Wednesday, November 23, 2011

Wednesday Morning Links

Miscellaneous material for your mid-week reading.

- Jim Stanford points out that when it comes to manufacturing, any talk of an "invisible hand" doing much for productivity is based purely on faith rather than evidence:
When it comes to Canada’s lousy record in productivity and innovation, the standard prescription of economists is both clear and predictable. They believe unregulated markets are the best way to allocate resources and determine the composition of output. Therefore, to improve efficiency and innovation, simply improve markets: Eliminate “distorting” taxes. Eliminate regulations. Sign more free-trade agreements. Cut “red tape.” That will unleash the full potential of the private sector to innovate and optimize, and Canada will become a northern tiger.

Canadian economic and social policy has been generally following this advice for a quarter-century. Taxes are lower, globalization is embraced, labour markets are unforgiving, business is freer (and more profitable) than any time in our history. Ironically, however, the more vigorously we pursue the holy grail of self-adjusting markets, the worse our productivity and innovation has been.
This seeming contradiction between Canada’s business-friendly policy environment and the failure of the resulting empowered private sector to deliver innovation and productivity growth puzzles economists who advocate market-driven approaches. They search for some remaining imperfections or residual market impediments to explain the failure of Canadian productivity and innovation to take off.

But what if the starting assumption of their model – namely, that unconstrained private market forces always produce the most efficient, innovative economy – is not justified? What if, in fact, markets work more productively and creatively when they are guided, supported, and constrained, rather than simply being unleashed? What if the best approach is to challenge and direct markets to more productive and innovative outcomes?

International experience reinforces my skepticism of market-driven policy. The successful state-led industrialization experience of several Asian and Latin American economies in recent decades, where policy was proactive and interventionist, suggests that innovative, productivity-enhancing growth does not occur spontaneously as a result of market forces. Instead, the “visible hand” of government intervention, manifested in a wide range of forms, is more strongly associated with qualitative and quantitative economic progress. Targeted subsidies, strategic trade interventions, active industrial strategies in high-tech industries, domestic procurement strategies, and even public ownership of key firms have all been more effective in promoting innovation and export success than Canada’s hands-off approach.
- And speaking of evidence, interim Auditor General found none that the Cons cared in the slightest whether their stimulus spending saved any jobs other than their own.

- Meanwhile, Information Commissioner Suzanne Legault has pointed out that the Cons' move to destroy the data supporting the long gun registry makes for a disturbing precedent. But I have to wonder whether as secretive a government as Stephen Harper's will see that precedent as a feature rather than a bug: what better way to cover its tracks for future misdeeds than to make the disappearance of information into standard operating procedure?

- Finally, while engaging in a bit more "they all do it" than seems justified, John Ivison rightly slams the Cons' contempt for Parliament.

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