The Canadian Liberal government (similar to the Democrats, but further to the Left) announced its first budget last week, filled with bold promises—and lots of spending of tax payers’ hard-earned money. The government will revive the Canadian economy by “investing” in long-term growth. Besides infrastructure, a particular target of government investment (i.e., spending tax money) is technological innovation, the creation of new products and processes that will enhance productivity and standard of living. So how is the government going to boost innovation?

There is nothing innovative about this government’s approach; its methods are the same as every other statist government’s in the world. It will allocate more tax money to scientific research at the Canadian publicly funded universities in the hope that eventually research findings will be translated into innovative products. (This is where Canadian companies haven’t performed particularly well). And the government will also channel taxes to support “innovation clusters:” networks in different regions of the country where universities, industry and governments will work together to innovate. How this will happen, other than the $800 million spending commitment, is less than clear.

Are we going to see any return on this “investment,” in terms of increased innovation by Canadian companies and long-term economic growth? The answer, of course, is no—because innovation, and economic growth, cannot be stimulated by government spending.

There are just two fundamental requirements of innovation—neither of which requires taxation: reason and freedom. It is the human mind, adhering to reality, that is needed to find innovative solutions to any problem, from learning to build and use simple tools such as sling-shots and plows, to splitting the atom to harness energy to creating wireless communication devices. What the human mind requires to be able to adhere to reality and to solve problems—to create innovations—is freedom.

Freedom is achieved, not by government spending and involvement in the economy, but by government removing itself from the markets and leaving them free to compete.
Government should remove itself from the education market and leave it to private companies (schools and universities), so that the best, most innovative research institutes and education offerings will win and private education will become affordable to all. The curriculum and research winners should not be determined by government bureaucrats (who have no responsibility or accountability for their choices) but by the markets (companies wanting to hire competent employees and to develop products based on basic research).

Government should remove itself also from the market for other innovations. Again, the government bureaucrats, no matter what their training and credentials, cannot determine what the winners will be in the marketplace of new products and processes. If objective, the bureaucrats may be able to determine what innovations best meet the requirements of human survival and flourishing. However, they cannot pre-judge how hundreds of thousands or millions of buyers will assess new innovations—and it is the buyers’ (other companies’ and consumers’) assessment that determines an innovation’s success.

All government efforts and spending of our money to boost innovation will end up deterring innovation instead. By funding public education and public research, government enables bad ideas (from the “look-say” method of spelling and “new” math to all other forms of irrationality) to dominate in the public education system. Moreover, such funding diminishes our ability to choose where to spend out educational dollars or which research to support through our investment and spending.

Similarly, all tax money spent by governments on “picking winners”—subsidizing some companies’ innovation efforts (the Canadian aerospace manufacturer Bombardier is a prime example of such largesse) as opposed to those of others—limits companies’ and consumers’ ability choose which innovations to pursue and how much resources to allocate to them.

The only thing the government can do to “stimulate” the economy and to boost innovation is to ensure freedom by protecting our individual rights against the initiation of physical force or fraud by others. Fortunately, such protection—through the police, the armed services, and the law courts—requires much smaller government and no taxation and encourages competition and innovation. For evidence, we only need to recall history. The most innovative period in history was also the freest: the 19th century, when an abundance of significant inventions (such as the steam engine, the light bulb, the internal combustion engine, the telephone, the radio) was brought to market and governments were much more limited.

The best we can do encourage innovation and long-term economic growth is to advocate freedom by speaking, through any channels open to us, against government’s bad policies and spending .

Previous articleDoes acting morally cost you?
Next articleThe nanny state of Finland
Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.


  1. Mark Milke chronicles how subsidies and such did not work in Alberta:

    One thing the openly neo-Marxist NDP said that is true is the saying “Corporate Welfare Bums”. Bailouts go on – Seattle WA is rescuing a bicycle-sharing co-operative. While outright bribes don’t work, contributions to a politician’s favourite charity helps. And of course the “jobs lost” pitch behind bailout of Detroit automakers and Bombardier, and such failures as the BC government’s attempts to keep pulp mills going in NW BC decades ago.

  2. (A key problem with bailouts is they tend to keep existing management employed, whereas financial failure would facilitate assets and good employees being absorbed by well-run companies. Botches do occur, Boeing survived lack of leadership on the 787 program because cash flow from the 737 was strong, Bombardier did not have that cushion especially with its faltering train division. Bad managers and politicians don’t listen – Boeing’s commercial airplane division failed to learn from its military division’s botch of the Wedgetail surveillance project, despite the reasons being told in company publications. That story was effectively what scientist Richard Feinman advised – the easiest person to fool is yourself.)

    Trudeau v2 said he’d emulate his father – and he is, recall how Pierre Trudeau won election by opposing wage and price controls then proceeded to implement them.

Leave a Reply