Corporate Welfare is Immoral

In its recently released budget the Canadian (Conservative!) government announced $6.4 billion of new corporate welfare spending. The aerospace sector will receive $1.2 billion of it over the next five years, Federal Economic Development Agency for Southern Ontario $920 million, forestry companies $92 million, Venture Capital Action Plan $60 million, and $325 million will go to “green” technologies. In addition, together with the provinces, the federal government will give the agricultural sector $3 billion. And the automotive sector will receive $250 million through the Automotive Innovation Fund. You get the picture (for more, you can read Mark Milke’s column in the National Post here, or if you can stomach it, read the budget itself).

Government hand-outs to business—corporate welfare—is immoral, and doubly so. The government forcibly takes the money (also known as stealing) from the Canadian taxpayers, which is the first moral offense. Then the government in its wisdom picks winners and losers in the marketplace: it determines which sectors and industries, or sometimes specific firms, are worthy of or in need of a hand-out from the government. This is also immoral, because it distorts the markets and makes the economy less efficient, wasting the taxpayers’ hard-earned dollars. The companies that could not survive or succeed in a free market get boosted and hang on despite their inefficiency, wasting resources. They also prevent their more capable competitors from doing as well as they could do, absent the corporate welfare to these government favorites.

The best thing the government can do to help the country’s businesses compete and succeed is to free the markets: remove impediments to competition (such as regulations and hand-outs) and stop interfering with business.  It is competition that drives innovation in new products and processes and higher quality and lower prices, not anything that the government does, no matter how good its intentions. As Ayn Rand identified, the government’s only role, properly, is to protect individual rights against initiation of physical force and fraud. This means only three functions: the armed forces, the police, and the courts (to protect people’s rights in cases of crime as well as contract disputes).

Corporate welfare payments by government are clearly immoral. But what about the companies that are the recipients of such hand-outs—are they also immoral? Absolutely not. We live in a mixed economy, not in a capitalist system with a limited government protecting the individual rights of its citizens. Companies pay taxes and deserve to get something in return for that money which they were forced to pay. In order for businesses to have a chance of surviving and succeeding, they cannot ignore the mixed economy context in which they compete. If the government decides to hand out a slush fund to all the competitors in an industry, it would be self-sacrificial of a company to refuse the money.

The government is acting immorally in handing out corporate welfare, but companies receiving it are not. It is in the companies’ interest to compete in a free market. The best way to facilitate free markets is to take any government hand-outs (as that will make the mixed economy fail faster) while at the same time condemning government interference in the economy through any means available: letters to the editor, public speaking, activism through industry associations or Chambers of Commerce, etc. That is the best companies competing a mixed economy can do, hoping for a free market in the future.

  • southc0ast

    Welfare in any form is immoral, be it social or corporate. In as long as the state imposes its will in corporate matters, it should not be deemed immoral for any hand outs from the state to corporations. If the state expects to be able to manipulate corporate behavior or operations, it should expect the corporate entity to expect some quid quo pro. To eliminate corporate welfare would require the state not intervene in the matters of corporations. On the other hand corporations should strive to behave in such a way as not to invite interference by the state. Good behavior prevents reciprocal meddling.