Freeman

ARTICLE

Why It Matters

Governments Place Restrictions and Barriers on Economic Activity

MARCH 01, 1996 by ROGER M. CLITES

Filed Under : Government Intervention

Professor Clites teaches at Tusculum College in Tennessee.

Last November people in Quebec voted on whether to secede from Canada. Before the vote took place there was speculation in both Canada and the United States about how much harm such a pullout would do to Canada, to the United States, and to Quebec itself. With only one exception every opinion that I saw was that secession would harm all of them. In a short article two graduate students did make the case that Quebec would benefit from breaking away.

Their analysis leads us toward why it matters. It matters because of various types of governmental meddling in economic activity. Contrary to what we are told by political leaders and others, governments do not engage in or promote economic activity. Governments only place restrictions and barriers.

Were it not for government intervention, trade would be free throughout North America, indeed throughout the world. Movement of people, capital, and goods would take place more efficiently were government not constantly meddling in commerce. Competition would equalize production costs. Comparative advantage would determine what would be produced in a given location. Efficiency would be greatly enhanced and levels of living would rise dramatically.

But can a nation the size of Quebec “go it alone”? Of course it can. When I visited Luxembourg and even tiny Lichtenstein I observed some of the highest levels of living anywhere in the world, certainly higher than those in large nations in Africa, Asia, and Latin America. People who have traveled to Andorra and little Monaco have told me that people in both of those minute nations are quite prosperous. In fact, small countries are often more hospitable to economic activity because their governments are small. Also they have to recognize the importance of international trade and the need to be competitive.

The problem is not that economic activity would be curtailed. The problem is that government does not want to give up any of its power to control. That is the only reason that it matters.

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March 1996

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