More government interventions hamper capitalism

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:

Philip Cross

Senior Fellow, Fraser Institute

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CBC’s business model is trapped in a very dark place

Published on November 21, 2024

Todayville

David Clinton

I Testified Before a Senate Committee About the CBC

I recently testified before the Senate Committee for Transport and Communications. You can view that session here. Even though the official topic was CBC’s local programming in Ontario, everyone quickly shifted the discussion to CBC’s big-picture problems and how their existential struggles were urgent and immediate. The idea that deep and fundamental changes within the corporation were unavoidable seemed to enjoy complete agreement.

I’ll use this post as background to some of the points I raised during the hearing.

You might recall how my recent post on CBC funding described a corporation shedding audience share like dandruff while spending hundreds of millions of dollars producing drama and comedy programming few Canadians consume. There are so few viewers left that I suspect they’re now identified by first name rather than as a percentage of the population.

Since then I’ve learned a lot more about CBC performance and about the broadcast industry in general.

For instance, it’ll surprise exactly no one to learn that fewer Canadians get their audio from traditional radio broadcasters. But how steep is the decline? According to the CRTC’s Annual Highlights of the Broadcasting Sector 2022-2023, since 2015, “hours spent listening to traditional broadcasting has decreased at a CAGR of 4.8 percent”. CAGR, by the way, stands for compound annual growth rate.

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Dropping 4.8 percent each year means audience numbers aren’t just “falling”; they’re not even “falling off the edge of a cliff”; they’re already close enough to the bottom of the cliff to smell the trees. Looking for context? Between English and French-language radio, the CBC spends around $240 million each year.

Those listeners aren’t just disappearing without a trace. the CRTC also tells us that Canadians are increasingly migrating to Digital Media Broadcasting Units (DMBUs) – with numbers growing by more than nine percent annually since 2015.

The CBC’s problem here is that they’re not a serious player in the DMBU world, so they’re simply losing digital listeners. For example, of the top 200 Spotify podcasts ranked by popularity in Canada, only four are from the CBC.

Another interesting data point I ran into related to that billion dollar plus annual parliamentary allocation CBC enjoys. It turns out that that’s not the whole story. You may recall how the government added another $42 million in their most recent budget.

But wait! That’s not all! Between CBC and SRC, the Canada Media Fund (CMF) ponied up another $97 million for fiscal 2023-2024 to cover specific programming production budgets.

Technically, Canada Media Fund grants target individual projects planned by independent production companies. But those projects are usually associated with the “envelope” of one of the big broadcasters – of which CBC is by far the largest. 2023-2024 CMF funding totaled $786 million, and CBC’s take was nearly double that of their nearest competitor (Bell).

But there’s more! Back in 2016, the federal budget included an extra $150 million each year as a “new investment in Canadian arts and culture”. It’s entirely possible that no one turned off the tap and that extra government cheque is still showing up each year in the CBC’s mailbox. There was also a $93 million item for infrastructure and technological upgrades back in the 2017-2018 fiscal year. Who knows whether that one wasn’t also carried over.

So CBC’s share of government funding keeps growing while its share of Canadian media consumers shrinks. How do you suppose that’ll end?

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PBO report shows cost of bureaucracy up 73 per cent under Trudeau

Published on November 20, 2024

Todayville

From the Canadian Taxpayers Federation

By Franco Terrazzano

The Canadian Taxpayers Federation is calling on the federal government to rein in the bureaucracy following today’s Parliamentary Budget Officer report showing the bureaucracy costs taxpayers $69.5 billion.

“The cost of the federal bureaucracy increased by 73 per cent since 2016, but it’s a good bet most Canadians aren’t seeing anywhere close to 73 per cent better services from the government,” said Franco Terrazzano, CTF Federal Director. “Taxpayers are getting soaked because the size and cost of the federal bureaucracy is out of control.”

Today’s PBO report estimates the federal bureaucracy cost taxpayers $69.5 billion in 2023-24. In 2016-17, the cost of the bureaucracy was $40.2 billion. That’s an increase of 72.9 per cent.

The most recent data shows the cost continues to rise quickly.

“Spending on personnel in the first five months of 2024-25 is up 8.0 per cent over the same period last year,” according to the PBO.

“I have noticed a marked increase in the number of public servants since 2016 and a proportional increase in spending,” said Parliamentary Budget Officer Yves Giroux. “But we haven’t seen similar improvements when it comes to service.”

The Trudeau government added 108,793 bureaucrats since 2016 – a 42 per cent increase. Canada’s population grew by 14 per cent during the same period. Had the bureaucracy only increased with population growth, there would be 72,491 fewer federal employees today.

The government awarded more than one million pay raises to bureaucrats in the last four years, according to access-to-information records obtained by the CTF. The government also rubberstamped $406 million in bonuses last year.

“The government added tens of thousands of extra bureaucrats, rubberstamped hundreds of millions in bonuses and awarded more than one million pay raises and all taxpayers seem to get out of it is higher taxes and more debt,” Terrazzano said. “For the government to balance the budget and provide tax relief, it will need to cut the size and cost of Ottawa’s bloated bureaucracy.”