Creative destruction

Economists hold forth about the effects of the creative destruction; it is what makes capitalism and free enterprise successful.

Thus, if an industry or company no longer can succeed, it should be destroyed. For instance, buggy whip manufacturers should go out of business as the automobile industry replaces horse-drawn vehicles.

Nowadays the auto industry’s survival should lead to a discussion of its merits. Should government subsidize that sector? If it is undergoing only a cyclical downturn, a bailout by the federal and provincial governments may be justified to alleviate temporary problems.

In the last recession our governments loaned billions of dollars to General Motors and Chrysler Corporation. These companies then were drastically restructured, and now sales volume has almost returned to their historic pace.

Then that industry became greedy and applied for subsidies in order to continue operations here, threatening – in a form of industry blackmail – to move to another jurisdiction where, it was claimed, operating cost were lower.

A sensible response would be to ignore that petition. If indeed the automobile industry in Canada were unable to survive and compete under current conditions, taxpayers funds should not be deployed to help.

Our automobile industry boasts about the number of workers it employs, and the claim on our productive resources, labour and capital. Nowhere is it recognized that if these resources were diverted to more productive enterprises that can survive on their own, taxpayers would benefit and the overall economy would flourish.

It should be noted that the Australian government decided to stop subsidizing its car industry, even though it produced 220,000 cars annually. Government funding should not be forthcoming for an inefficient and non-competitive enterprise, according to these new Australian regulations.

What holds true for the automobile industry can be applied to other sectors as well. Are Canadian banks too big to fail, and therefore, are they entitled to billion of dollars of federal funds? Bank of England governor Mark Carney had stated that bankers are too selfish and that “any unchecked market can devour the social capital essential for the long-term survival of capitalism itself.”

Perhaps government funds should be invested now in credit unions or various savings and loan institutions.

These comments are applicable to many others as well, such as the solar industry. We simply are not getting the investment and growth we need as so much money has been squandered.

Clearly, we no longer should be held hostage to the pleas from inefficient enterprises.


Bruce Whitestone