Andrew Coyne has an excellent piece in the National Post dealing with why there are no good reasons for corporate handouts in the wake of yet another round of assistance to the automobile sector. He asks what the economic rationale for this assistance is – that is, what is the economic value? He argues that what passes for economic arguments in support of corporate assistance and bailouts really are but “pseudo-arguments”. For example, we must subsidize the auto industry because we must be in the automobile business – in essence, the auto industry is special. Or, other countries are assisting their manufacturing sectors with subsidies so we need to do so to compete.
Yet, the question remains. What are the benefits and costs of subsidizing the manufacturing sector? What is the value to the economy of directing public funds and resources into subsidizing manufacturing in general and automobile production in particular? This is perhaps all the more galling because it is a supposedly market-oriented Conservative federal government that is providing this latest round of financial assistance and support. Whatever happened to the federal finance minister's lament of corporate dead money? If there are stockpiles of cash in the private sector that can finance investment and innovation, why are we subsidizing?
And what about other types of manufacturing? Why for example was assistance on the scale provided to automobile production not also provided to pulp mills to help them innovate and compete? How did government reach the decision that decided one form of manufacturing was more important in economic terms than the other? Sure, we can say that the decision was really based on politics and there are more votes in southern Ontario auto production than rural resource mill towns but again that is not an economic argument.
Is there a special economic value or role to manufacturing that makes it special? Coyne feels: “If it’s about anything, it’s about aesthetics, or a sort of sectoral snobbery, the kind that finds the prospect of being “hewers of wood and drawers of water” so unspeakably vulgar. And yet it is presented as if it were an economic argument.” My gut feeling is that this tendency to put manufacturing on a pedestal is rooted in an almost 1930s Soviet-style view of economic development with heavy industry and manufacturing being the high ground of the economy. Industrialization is seen as a sort of “higher-level” of economic activity after agriculture and resource extractio - a logical higher-order stage. A classic exposition is in the work of Walter Rostow and his “Stages of Growth” approach to economic development – I am not calling it a model. Interestingly enough, his work was presented in the 1950s as a market driven alternative to Soviet style economic planning to the road to industrialization and development by presenting economic development as a set of natural stages.
Rostow chronicles five stages to economic growth – the third of which is the “Take-off” stage in which manufacturing begins to grow and leading sectors in steel, coal and heavy industry develop leading the economy away from the “Traditional society” which was characterized as pre-modern, low tech and in essence backwards. Of course, Rostow’s traditional society was a primary sector economy of hunting, fishing and agriculture. For Canada, substitute natural resource extraction for those primary industries, and you get a pretty good idea of how the resource sector is viewed by many Canadians. Dutch Disease is obviously all the more traumatic when viewed as an economic infection that causes regression to a traditional society.
What is also interesting in all of this is why in a similar vein we do not view manufacturing as backward in relation to the post-industrial knowledge economy of high end financial, medical and knowledge services? Surely, if our society is imbued with a tendency to view economic development as a series of sequential progressive higher-level stages, why not also consign manufacturing - and specifically automobile production - to the dustbin of history? Is not the highest stage of economic development one in which we effortlessly glide from one shopping and dining experience to another while not having to produce anything that is physically tangible all the while powered by friendly and renewable green energy and green transport modes? I repeat the question raised by Coyne, why is manufacturing special?