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Why big-spending governments are on the brink

My past week began with a speech at a Western Canadian university, followed by business meetings in Montreal where I walked past an Occupy protest encampment. Meanwhile, the Greek disease threatened to spread from Athens to Rome, bringing economic Armageddon to the entire euro zone. It struck me that these seemingly disconnected events are intrinsically related. Here's how.

At the university, I spoke to an audience that included vice-presidents, deans, professors and representatives of the student's union. My theme was two-fold. First, undergraduate teaching quality is dismal, an inevitable result of a systemic misalignment wherein professor recruitment, tenure and compensation decisions are dominated by research credentials rather than teaching performance. Second, universities are failing to allocate precious taxpayer resources to faculties that graduate students with the knowledge and skills needed by our country.

Education faculties, for example, continue to churn out large numbers of teachers even as schools close due to lower birth rates, driving the unemployment rate for teaching graduates to more than 60 per cent. And large numbers of qualified applicants are turned away from medical schools due to "lack of capacity," while millions of Canadians can't find a family doctor.

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My critique of teaching quality was met with calm denial, but the call for reallocation of resources to programs in demand generated real indignation. In response to statistics showing the majority of arts graduates either end up in low skill-level jobs, I was told that "there's more to getting an education than turning out workers for corporations" (as if my advocacy of programs focused on where the jobs are were part of some sort of a capitalist plot).

A few days later, I walked by Montreal's expansive Victoria Square, which has been taken over by Occupy Montreal protesters. Police kept a watchful eye over an anti-capitalist/anti-Group of 20 rally; later, TV reports carried interviews with participants including a McGill University philosophy graduate who blamed the "system" for her inability to find a job. Another railed against the "capitalist predators" driving the poor Greeks into bankruptcy. Both called on governments to fix things by "changing the system."

Well, governments have changed the system, with disastrous consequences. Greece has built a bloated, overpaid, underworked public service. It's a universal truth that bigger government means more business-stifling red tape and regulation. And more corruption. Unless palms of public servants are "Greece'd" it can take years to start a new business there. This has not only crippled private-sector job creation, but has also resulted in countless unregistered businesses that pay no taxes.

Euro zone leaders decided to pour billions into this dysfunctional state. Now, like a father who has diminished his fortune supporting a son's ever-more profligate ways, the entire euro zone's financial stability is crumbling.

The Greek tragedy is a symptom of the lethal delusion shared by Europe and the United States – the belief that governments are able to counter the forces of economic reality by pouring in borrowed cash. Like an alcoholic with a huge hangover, they believe they can recover from their debt addiction by downing more hair of the dog. But every euro, and every dollar, of government debt must be borrowed from another person or another country. For the first time in modern history, the sovereign debt ratings of Western, developed countries teeter on the edge of an abyss.

Big-spending governments are collapsing under mountains of debt. The result will be decades-long economic stagnation, ravaged social programs and civil unrest. The key to harnessing the natural potential of people to create prosperity was stated succinctly more than two centuries ago by Adam Smith, whose epic work, The Wealth of Nations, stands as the timeless foundation for economic freedom and prudent government. As he noted: "Little else is required to carry a state to the highest degree of affluence ... but peace, easy taxes and a tolerable administration of justice ..."

History clearly shows that free-market capitalism is the only system that has ever created prosperity. But you would have a hard time finding that historical fact mentioned in any of our academic ivory towers. No wonder our students believe bigger government is the answer to every problem.

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