Photo Credit: tsmithucalgary
Thanks in large part to its abundant supply of oil, Canada’s economy has spent much of the past seven years as the envy of the world. When the price of crude began to plunge in August 2014, though, so did Canada’s economic outlook. Growth forecasts were cut, the dollar plummeted, and Prime Minister Stephen Harper set aside his oft-repeated boast that Canada is an “emerging energy superpower.” Harper has hinted that the upcoming federal budget will focus on boosting the manufacturing sector instead, but Canadians should ask themselves whether it is proper for government to decide which industries will flourish and which should fade.
When legislators formulate industrial policy, they are effectively seeking to determine the course of the economy. Businesses and industries judged worthy will reap rewards such as tax credits or subsidies, while those found wanting will be penalized with taxes or outright legal restrictions. The problem is that those in power have no special talent for making predictions. Despite their hordes of civil servants and advisors poring over mountains of data, the future is as mysterious to them as it is to everyone else.
A transportation development policy crafted in 1900 would have promoted horses, trains and steamships. A communications policy circa 1930 would have emphasized radios and telephones. And a technology policy from 1960 would have assumed that computers occupy entire rooms. Air travel, email, and laptops would never have entered anyone’s mind for the simple reason that they did not yet exist. In every case, political engineering of the economy leads to a policy framework that creates entrenched privilege for current technologies at the expense of unknown future technologies.
It’s not only future technological developments that are unknown, but also the evolution of consumer tastes. Before Levi Strauss, did anyone expect denim to one day become ubiquitous? How many people forecasted the rise of rock ’n’ roll, anticipated that the condo market would take off, or knew that Indian food would spread across the world? Every technological development and every shift in popular preferences brings profound economic consequences as individuals change their consumption patterns. Producers must adjust rapidly and efficiently in order to meet changing tastes, but they lose their ability to adapt when they are hampered by economic policy designed for an outdated set of circumstances.
In addition to their inability to see the future, politicians also suffer from other all-too-human failings. Even with perfect information, they would still lack the wisdom and the impartiality required to devise policies that serve the general good. They cannot foresee the unintended consequences of their actions, such as fuel efficiency regulations that encourage the production of cars that are smaller and lighter — and therefore less safe, leading to preventable road deaths. Or they may abandon any pretense of advancing the public good, instead responding to the incentives created by our electoral system to pursue their own interests at the expense of taxpayers — for instance, by subsidizing industries in vote-rich areas.
In practice, this all means that whether politicians are lobbying Washington to approve the Keystone pipeline or bailing out the automotive industry, they are playing sorcerer’s apprentice with a complex economic system whose workings they cannot understand. Such decision-makers are guilty of what the great economist Friedrich Hayek called “the fatal conceit”: the notion that they can shape the world around them to suit their desires. So, rather than building a better economy, it’s inevitable that they will instead mistakenly encourage the production of goods that will soon no longer be in demand, or cripple some industry that, if left alone, could create huge amounts of wealth and jobs.
Worst of all, the costs of these mistakes are borne not by the politicians and bureaucrats who make them, but by all of us who are forced to live under their rules. Rather than ponder whether the prime minister cares too much about oil or whether he is sufficiently passionate about manufacturing, we should instead demand that he and his colleagues express their concern for the Canadian economy by abandoning economic planning in the public sector and instead simply getting out of the way.
The opinions expressed in this commentary are solely those of the author.