Is there a Solution to the Canadian Poverty Issue?

By Mark Borkowski

One of the most significant issues in Canada at the moment is the eradication of poverty.

This first gained widespread notoriety almost 50 years ago when U.S. President Lyndon Johnson declared “War on Poverty.” It sounded great to most politicians in Canada and the U.S.  We learned, that “We were a rich country. All we have to do is tax the rich, and then use that money to create programs that will lift the poor out of poverty.” Government created job-training programs for the strong and expanded welfare for the weak.

It seemed to work. The poverty rate dropped from dramatically in the programs’ first decade. Unfortunately, few people noticed that during the time before the “Wars in Iran and Afghanistan,” the rates dropped.

Without big government, Americans and Canadians were already lifting themselves out of poverty.

All of the wars brought further progress, but progress then stopped. It stopped because government is not good at making a distinction between needy and lazy. It taught moms not to marry the father of their kids because that would reduce their welfare benefits. Welfare invited people to be dependent. Some people started to say, “Entry-level jobs are for suckers.” Many could live almost as well without the hassle of work.

Despite spending an astonishing amount of billions of dollars, despite 92 different government welfare programs, poverty stopped declining. Our Canadian Government’s answer? Spend more.

The late Canadian Finance Minister James Flaherty pointed out that government measures “success” by the growth of programs: “based on inputs, how much money are we spending, how many programs we are creating, how many people are we putting on these programs — not on outcomes — how many people are we getting out of poverty? … Many of these programs end up disincentivizing work — telling people it pays not to go to work because you’ll lose more in benefits than you gain in earning wages.”

That doesn’t mean the poor are lazy. It means they respond to incentives. They are rational about choosing behaviors that, at least in the short term, pay off.

It’s not only welfare that makes it harder for the poor to climb the ladder of success. Well-intended laws, such as a minimum wage, hurt too.

But most people don’t understand that. Even the Conservatives, according to opinion polls, support a higher minimum wage. A minimum sounds compassionate. It is hard to live on the current wage of $10.20 an hour.

But setting a minimum is anything but compassionate because that eliminates starter jobs. The minimum wage is why kids don’t work as apprentices anymore, nor clean your windshield at gas stations. They never get hired because employers reason, “If I must pay $10.20 an hour, I’m not taking a chance on a beginner.”

To most economists, the claim that the minimum wage kills starter jobs is not controversial. But it is amongst the general public. And so politicians pander.

Some politicians say that we “just want to cut the size of government. And trust the private sector to do everything.” Well… yes. The private sector does just about everything better.

The free market will sort this out, if politicians would just let it. Left free, the market will provide the greatest benefit to workers, employers and consumers, while allowing charity as well.

It would all happen faster if politicians stopped imagining that they are the cause of everything.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage based in Toronto.