Corporate welfare destroys jobs in the long run

General Motors’ announcement to close several plants reminds us that corporate wellness does not produce long-term sustainable business. It’s a Band-Aid and a colossal waste of taxpayer funds. The government could apply those funds to help retrain workers, help them find new jobs, and minimize loss of income as they transition to their new situations.

Businesses create wealth and jobs

The business is the vehicle owners use to create jobs and generate income so that employees and shareholders become consumers and keep the economy growing. A company must have the right people cooperating in the right spaces at the right direction. Its ability to pay its workers and shareholders comes from the production and sale of machinery, equipment, goods, and services that people want or need.

We should encourage business owners to pay their employees well, be profitable, retain profits, reinvest in the business, and pay dividends to their owners. But we shouldn’t intimidate companies into keeping uneconomic plants open. If there is no market, there are no sales, there are no funds available. A structurally flawed business must close early and treat workers fairly and respectfully.

Corporate welfare destroys jobs

Governments have no shortage of wealth destruction tactics. Thus, they give huge subsidies to companies to “create jobs” or for other political reasons. They don’t see that this is just another major government waste outlet. Unfortunately, they don’t look at results over time to see that their corporate well-being is anti-competitive and job-destroying in the long run.

The role of governments is to create a level playing field for businesses to prosper. They must develop favorable conditions for companies to want to operate in their jurisdictions. It is absurd and naive to believe that bribing companies with gifts is more than a temporary solution. According to the Fraser Institute:

Between 1961 and 2013, the federal government [Canada] The industry department 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 corporation or its parent companies receiving corporate welfare are anything but startups. In addition, in many cases, the cash on hand held by the business or parent company far exceeds the original total amount of corporate welfare disbursed. This calls into question at least one rationale for the policy that allows subsidies to businesses: that taxpayer assistance is required to compensate for market failures and lack of capital.

Some Blue Chip companies get corporate welfare

In the US, corporate welfare recipients include Nike, Intel, Boeing. Indeed, it is outrageous how governments arbitrarily hand over taxpayer funds to large corporations without consultation or accountability. Why not use these funds to reduce personal income tax? Here again is an example of a complacent electorate allowing government profligacy.

In my business experience in many countries, I have seen several examples of corporate welfare, mainly because governments and unions did not want structurally unsound companies to close. Unfortunately, some of these businesses received welfare payments for years, but eventually went out of business.

Governments and the public must realize that structurally deficient companies will not survive. Therefore, the best approach is an early orderly closure that includes training and relocation of workers, where feasible. Encourage companies to close with the utmost care and empathy for employees. The alternative of staying open gives false hope about the future of the business. If companies can survive only with the financial help of taxpayers, they have no future.

Corporate welfare is cronyism

Since corporate wellness strategies don’t work in the long run, why do governments continue them? The answer is obvious: corporate welfare produces positive political results in the short term. And, above all, ignorance leads the electorate to believe in government propaganda about the use of tax money to finance companies that lose. So who will educate the public about business realities? Surely the government will not. Thus, companies must assume this role even though they start from a significant solvency gap. Unfortunately, some greedy and selfish CEOs take excessive amounts of their companies in different ways.

History will show that giving investment incentives to selected industries as the Canadian and US governments do is short-sighted. In fact, Canada’s corporate welfare extends to the aerospace, energy, agricultural, and automotive industries; however, with this massive support, the auto industry is declining and will continue with no more prosperity. The alternative to corporate welfare is to eliminate special payments and incentives to companies, eliminate corporate taxes, eliminate unnecessary regulations, and allow companies to grow and create jobs.

© 2018 Michel A Bell