New research council mandate shows Conservative’s hostility to free market

Posted on May 9, 2013 in Governance Debates – FullComment
13/05/08. Andrew Coyne

The tendency among the Harper government’s critics will be to see the new mandate it has given the National Research Council, directing it to shift away from basic science toward producing research for industry, as part of a wider pattern of hostility to science, intellect and evidence — of a piece, say, with the destruction of the long-form census.

Among the government’s friends, on the other hand, the NRC’s new business-friendly mandate will no doubt be seen as an example of its unrelenting focus on the economy, adding a much-needed dose of realism to the council’s research and supporting the innovation efforts of Canadian industry. Both views, I think, have it wrong.

The redirection of public funds from basic to applied research may be bad science, but it is even worse economics. Whatever the distortion of the NRC’s raison d’etre is implied, it is nothing compared to the distortion of the economy. Far from a pragmatic matching of public research dollars to the real-word needs of industry, it reveals a basic confusion about the appropriate public and private roles in funding research.

Let’s start from the beginning. To understand what governments should or should not do in the economy, you have first to understand what markets can and cannot do. Governments, that is, should do what markets cannot. They should not try to do what markets can. This is a matter of scarce resources, if nothing else: the more government spends in areas where it is not needed, the less it will have left to spend in areas where it is essential. As a maxim, government should only do what only government can do.

Basic science, the kind of blue-sky research with no immediate commercial application, is an example of something the market cannot do, or not at a level that is optimal for society. Not only is there little obvious incentive for a private firm to spend money on research that does not pay off in new products or better processes, but so far as such research can be adapted to commercial uses it could as well benefit its competitors as itself: so the sharing of research that is a critical part of scientific progress is discouraged.

Hence it is well-established economic principle that basic research is the sort of thing governments should fund. By the same token, however, government should not be in the business of funding applied research, that is research directed to commercial uses. Not only is this unnecessary — business can perfectly well fund this sort of thing on its own — but it inevitably tilts the pitch in favour of certain activities over others: some technologies, innovations, products, firms and industries will be funded, at the expense of the rest.

Or in other words, “picking winners,” with all of the misallocation of resources that term implies. (If a product, firm or industry is really a “winner,” it shouldn’t need a subsidy. If it isn’t, all the more reason it shouldn’t get it.) What the government’s supporters might think is hard-headed realism is in fact simply central planning by another name — an illustration, once gain, of the difference between being “pro-business” and “pro-market.”

And indeed, this is of a piece with this government’s previous behaviour: of hostility to science, perhaps, but of hostility to markets, most definitely. After so many previous episodes — the auto industry bailouts; the proliferation of subsidies and tax breaks to other favoured industries, even including the venture capital industry; the extension of regional development subsidies to every part of the country; to say nothing of its highly discretionary foreign investment policy, jawboning of banks, etc. etc. etc. — it should by now be clear to everyone: This can no longer be described as mere political posturing. It accurately reflects the government’s current thinking on the economy. We have to stop talking about the Harper government having “abandoned its principles”. Whatever might once have been the case, these are its principles.

You can trace the evolution of the government’s beliefs in the sorts of reports it has commissioned over the years, and how these have fared. The 2008 report of a panel on productivity led by the former chairman of BCE, Red Wilson, was titled “Compete to Win.” It ably represented the views of most economists, that the best stimulus to productivity is competition, the more of it the better. Among other things, it advised opening up protected sectors such as telecommunications and transportation to foreign investment. And, for the most part, its recommendations have been ignored.

In the mean time, the government appears to have come under the influence of two other prominent businessmen: David Emerson, the former captain of industry and minister in both Liberal and Conservative governments, and most especially Tom Jenkins, the chairman of Open Text. In place of competition and open markets, both emphasized the role of subsidies, protection and government direction: Emerson, in last year’s report on aerospace policy, and Jenkins, in his 2011 report on innovation policy — the basis for the changes at the NRC — and again in a paper on military procurement earlier this year.

These now form the core of Conservative policy. It is simply wrong to refer to the Harper government as “free market” in orientation. Its economic policy is, and has been for some time, heavily interventionist — perhaps the most interventionist of any government since Trudeau’s.

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