “The Soviet Union had an abundance of that.”
Socialism always fails. Look at Venezuela, the richest country in Latin America about 40 years ago. Now people there face food shortages, poverty, misery and election outcomes the regime ignores.
But Al Jazeera claims Venezuela’s failure has “little to do with socialism, and a lot to do with poor governance … economic policies have failed to adjust to reality.”
“That’s the nature of socialism!” exclaims Powell. “Economic policies fail to adjust to reality. Economic reality evolves every day. Millions of decentralized entrepreneurs and consumers make fine tuning adjustments.”
Political leaders can’t keep up with that.
Still, pundits and politicians tell people, socialism does work — in Scandinavia.
“Mad Money’s Jim Cramer calls Norway “as socialist as they come!”
This too is nonsense.
“Sweden isn’t socialist,” says Powell. “Volvo is a private company. Restaurants, hotels, they’re privately owned.”
Norway, Denmark and Sweden are all free market economies.
Denmark’s former prime minister was so annoyed with economically ignorant Americans like Bernie Sanders calling Scandanavia “socialist,” he came to America to tell Harvard students that his country “is far from a socialist planned economy. Denmark is a market economy.”
Powell says young people “hear the preaching of socialism, about equality, but they don’t look on what it actually delivers: poverty, starvation, early death.”
For thousands of years, the world had almost no wealth creation. Then, some countries tried capitalism. That changed everything.
“In the last 20 years, we’ve seen more humans escape extreme poverty than any other time in human history, and that’s because of markets,” says Powell.
Capitalism makes poor people richer.
Former Rep. Jamaal Bowman (D-N.Y.) calls capitalism “slavery by another name.”
Rep. Alexandria Ocasio-Cortez (D-N.Y.) claims, “No one ever makes a billion dollars. You take a billion dollars.”
That’s another myth.
People think there’s a fixed amount of money. So when someone gets rich, others lose.
But it’s not true. In a free market, the only way entrepreneurs can get rich is by creating new wealth.
Yes, Steve Jobs pocketed billions, but by creating Apple, he gave the rest of us even more. He invented technology that makes all of us better off.
“I hope that we get 100 new super billionaires,” says economist Dan Mitchell, “because that means 100 new people figured out ways to make the rest of our lives better off.”
Former Labor Secretary Robert Reich advocates the opposite: “Let’s abolish billionaires,” he says.
He misses the most important fact about capitalism: it’s voluntary.
“I’m not giving Jeff Bezos any money unless he’s selling me something that I value more than that money,” says Mitchell.
It’s why under capitalism, the poor and middle class get richer, too.
“The economic pie grows,” says Mitchell. “We are much richer than our grandparents.”
When the media say the “middle class is in decline,” they’re technically right, but they don’t understand why it’s shrinking.
“It’s shrinking because more and more people are moving into upper income quintiles,” says Mitchell. “The rich get richer in a capitalist society. But guess what? The rest of us get richer as well.”
I cover more myths about socialism and capitalism in my new video.
From the Daily Caller News Foundation
A resurfaced 2018 video from a Minneapolis-area TV station shows how Somali scammers allegedly bilked Minnesota out of millions of dollars for services that they never provided.
Independent journalist Nick Shirley touched off a storm on social media Friday after he posted a photo of one day-care center, which displayed a banner calling it “The Greater Learing Center” on X, along with a 42-minute video that went viral showing him visiting that and other day-care centers. The surveillance video, which aired on Fox 9 in 2018 after being taken in 2015, showed parents taking kids into the center, then leaving with them minutes later, according to Fox News.
“They were billing too much, they went up to high,” Hennepin County attorney Mike Freeman told Fox 9 in 2018. “It’s hard to imagine they were serving that many people. Frankly if you’re going to cheat, cheat little, because if you cheat big, you’re going to get caught.”
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Democratic Gov. Tim Walz of Minnesota was accused of engaging in “systemic” retaliation against whistleblowers in a Nov. 30 statement by state employees. Assistant United States Attorney Joe Thompson announced on Dec. 18 that the amount of suspected fraud in Minnesota’s Medicaid program had reached over $9 billion.
After Shirley’s video went viral, FBI Director Kash Patel announced the agency was already sending additional resources in a Sunday post on X, citing the case surrounding Feeding Our Future, which at one point accused the Minnesota government of racism during litigation over the suspension of funds after earlier allegations of fraud.
KSTP reported that the Quality Learning Center, one of the centers visited by Shirley, had 95 citations for violations from one Minnesota agency between 2019 to 2023.
President Donald Trump announced in a Nov. 21 post on Truth Social that he would end “Temporary Protected Status” for Somalis in the state in response to allegations of welfare fraud and said that the influx of refugees had “destroyed our country.”
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