Sunday, May 12, 2013

On distortions

Yes, there's generally reason to be skeptical of corporate apologists trying to claim a populist, anti-corporate-welfare mantle while pushing for business to contribute less and less to society as a whole. But even if we weren't going to hold that skepticism against the Fraser Institute's Mark Milke, there are two gigantic assumptions that make it clear he's interested in something far less than a fair assessment of the public interest in regulating and taxing markets.

First, there's this on resource royalties:
In the context of resources, be it royalty rates on oil, gas or minerals, or stumpage rates set on the cutting of timber, another mistaken subsidy definition often crops up: that anything less than some theoretical higher rate is a subsidy.

However, resource rents are just that: rents. As with any property owner, governments should set resource rents at a level that extracts the maximum market rent available. However, just as it’s unwise to get greedy and risk losing tenants, governments risk losing those who might otherwise mine and drill, but will exit a province or country when rents are exorbitant. In other words, getting the balance right matters, and for everyone’s interest.
Of course, the problem with Milke's attempt to avoid any discussion of resource rents is this: any attempt to discuss whether current royalty rates actually reflect the "maximum market rent available" is met with shrieks of protest and millions of dollars worth of PR blitzes from the resource extraction industry. And in far too many cases, governments who are supposed put the public interest first have themselves joined the chorus.

And the presumption in those cases surely has to be that resource royalty rates are in fact lower than they might otherwise be. After all, if a study were likely to show that they were already fair, then there would be no reason for the corporate sector to go to war against the mere suggestion that we actually take a look at the issue.

So Milke's claim of "revenue-maximizing resource rents" is far from a safe assumption. And by his own account, resource rents lower than those which could be achieved are in fact...a massive public subsidy of the resource sector, which is surely no less objectionable as a matter of selling off resources at a discount than as a matter of giving away money.

Second, there's his brazen attempt to label one of the most obvious government handouts to business as an example of the free market at work:
A dynamic business environment is essential for jobs and higher living standards. So too privately-funded research and subsequent inventions widely applied that improve our lives — think Steve Jobs and his efforts, or researchers who patent a new drug to combat some illness that would otherwise require surgery.
Now, the production of a new drug can fairly stand as an example of the type of life-enhancing improvement we should seek to encourage at every opportunity. And research is certainly a step in that process.

But it's far from a fair assumption that the patent system actually does more to encourage the underlying research than direct public funding. And Milke merrily glosses over the reality that there's plenty of public subsidy of private profit involved in a system where the corporate sector is regularly permitted to claim the results of publicly-funded research under a state-authorized monopoly - with obvious social harms then resulting when life-saving drugs end up being priced beyond the reach of the people who need them.

In other words, Milke's supposed paean to ending corporate subsidies is noteworthy mostly in its effort to single out a couple of particularly egregious forms of state-based market distortions as being beyond reproach. And that selective outrage serves only to highlight who's behind Milke and his organization, rather than to provide a template for a fairer economic system.


  1. The government, since its ultimate rent is the national rent, should set component rents at the rate which maximizes total return, rather than return of any individual rent.

    1. A fair point. But that involves establishing overall tax policy which seeks to maximize revenue - which is even further from anything Fraser would even pretend to tolerate.

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