Liberals make Strategic Investment Fund political

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One problem newspapers face nowadays is that it’s getting too easy to predict what will be in them.  For instance the federal Liberals’ shiny new “Strategic Innovation Fund” is being used to prop up mature industries for political gain.  And we all saw it coming.

Or not.  The people who created it apparently didn’t.  In this sense government is the opposite of a newspaper in that even those inside seem to have no idea what it does or how.

It’s hard to believe we’re still having this 1970s-style discussion about whether government can “spur innovation for a better Canada”, a genuine quotation from the SIF website.  I thought we concluded about 25 years ago that government should not try to pick winners and losers because it was far too good at doing the latter.  (Of course we also concluded that deficits don’t cure recessions and look where that insight got us.)

There are sound economic reasons why government should not “pick winners”.  First, paradoxically, government is no worse than the private sector at doing so.  The whole problem lies in what it does next.

In business, if an investment isn’t paying off you shut it down, writing off sunk costs, because otherwise you keep losing your own money (and time and effort).  In government, if something isn’t paying off, you put more money in, because otherwise you lose prestige and it’s not your money.

As “public choice theory” has rightly been insisting for about half a century, people in government are not less responsive to incentives than those outside it.  We’re all human, all too human.

So the problem isn’t that government makes more mistakes.  It’s that it doesn’t admit them and surprisingly often doesn’t even recognize them.  And the bigger problem is that it seems extremely hard, for politicians, public servants and the public, to grasp this crucial reality.

I understand why we wish it were not so; if government could do half the things for us that we think it can life would get a lot better fast.  But I don’t understand why we think it’s not so given ample evidence and clear theory.  Which is why I worry less and less about what good policy would look like and more and more about why it is so rarely adopted.

Sure, right and left are deeply divided over what should be done, how it should be done and how it can be done.  But there is quite a bit of agreement about what each side should be championing.  And even a fair bit across the divide about what to do and how.  And yet very little of it gets championed or done.

In case you doubt me, almost nobody right, left or centre believes the tax code should be unbearably complex.  Yet almost nobody simplifies it, not even those awful right-wingers you keep reading about in newspapers but never seem to meet in the corridors of power.

I would also argue that there is substantial agreement that government should not be trying to support innovation, and at least some understanding across partisan and intellectual lines that if it tries, money will end up allocated on political not economic criteria.  (On this one there is probably more confusion in the centre than on either wing, not untypically.)  And yet you cannot get rid of the profusion of agencies devoted to fostering innovation, all of which go badly wrong not because government can’t recognize a new widget but because it can’t recognize a mistake.

Thus the SIF, created in October 2017, is now being used to prop up Alberta’s faltering oil and gas sector, having previously put money into steel and aluminum companies in response to the innovation crisis known as Trump’s tariffs.  Nobody thought either industry was suffering a sudden drop in technological creativity.  They just thought they were in trouble and people in Ottawa desperate to be seen to be doing something noticed money in the SIF and shoveled it out to bolster their public image and partisan fortunes.

The minister in charge burbled in a Christmas Day op-ed that “Simply put, the Strategic Innovation Fund makes our government a better business partner with industry to create good middle-class jobs across the country.”  Later, a spokesperson for same emailed the Post about “taking decisive action to help restore competitiveness, support innovation, improve environmental performance and create more middle-class jobs.”  How odd.  Liberal PR buzzwords mixed with public funding announcements.

Earlier, the SIF put money into Toyota Canada for this new-fangled automobile thing.  And of course executives of companies that get money are quick to praise the statespersons who give it to them, on the Piper-Tune Principle.

The National Post quoted one expert that ideally the fund would focus on merit and aim at commercializing promising ideas. To which one is tempted to retort gosh, what a pity we don’t have private capital markets for that laudable goal. Instead I retort gosh, what makes you think this government fund will be purged of human frailty when none other has?

The Post went on “The argument is part of a long-standing debate about innovation policy in Canada. There are countless ways in which a government can funnel money toward innovative companies or ideas…” But in fact there are no ways governments can funnel money toward innovative companies or ideas, because there is no governmental “invisible hand” akin to profit and loss in the private sector to ensure that resources flow to good ideas while bad ones go into bankruptcy court.

Perhaps it’s time to put public money dollars into economic education. Oh wait. The government already did. Hence public universities teach the benefits of big government.

Predictably, I am tempted to say. As soon as we start predicting it.

More from John Robson.    Follow John on Twitter at @thejohnrobson

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