General Motors’ notice to shutter several plants reminds us that corporate welfare does not produce long-term sustainable businesses. It’s a band-aid and a colossal waste of taxpayers’ funds. Government could apply those funds to help retrain workers, assist them to find new jobs, and minimize loss of income during the transition to their new situations.
Businesses Create Wealth and JobsBusiness is the vehicle owners use to create jobs and provide incomes for employees and shareholders to become consumers and keep the economy growing. A firm must have the right people cooperating in the correct slots headed in the right direction. Its ability to pay its workers and shareholders comes from producing and selling machinery, equipment, goods, and services people want or need. We should encourage business owners to pay their employees well, become profitable, retain profits, reinvest in the business, and pay dividends to their owners. But we shouldn’t bully firms to keep uneconomic plants open. If there is no market, there are no sales, no funds available. A structurally unsound business should close early while treating workers fairly and respectfully.
Corporate Welfare Destroys JobsGovernments are not short of wealth destruction tactics. Thus, they give companies huge subsidies to “create jobs” or for other political reasons. They do not see that this is merely another major government-waste outlet. Sadly they do not examine results over time to see that their corporate welfare is anti-competitive and destroys jobs long-term. Governments’ role is to create level conditions for firms to flourish. They must develop conditions amenable for businesses to want to operate in their jurisdictions. It is absurd and naive to believe bribing companies with handouts is more than a temporary fix. According to the Fraser Institute:
Between 1961 and 2013, the federal [Canada] department of industry disbursed $22.4 billion to businesses. …The top 10 recipients received just under $8.5 billion, or 38 percent of all money disbursed. … [M]any corporations or their parent companies that receive corporate welfare are anything but start-ups. Also, in many cases, cash-on-hand possessed by the company or parent company far exceeds the total original corporate welfare amount disbursed. This calls into question at least one justification for policy that allows subsidies to business—that taxpayer assistance is required to fill in for market failure and a lack of capital.