Reader who criticized government-funded incubators was way off

This Rebuttal is a response to a reader, Paul Doherty, who suggested that “Government-funded incubators area a bad idea.” (CWC, XX, Page XX.)

Mr. Doherty was responding to an article by Barrie Robinson published by your organization on Nov. 3. My rebuttal is in defence of government involvement in technology investment and stands to refute many of Mr. Doherty’s points. Please post if you wish.

These comments sounds typical of a falsely knowledge-classical economist. Economics is not science, there are no absolutes and it ought not to ever be expressed in a dogmatic tone.

Economics will always exist, trade has been and always will be a function of human social interaction. Any attempt to quantify this phenomenon beyond that mantra is skewed in the face of truth. Further to that, the original thinkers in economics such as Voltaire and Adam Smith, even David Hume, were ethicists and realized that the invisible hand itself was not perfect and that no micro/macroeconomic system of economics can exist without the guidance and assistance of government.

To Doherty’s argument regarding the free movement of capital between nations, and that he ought to be able to have an unlimited amount of foreign investment in his RRSP, this shows he has little real knowledge of Capitalism as the theory was intended by Adam Smith. Smith’s book, The Wealth of Nations was an investigation into the causes of national wealth. The virtue of the invisible hand was that at that time, movement of capital was extremely limited. There was no electronic frontier. Money, if it were to be moved and invested elsewhere would have to be done so physically, and with limited speed. The theory of the invisible hand suggests that government ought to let individuals create wealth for our nation as they engage in entrepreneurial activity. If there is little capital mobility, then net wealth of the country must increase…particularly if the goods being produced are those of an exportable nature.

Doherty fails to realize that his wealth is a function of national wealth and that should the country’s economic performance fail, then by the nature of the multiplier, he too would most likely suffer economic woos. We should all hope to retain as much domestic capital as possible, and we should also continue to attract foreign capital for investment as well. As to our global competitiveness, particularly in high tech and telecommunications, I would venture that there are few nations who can match our expertise.

Usually what happens when one is investing in an Asia-growth fund or Asian-based stock holdings, their large returns are either the result of massive investment causing a perceived growth (that is, not truly real) or those large returns are the result of the exploitation of Asian workers.

Generally, the supply of labour in an economy dictates the average price for a unit of labour for that economy in question. This explains the investment juggernaut in China. Cheap labour, massive human rights exploitation and high returns is a summation of the new capitalism in China. Smith, incidentally abhorred such treatment of workers. Labour surplus does not mean economic efficiency, labour surplus points to an incredibly unstable and unhealthy economy and society.

laisez-faire doesn’t exist

As to why we need government intervention and government’s presence in the ‘free market’ economy? Here are some examples of its importance.

First of all, there is no government, nor has there ever been in human history, a government that is entirely laisez-faire. The Romans, the Chinese, the Egyptians, and even the most republican American government – the hallmark of corporate capitalism has never been entirely laisez-faire.

The most typical, ignorant response we hear today from the right dogma is, “Reduce my taxes, get rid of red tape and, of course, keep your nose out of the free market!” Well, in all honesty, society cannot and has not ever existed without government. Here are some essential services that are generally provided by government in a successful political economy:

Infrastructure. Roads, in the case of Ancient Rome, were built by soldiers who just happened to be on the parole of the government.

Law. Laws and the enforcement of law, drafted in many cases by representatives of the people; government, for the protection of the people and the solidarity and cohesiveness of society as a whole.

Education. All modern political economies of our era have a public education system. Knowledge and therefore your society’s power, cannot be passed down to those who cannot learn. The fate of your nation state lies in the education and knowledge passed down to its future generations.

How about we talk of nation building and the effects of major capital investments that have civilian, commercial and military purposes?

Look for example to Canada’s national railroad. It was initially developed for the purpose of defending against a military invasion, but it immediately assumed the task of ensuring the solidarity of British North America. This investment, paid for by government, also allowed for massive increases in domestic commerce as well as foreign as it formed part of the trade route to the far east.

What of the development of Canada’s telecommunications industry? An initially heavily-subsidized and government-sanctioned telephony monopoly that spurred comparative advantage in communications technologies for an entire nation. Bell Canada and her research wings Bell Northern Research and Northern Telecom exist as a result of massive public-sector investment and protectionism. For the longest time, BCE was the hottest trading stock in the world. It was one of the few stocks whereby the government allowed the company to guarantee its shareholders a return on investment, year after year.

Government investment in the A.V. ROE company in the early 1950s spurred a quantum leap in aviation technologies . New technologies in aerodynamics, engine design, materials development and aviation navigation gave way to the birth of one of the worlds fastest fighter interceptors, the AVRO ARROW. Sadly the Diefenbaker government, lacking the foresight of how this investment would redefine a nation and her economic and military prowess, cancelled the project. However, the research of this investment, the human capital and engineering knowledge that it created went to subsidize and stimulate an even greater cause. Canadian and British engineers and scientists played a major role in landing a man on the moon. Other elements and human capital as a result of this investment were employed in large American aviation companies to further develop commercial and military products in the United States.

Government efficiencies

As to arguments regarding the efficiency of government, or lack thereof as put forth by Doherty, let us look at the example of Canada’s nationally-funded health care system. Under this health care model, Canada spends less money per capita for health care than the U.S. two-tiered system. This is why when President Clinton first took office, he attempted to bring about a more efficient and socially-responsible health care model that would garner these efficiencies to American citizens as well. At a theoretical level, we can envision that a nationally-funded healthcare system will provide a healthier, happier society of workers, and that there are productivity dividends inherent in that as well.

Technology Incubators are efficient, they spend government and private sector resources in markets where we have comparative advantage so that we’re not fighting current, we’re not reinventing wheels, we’re just going with the flow. Technology incubators in the U.S. and Canada have the potential to help develop their communities as technology hubs. Just as capital investments are necessary for a nation to succeed and grow, they are needed too at the municipal level to reduce the digital divide and fertilize growth and the transformation to where our new comparative advantage lies, both as a country and as communities. Doherty’s comments are indicative of one who accepts current corporate capitalism rhetoric as dogma, and one who knows not the true source of national and personal wealth, and who lacks the foresight and vision to see outside the box of current classical economic interpretation and right-wing thought.

Aaron Smith

Trent University

Peterborough, Ont.