Capitalism and Voluntarism

The whole idea of the free-market is that the relentless pursuit of self-interest leads people to do greedy things that ultimately benefit all of us.

That’s what makes it so humorous to see that appeals to voluntarism have become one of Finance Minister Jim Flaherty’s major policy tools.

At least there was a bit of poetic justice in his phony, optics-driven effort to portray himself as the defender of Canadian consumers against greedy retailers.  He shot himself in the foot, at least mildly, when it became clear his claims about the Canadian price of the latest Harry Potter book were wrong.

Of course, he talks tough with the retailers (whose profits have soared with the loonie, thanks to their imperfect pass-through of lower import prices).  But remember, he still has a few other tools in his toolbox that might end up being more meaningful, in real life, than his appeal to business’ sense of charity.  Like corporate tax cuts, for example.  The ones he announced last week will save retailers alone about $1 billion per year, on their ill-gotten profits.  Lecture them in public, line their pockets in private, would seem to be Mr. Flaherty’s motto.

Here is my full Globe and Mail column on Mr. Flaherty’s strange voluntarism:

            Yesterday, Finance Minister Jim Flaherty met with some of Canada’s leading retail executives, urging them to cut prices in response to the soaring Canadian dollar.  That meeting, plus $4, will get you a latté at Starbucks.  In other words, the meeting itself was devoid of value.

            Most amusing, this spectacle was convened by a politician who’s more deeply and personally committed to the notion of laissez faire than probably any other Finance Minister in Canada’s postwar history.  Indeed, the whole idea of free-market economics is that the universal pursuit of naked greed (by individuals and businesses alike) generates maximum efficiency and wealth – some of which trickles down to the common folk.  In this vision, we should celebrate greed, not rein it in.

            Yet here was the country’s senior economic policy-maker pressing major businesses to do the exact opposite: voluntarily reduce their profits, as an act of charity to Canada’s long-suffering consumers.  What’s more, this odd appeal to community spirit on the part of money-grubbing business leaders has become standard fare on Mr. Flaherty’s policy menu.  He’s invoked similar arguments in other recent debates, too:

·        Urging Canada’s major banks (a well-known group of philanthropists) to voluntarily cut ATM charges.

·        Urging industrialists to voluntarily invest more in Canadian capital projects, to offset the negative economic effects of a high dollar.

·        Urging the government of China to voluntarily take up more of the global burden of exchange rate adjustment, by boosting its own currency.

            This last plea was surely the most far-fetched of all.  Anyone who believes that the Chinese government sets its economic and foreign policies on the basis of fairness had better not bother taking the foreign service exam – let alone running for Parliament.  And yet hoping that banks, global manufacturers, and retail giants behave any more charitably is almost as naïve.  Next he’ll be begging the oil companies to keep gas prices low on long weekends.

            If patriotism is the last refuge of a scoundrel, then voluntarism is the last refuge of a Finance Minister – especially one so philosophically committed to the principles of self-interest.  I am a socialist, and even I’m not so idealistic as to suppose that economic policies founded on appeals to charity are likely to work very well.  It takes regulation, incentives, and structure to push people and institutions to change their behaviour, not moral suasion.

            If Mr. Flaherty is serious about stopping consumer gouging, spurring capital investment, and attaining more balance in global markets, then he’ll need much more than jawboning.  He’ll have to regulate retail margins to stop the current exchange rate rip-off – or, better yet, just work to bring the dollar down from the stratospheric levels that caused this problem in the first place.  He’ll need fiscal policies which directly reward companies for new investments (rather than cutting corporate taxes on spec, no strings attached).  He’ll have to limit Chinese access to our domestic market, until we see some reciprocity and balance in their own trade policies.

            But Mr. Flaherty and his free-enterprise government have no time for interventionism of this sort.  His actions will go no further than verbal admonishment.  And these beg the same question that every bully asks of the tormented 97-pound weakling: “Whaddya gonna do about it?”

            Mr. Flaherty should know better – and, in fact, he does.  His exhortations have nothing to do with effecting change, and everything to do with making sure he and his government don’t wear any of the public anger resulting from these and other economic outrages.  It’s an exercise in optics, not policy.

            Come clean, Mr. Flaherty.  Retail super-profits, expensive bank charges, and underinvestment by hugely profitable corporations all stem from the same fundamental forces that your government celebrates every day: business profit and power.  And you have no intention of doing it any differently.