- All economies are planned
- The crucial debate is who gets to do the planning
- Corporate welfare schemes inch us closer to central planning, but in a free market, we the people are in charge
As the late Nobel prize-winning economist Friedrich A. Hayek once wrote, all economies are planned.
Buying, selling, saving, investing, and all other activities are the result of someone’s plan.
As such, the key economic debate of the past two or three centuries has been over who is to do the planning.
As Hayek wrote in his 1945 essay “The Use of Knowledge in Society”:
This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.
As such, many public policy decision push society in one of two directions, closer to determining who is to do the planning: individuals or a centralized authority.
The path chosen determines not only the economic health of a society, but also — and more importantly — who in that society holds the power over the use of the society’s scarce resources.
Over the last few weeks, Gov. Josh Stein and the N.C. Department of Commerce have issued a number of press releases bragging about securing deals that will potentially gift almost a million taxpayer dollars to specific corporations in exchange for those companies investing in facilities and “creating” a certain number of jobs.
A global drone manufacturer stands to get half a million dollars from the state for setting up shop in Fayetteville, a German transport company could get $200,000 for building an assembly plant in Hickory, and a global retail apparel company was offered $150,000 in taxpayer dollars to establish a distribution center in Salisbury. These are relatively small handouts, but they are just the latest in a decades-long trend of taxpayer giveaways that have totaled in the billions.
Doling out taxpayer dollars to select, politically connected corporations takes us down the wrong path.
Imagine being a longtime business owner in one of the above-mentioned communities. You’ve served customers, employed people, and paid the full state and local tax rate for decades. Now you hear the news that a corporation successfully lobbied to get a taxpayer handout that you will never receive. Worse still, your tax dollars will be used to subsidize this corporation that will quite possibly end up competing with you for scarce resources like raw materials and labor.
The unfairness of this arrangement needs no elaboration.
Moreover, while falling short of complete centralized planning of the economy, such government favors push the economy in that direction.
Instead of local businesses succeeding and failing based on their ability to produce goods and services efficiently at a price consumers are willing to pay, politicians are putting their thumbs on the scale to favor these incentivized corporations.
This marks a shift of power away from us as consumers into the hands of the political class.
In a freely competitive market economy, we the people — with our decisions of how we spend our money — are the ones who determine which companies succeed or fail. As a result, society’s scarce economic resources, such as land, factories, heavy equipment, raw materials, and labor, flow into the hands of entrepreneurs based on our decisions.
How our economy’s means of production are deployed is determined by us. We hold the power.
Conversely, where government policy interferes by playing favorites, the means of production are deployed — at least in part — in response to the political class instead of consumers. Our preferences are overridden by politicians and corporate lobbyists.
This shifts power over society’s scarce resources into the hands of the political class.
And from an economic standpoint, such government intervention makes us worse off. In a free-market economy, the profit and loss system directs scarce resources to their highest valued use. Those entrepreneurs who fail to combine resources into a finished product valued by consumers go out of business, and their productive resources will flow toward those entrepreneurs who are creating value.
This process ensures that society’s needs and preferences are being met in the most efficient means possible. Government corporate welfare programs muck up this process and can prop up companies that otherwise would not survive in a competitive market. As a result, these inefficient companies command more scarce resources than they otherwise should, deploying them in lower-valued uses than they would have been in a free market. Society is deprived of more highly valued goods and made poorer as a result.
Calling back to Hayek’s dispute over who is to do the planning, government “economic incentive” deals clearly tip the scales toward a system of centralized planning over a system where the plans of individuals run the show.
Ending these taxpayer-funded economic incentive programs not only makes for better economics but would truly return power to the people.
