The evidence is clear: Regulation creates jobs

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While corporate lobbyists and free market economists promote the view that deregulation creates jobs, neither evidence nor common sense support this view.

Forestry in Canada is a case in point. Despite the abusive practices of previous generations of timber barons, companies still harvest a lot of trees on Crown land, which belongs to all of us. Taxpayers have a strong interest in a long-term timber supply. Regulations aimed at sustainable forestry practices benefit the economy and maintain jobs.

Developing sensible regulations is not easy. Forest scientists work diligently to develop a sound technical basis for managing timber harvest. Soil, vegetation and climate vary across the landscape. Different forest types require different prescriptions. Forestry in Canada is imperfect, but it is far better than in the past. Getting forestry regulations right is an ongoing task, for example, so as to keep up with new forest types that will emerge as the climate changes.

Another case in point: the collapse of Canada's cod fishery is universally recognized as one of the world's greatest natural resource management disasters. Politicians, urged on by corporate lobbyists, disregarded targets recommended by fisheries scientists. Failure to regulate the harvest of fish in Canada's territorial waters in a sustainable manner destroyed tens of thousands of jobs and a multi-billion dollar industry that should have continued in perpetuity.

Economists are fond of debating the impacts of health and environment regulations on employment. Taking the chemical industry as an example, pollution regulations may lead to short-term job losses as the dirtiest plants close, but owners of cleaner plants can expand their output and their workforce. Job gains and losses should roughly cancel each other out. Furthermore, manufacturers of pollution control equipment will hire new employees, leading to an overall net gain in employment.

Economists also debate the impact of regulation on innovation. All economists agree that a strong capacity for scientific and technological innovation is fundamental for long-term national prosperity. Most economists further agree that when new regulations come into force, companies will innovate and compete in order to comply in a cost-effective manner. Thus, the argument goes, regulatory leadership goes hand in hand with corporate innovation and competitiveness.

Corporations frequently do not accept this argument. They respond in various ways when confronted with public pressure to improve their environment, health and safety performance. These responses include: lobbying against government regulations, threatening to pack up their operations and leave, advertising to portray their operations in the best possible light, and developing their own industry-led regulatory schemes (which can be positive in some cases). All these tactics are commonly used in Canada, which is near the back of the pack in government regulation of industry, and also in private sector R&D investment. 

Right-wing free market economists have an all-purpose rebuttal to these arguments: regulation interferes with markets. Yes, they admit, regulation may create jobs, but it still takes money out of the pockets of corporations and thereby stifles economic activity. Had corporations been allowed to "do their own thing" without regulatory interference they would have created more wealth and jobs.

This argument is highly convenient, because it can never be proven false. For those with a quasi-religious faith in free markets, it is unassailable. But for those who believe that Canada's federal government has a role in protecting health and the environment, it seems like an excuse for inaction.

A recent report shows how badly Canada is lagging in industry R&D investment. The State of Industrial R&D in Canada, prepared by the Council of Canadian Academies and released on August 28, ranked Canada 20th in business R&D spending among OECD countries, with half the rate of investment of countries such as Finland and Sweden. 

The Harper government's response to weak business R&D investment has been to slash federal funding for basic research and redirect institutions such as the National Research Council to work on industry-related research. Their premise seems to be that government scientists should be forced to work for industry, because industry is unwilling or unable to do the work itself.

This meddling with government science is further damaging Canada's long-term economic prospects. It is weakening the incentive for industry to make its own R&D investments. Even more troubling is that it is drying up the flow of basic, creativity-driven research that is the source of innovation and future industrial development.

Other countries are smarter. They know that government regulations aimed at sustainable development and efficient use of energy and material resources are a key driver of industrial innovation, jobs, and economic growth. Even if Canada's corporate lobbyists and the Harper government don't get it, it is important that ordinary Canadians understand this: regulation creates jobs.

Ole Hendrickson is a forest ecologist and current president of the Ottawa River Institute, a non-profit charitable organization based in the Ottawa Valley.

Photo: Community College of Vermont/flickr

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