Governments cannot Create Jobs

The previous module dealt with various governments in Canada taking very activist roles in their economies, attempting to use direct investments of public monies in various industries to stimulate economic growth. The usual justification of such investments is job creation, particularly in areas perceived as being economically disadvantaged. On close examination, however, it can be seen that governments have a sorry record in job creation. There are a string of failed enterprises, mothballed plants, and bankruptcies from coast to coast in which governments spent our money. The problem is that governments tend to invest in enterprises for which there does not exist an economic justification in the first place.

The federal government’s biggest job creation initiative in the past decade was the Canada Infrastructure Works Program (CIWP). They pledged to fund 1/3 (together with 1/3 from the provinces, and 1/3 from municipalities) the cost of various infrastructure improvement projects in communities across Canada. The original idea was to address pressing infrastructure problems (e.g. roads, sewers, water systems, bridges, etc.) across Canada while at the same time creating jobs in the process. What the urc researchers discovered, however, was that many of the projects that received funding had nothing to do with infrastructure in the traditional sense.

The underground royal commission had researchers across the country try to find out how various CIWP projects were approved, who made the decisions, on what cost/benefit criteria, and what were the outcomes of these projects in terms of job creation. These researchers were stonewalled and discovered that billions of taxpayer dollars were spent on some 17,000 projects without proper documentation or accountability. They discovered that more than $8 billion in public funds were expended without anyone being able to properly document the advantages of such investments, particularly in terms of job creation, one of the original justifications for this spending. In fact, they determined that the job creation figures released by the federal government concerning CIWP were questionable at best. (See Secrets in High Places (book and video), On the Money Trail, Down the Road Never Travelled)

Politicians do not seem to learn from history. The Canadian experience, in particular, shows that governments cannot create real, long-term, sustainable jobs….that is not their role. As Harry O’Connell, a former civil servant in Prince Edward Island puts it in Taking or Making Wealth:

We can learn from the last 25 years that government cannot create jobs. The creation of jobs is not the role of government. Nor can government provide the individual extension services to assist an individual going into business. That is something that comes from your own genes and not something that someone forces you to do. As a result, government’s role is perhaps more in providing the context to allow you to go into business. It’s not to ask you or to develop you to get into business, but it’s to provide the context: a low-interest-rate economy, good services, good freight, good highways, good transportation and communication. That’s the role of government. It’s not in the development process of providing individual entrepreneurship.