As odd as it sounds, there are some familiar things that many of us would likely have trouble explaining if someone pointed to them and asked, “What’s it for?”
One example would be government. If 50 people were asked to explain what government is for, we would likely get 50 answers. Some would speak about caring for the poor. Others would talk about building schools, roads and bridges.
The subject of the legal system and courts would no doubt be raised.
Others would mention the environment, seniors and healthcare.
Every one of these considerations is an important part of modern government.
Yet underlying the ability of any government to effectively deliver these considerations is the availability of wealth. No matter the political stripe, governments rely on wealth.
An important thing about wealth is that governments can’t harness or tax it until after it’s been created. This is the reason that a primary responsibility for government—one of the “things it’s for”—is to establish a friendly environment for investors, businesses and jobs. It’s how governments facilitate the creation of wealth.
How is wealth created? Award-winning Peruvian economist, Hernando DeSoto points out that the enormous wealth of the western world emerged only after ordinary people and private businesses were given what he calls “a stake in the game.”
This included the assurance of low taxes and the establishment of laws protecting property and private assets.
DeSoto describes the reform process that led millions of land-hungry immigrants to Argentina, Brazil, the U.S., Australia and Canada during the 1800s and early 1900s.
These individuals and families responded to opportunity, then with labour and personal investment they created wealth by adding value to things.
So, if low taxes and laws protecting property and private assets are the keys to creating wealth, what might some of the conditions be that hinder wealth creation?
To slow down wealth creation (Alberta has done too much of this already) you need higher taxes, too much red tape and regulation, runaway government debt and a political disposition that favours accelerated public sector spending over private sector considerations.
This is not to criticize the public sector—merely to recognize that the private sector is the wealth creation engine that essentially pulls the entire train.
The danger of excessive government spending and debt is why Ottawa’s Independent Parliamentary Budget Office (PBO) recently issued a warning to Alberta, telling us that our current fiscal policies cannot be maintained.
The warning was like a flashing red light on the dashboard, telling us to stop what we’re doing.
The province’s response was to offhandedly dismiss the PBO report.
The challenge now facing Albertans is twofold. First, to facilitate the kind of society we all want requires that the province embrace policies that attract investment rather than repel it.
This means acknowledging that a big part of any government’s responsibility is not just to spend money—maintaining and expanding programs—but to establish an economic environment that allows individuals and private businesses to invest, work and create new wealth.
Second, the PBO’s warning has to be taken seriously. We can’t sustain the continuous $10 billion back-to-back deficits we’re seeing. Instead, we need government spending and government revenues to match one another.
This is crucial, because only by ensuring responsible finances today can we ensure responsible finances for the future.
Rick Strankman MLA,