Betrayed by Confederation?

Someone asked me to comment on the front page story over the weekend about the New Brunswick government assertion that it was strong armed into Confederation back in 1867 and its economic interests have been subject to the focus on central Canada ever since.  This is the narrative of a brief to the Supreme Court arguing against a single national regulator.

I have blogged on the issue of the regulator on several occasions and won’t do so again except to say it is a bit of a moot point considering we have only a tiny number of publicly held firms and even fewer that are actively traded (2? 3?).  I do like some of the broader industry capacity building done by the securities regulator which would be turfed in a national scenario.  In the end, New Brunswick needs significantly greater inward business investment and that can come from IPOs, it can come from acquisition (such as Radian6) and other channels.

The issue of Confederation and New Brunswick outlining in this brief is the position taken by Donald Savoie.  In at least three of his books (that I have read), he makes this argument and it seems reasonable to me.  Before Confederation, NB’s natural trading partners were New England, the UK and the Carribean.   After Confederation trade became east-west within Canada.

There are two arguments.  Savoie’s is simple.  Look around and ask yourself if Confederation has been good for New Brunswick.  The province has never matched the national growth rate in population since Confederation.  It has suffered out-migration at a constant clip since 1867 with some short exceptions.    Virtually the entire manufacturing base of Canada – with the exception of natural resources – was built in the Windsor-Montreal corridor and much of it funded by the federal government or supported by trade and industrial policies.

It is true the feds compensated for NB’s lack of economic performance by beefing up transfers – this started mostly in the 1950s and was enhanced over the years.   But the argument is the feds still underspend on economic development-related things such as R&D and overspend on transfers such as Equalization, EI, etc.

The alternative view (and if you read the comments to the main story you get a flavour) is that Atlantic Canada (and New Brunswick) is some kind of basket case and it would have been a whole lot worse without federal largess.    This view implies that New Brunswick was already destined for the economic wasteland and federal transfers is the only reason why the province has the standard of living it has today.

Like all analyses, your view on this will be shaped by personal ideology and history.

As a Maritimer, it is hard to believe that if this region had remained an autonomous ‘country’ that it would have somehow been left behind and would now be the equivalent of a third world country.  It is more logical – maybe reasonable – to assume we would have chugged along developing free trade agreements with Canada and the U.S. – maybe some ‘deeper integration’ etc.  or maybe Canada or the US would have taken the region over by force at some opportune time.  Maybe the region would have kept closer ties to Britain.  Who knows?

Newfoundland did not join Canada and still struggled so this view is not a slam dunk although Newfoundland is distinct in many ways not the least of which is its geography.

My view is that this discussion of history is very important and I would like to see more debates and discussions about this because I have always felt that it will be harder to get on a sustained, positive economic track without being clear-eyed about our past and the reasons for our economic stagnancy.     I think there is some validity to the dependency theory.   The whole transfer system is set up to reward economic stagnancy.

The more cynical among us might even say the federal government needs a weak Atlantic Canada.  In one of the first speeches that I heard Jean Cretien make he said that Atlantic Canada was exactly the reason why Canada needs a strong central government.   Doesn’t that mean he had an incentive to propagate a weak economy down here?

I don’t know enough of the history nor indeed the philosophy to debate this in a credible fashion.  I’m just a writer trying to get broader public interest in taking a new approach to economic development.  Some days I feel we move ahead and others we move backwards.

Blaming Ottawa for our woes is a pastime in this region.  Savoie talks about grumbling regional politicians as far back as the turn of last century.  It didn’t do them much good and I don’t think it will have much effect now.

I still think we could convince a federal government to support a new economic development focus.  I think we could get away from this economic development = bank approach that we have seen for almost 30 years.  But we would have to be clear about it here first and that step is very hard to take.  I talk to people on a weekly basis who – at their core- believe that the only role for government is to dole out grants and loans.  They don’t say as much but when someone (i.e. me) raises the fact that the majority of economic development today is matching companies to government funding programs – the response is what else is there?

We need to get the model right and then get the feds to support it.  We can’t put the Confederation genie back in the bottle.

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18 Responses to Betrayed by Confederation?

  1. scott says:

    There is a theory out there that, during the decade preceeding the 70s, we did show some good signs of a healthy rate of convergence. As well, at one point, all three provinces during that time period had shown an umemployment rate lower than the national average (an average in the single digits, I think?). However, this all came to an abrupt halt (post 1971) when government spending and regional development programs escalated. So it’s hard to argue that we were “destined for the economic wasteland” had the feds not stepped in and saved us. It is the reverse. We are where we are because of bad policy which has locked into old industries, prevented skill upgrades, distorted the labour market and kept us from repositioning ourselves so that we can start catching up with higher growth areas. We lag behing the lagging areas in lagging economies who don’t have generous subsidy programs. Time to come to grips with reality and the rest of the world. And that doesn’t mean looking toward the feds for help, it means looking at ourselves in the mirror.

  2. mikel says:

    I’m no history expert, but I did a fair bit of research on NB’s Lieutenant Governor, whose name now escapes me. Savoie has it a little bit wrong (I think, its been awhile), because I remember that NB’s lieutenant governor was actually OPPOSED to ‘confederation’. He was the original supporter of ‘maritime union’. He was quite irate that Quebec and Ontario were horning in on his turf, which he felt was to be his jurisdiction (I think he then went on to bigger things in the carribean). You can actually read his letters at canadiana.org-they are pretty funny. He was NOT a big fan of NB or ‘responsible government’. He constantly griped about the lack of provincial unity even THEN.

    Anyway, that would make quite an interesting film if there is anybody left to make it. I remember reading a book about the “Fenian Invasion” as it was called-although it was just a bunch of drunken irishmen who never even came across the border. But in a prelude to the current hysteria, the LG was legitimately concerned about an invasion and really rallied NBers into a militia (ironically, many of whom were also irish). They patrolled the border but nobody ever crossed, and when I read this article I had a funny feeling that perhaps the british were involved in propping up the fenians to MAKE NBers scared enough to vote in confederation. Most of these fenians were pretty shady characters who you could never figure out WHOSE side they were on.

    Ironically, the ONLY referendum that NB ever had before the VLT one was whether to join confederation-and they rejected it. Mind you, the alternative would likely be being part of the US, and they aren’t exactly economic superstars over in Maine.

  3. richard says:

    NB was certainly a trading power prior to Confederation. The real question is perhaps why those who made money in the days of wooden ships and iron men were not able to make the transformation to the new environment. I think it was more than the loss of Caribbean markets. We failed to re-invent ourselves then; we are still failing at that now. Not sure why, but while other jurisdictions invested in innovation, we were content to take a short-term view. I wonder if perhaps the fact that there was always another place to go (1800s – Boston; 1900s – Toronto; 2000s – AB) took the pressure off too much.

  4. Tim says:

    @scott
    Good comments Scott. It’s difficult to have good public discourse surrounding such a topics, the pitch forks come out too easily (no, let’s not start the film industry thing up again :)). Any such conversations tend to result in an unnecessarily exaggerated positioning of left and right. How we (people in general) think, act and behave is very much incluenced by those around us. “Culture” is a manifestation this ongoing incremental evolution; there is a warmth in holding onto the old ways, and an adventure in challenging the status quo. Those that have an inclination for the adventure, are also the ones that make good entreprenuers and change agents. Let’s hope we can find a way to engage these people to stay within region.

  5. mikel says:

    The problem with history is that people tend to bend it to justify their ideology. Irving is now picking up on Savoie’s comments-again, many of which are wrong and questionable, and using it for a full on federal gripe. I have no problem with the griping, but when you don’t use it with facts, you might as well be Ontario making ludicrous comments about equalization.
    First, NB is a TINY place. It grew rapidly during the Napoleonic wars because England had no trees for masts, and the french had the east cut off. The NB river systems were used to transport the lumber, and explains why all the cities are along river systems. However, the lumber was already being depleted by confederation and it was the lumber trade that opened up the St. Lawrence river.
    Contrary to popular belief, it was NOT NB money that built up ontario-it was british and american money. NB was a COLONY, and the whole point of a colony is to keep investment to a minimum and extract as much as possible. There were a few ‘lumber barons’, but their money was not going to Ontario, Joseph Cunard could barely stay in business.
    NB saw its greatest growth in the two decades after confederation, when the same problem hit as with globalization-namely, all the local businesses were bought out and became branch plants of larger operations centered elsewhere (sound familiar?)
    It was during the second world war that saw the big changes happen-and keep in mind that it wasn’t even until last century that there was an income tax, so remember that its not like NB taxpayers were paying for federal largesse elsewhere.
    But it was the baby boom after the second world war where there really WERE national policies and ‘equalization’ came into health care and education. NB suddenly had educated people and teaching jobs and health care jobs, and a relatively stable population. Unemployment though was always higher, and was VERY different-you can go read old newspapers from the seventies about how Bricklin was constantly cursing the province because as soon as moose season hit all the workers were gone hunting-their wives had to do their jobs.
    In reality its a factor of ALL the complaints people have-however, imagine New Brunswick today without one third of its budget-do you honestly think it would look like the prairies which have agriculture and resources? It COULD look like Switzerland, but as it is, even with record education spending, the province has little investment in skills training. In the paper yesterday was two education stories-one on how many students showed up at an auto show, and were going to open body shops, and another on how a new Barbers college was opening in St. John. All while the medical schools look to Saudi Arabia for students.
    Its crazy to say “look, the feds put money into the region-THATS what killed the economy”. As the atlantica guys point out, the entire REGION is underperforming. So its not just specific to Canada, OR to New Brunswick. And it can’t even be blamed on Irving or corporations, since PEI and NS are similarly underperforming.

  6. On the issue of the securities regulator, securities acts have the same objectives around the world. The first objective is to provide protection for investors from unfair, improper or fraudulent actions while the second is to foster fair and efficient markets.

    These objectives are consistent, irrespective of the number of publicly held firms or the number that are actively traded in its jurisdiction. Securities commissions have differing roles to play within their mandates, however. Representatives of the federal government, whether Finance Minister Flaherty or the Securities Commission Transition Office have steadfastly refused to state even whether there would be an office of the proposed single regulator east of Montreal. No one successfully has mounted the argument that surrendering the mandate of the NBSC to a single, national regulator would be in New Brunswick’s interests in any way. See

  7. richard says:

    ” Let’s hope we can find a way to engage these people to stay within region”

    To do that, you have to provide opportunity. For the most part, people stay when they are economic opportunities they can take advantage of, either in terms of jobs within their discipline, or service opportunities, etc. I think that this whole blog is basically about how best to provide that opportunity. We all have our opinions on how best to do that.

    ” But the argument is the feds still underspend on economic development-related things such as R&D and overspend on transfers such as Equalization, EI, etc.”

    That is my take, certainly. But how have the feds gotten away with doing that? After all, the prov govt seems to do the same thing – focus on job preservation rather than pursue an innovation agenda. For both parties, the political rewards are there for job preservation since the jobs are held by voters. We need to somehow establish a new mindset that accepts the value of increased R&D spending even in troubled times. Either that, or put in place a strong leadership that will ram that thru despite the considerable opposition that will occur.

  8. scott says:

    “But the argument is the feds still underspend on economic development-related things such as R&D and overspend on transfers such as Equalization, EI, etc.”

    You’re right, Richard. When so much of the government’s efforts are bent on rescuing old industries, subsidizing inefficient mills and plants and fostering unsustainable jobs in rural areas, the net result is a shift away from a productive, market-oriented environment where skill enhancement, R&D, profitablity and competitiveness are businesses number one focus. Instead many firms tilt their business plans toward their biggest customer, government.

    As mikel said, we are a small market so we have to be open to new opportunities. The lack of interest in developing new markets and clinging to declining ones has had a perverse side effect on economic growth and the attractiveness of the region as a place to invest has suffered.

  9. mikel says:

    While its true what Mr. Lindfield says, much of the reason ‘nobody has put forward’ an argument is simply because most of this is under the radar. I don’t think I’ve seen a single report on it at NB media, and the public is largely unaware of what is going on. I’ve also heard that Montreal was going to be the easternmost part, but that could be because nobody east of that area has expressed an interest in joining (that I’ve heard).
    However, markets are much like anything else, so ask just how much NB has benefitted when the gas and oil pipelines stopped in Montreal? Again, just the savings on natural gas for the province is probably in the billions and would have made NB Power a FAR different kind of utility, and avoided all the current problems going on with Enbridge.
    In a market its no different. IF there were a national regulator, then IF an NB market developed, then nobody would want to touch it with a ten foot pole. When you look at a small economy like NB’s, with a small political centre in Fredericton, and a political entity designed to both regulate AND enhance public markets, then that’s a recipe for corruption.
    There may also be political fallout. Most of the market is not in the province of NB, that means people’s investments are OUTSIDE the province. So say an investor runs into some trouble, a regulator may well tell that person that they live outside their jurisdiction, so they’d need to complain to NB’s security regulator, who has no jurisdiction on said company or market.
    So I think there are pretty clear benefits, and since there is almost no market in NB, there is nothing to lose.

  10. Tim says:

    @richard
    “[to keep these change leaders in region] to do that, you have to provide opportunity.”

    Richard, the point I was making in the previous post was meant to be a bit more subtle. I think part of the problem is how we frame our predicament s- and a simple statement saying, “these people need opportunity” carries some of this information within it.
    The “right social mix” creates opportunities. They do not need the opportunities to be some exogenous event. What we need within this region is the cultural fabric that ignites our abilities to overcome. Our regional psyche seems locked into trying to fix things, rather than create things. Even the discussions surrounding how we got a raw deal in the region could be construed as stemming from this same problem. Americans built Las Vegas in the middle of the desert – They did not complain about the lack of water, and how there should be more water trucks. Despite what we think we do not have within this region, we also have a lot.

    There is a fundamental philosophy of scarcity that underpins our cultural psyche that is the determinant of any economic outcome.

  11. richard says:

    @Tim

    “What we need within this region is the cultural fabric that ignites our abilities to overcome.”

    No offense, but I guess my lack of a liberal arts education leaves me wondering what exactly that means. If you take any HS or uni graduating class in NB, I expect you will find a very similar mix of aspirations and abilities to that in any other region of the country. We have the ambition and the work ethic. So why do so many have to leave? Its because they cannot find jobs in their line of interest. Nor can they find the capital to support their entepreneurial talents. Those are consequences of poor economic growth for several decades, not a lack of a particular cultural fabric.

    “Americans built Las Vegas in the middle of the desert – They did not complain about the lack of water, and how there should be more water trucks.”

    Think Hoover Dam and gambling prohibition in surrounding states. I think a better example would be North Carolina, where a determined effort was made to turn a poor agricultural state into an R&D powerhouse by funding uni R&D efforts, and enticing R&D private sector with the right infrastructure. That is, they had a real plan, and probably did not spend too much time hand-wringing over their poor ‘cultural fabric’.

  12. Don Dennison says:

    No matter how legitimate our case, historic and current, revendications are not going to get us anywhere. Our salvation lies in what we can do for ourselves. The good news is that Canda remains a support, and we have sufficient resources to strengthen ourselves. Of course, we will need to invest the dollars at our diposal more wisely.
    We lost a golden opportunity to gain sosme political heft when the Charlottetown Accord, which would have given us an equal Senate, went down the tubes, but again that’s old history. We still have a card to play, and that is that unanimity is required to make any changes to the existing Senate. But we need to marshall the existing political power we have – we are significantly over represented in the House and in the Senate. Surprisingly, we don’t exercise that power. The full New Brunswick Caucus- !0 MP’s and 10 Senators should meet regularly with the Premier of the day to press our case wherever there are opportunities.

  13. richard says:

    “The full New Brunswick Caucus- !0 MP’s and 10 Senators should meet regularly with the Premier of the day to press our case wherever there are opportunities.”

    One of the advantages in the US system is that senior US congressmen can wield tremendous spending power on behalf of his/her state. Get the right Senator on your side, and billions can be funnelled into projects. We don’t have the equivalent, so, as you say, the Premier has to lead the charge and spend lots of face time puhsing the ‘plan’ – not just with the NB caucus, but with the PMO and the senior bureacrats.

  14. scott says:

    Of course, we will need to invest the dollars at our diposal more wisely.

    Define: “wisely”

    As I see it, you can cut back, spend wisely and balance the budget ’til the cows come home, but if you never look at the opportunity cost of some of these funding programs in place, there is a strong likelyhood that there will never be real change to the economic climate. The fungibility of some of these things need to be discussed.

  15. Tim says:

    @richard
    “No offense, but I guess my lack of a liberal arts education leaves me wondering what exactly that means.”

    No worries Richard, I’m not offended by your lack of education at all.

    (if I can take a dig, you better be able to take a joke 😉 )

    I think your answer continues to illustrate my point. Many people often resort to seeing others success as the result of some exogenous event – some piece of luck – a dam, a regulation change, or something else. I believe many people often we underappreciate where most opportunities come from.

    I have started a company in this region, and managed to build it to a decent size. It started with a contract (..and before that, it started with an idea, and before that it started with a number of other things, etc). I started the company just out of university – to create a job for myself. I’ve also lived and worked in the states– and from my own personal experience – there are definite differences (albeit subtle) between what they reward (scoially) and what gets rewarded here.

    I will move on from this topic – but it is all good discussion.

    http://en.wikipedia.org/wiki/Thomas_theorem

    I think your answer consinues to illsutrate the point. We too often resort to seeing other success as the result of some exogenous event – some piece of luck – a dam, and regulation change, whatever. What I think we underappreciate is where most opportunities come from.

  16. Tim says:

    @richard
    “No offense, but I guess my lack of a liberal arts education leaves me wondering what exactly that means.”

    No worries Richard, I’m not offended by your lack of education at all.

    (if I can take a dig, you better be able to take a joke )

    I think your answer continues to illustrate my point. Many people often resort to seeing others success as the result of some exogenous event – some piece of luck – a dam, a regulation change, or something else. I believe many people often we underappreciate where most opportunities come from.

    I have started a company in this region, and managed to build it to a decent size. It started with a contract (..and before that, it started with an idea, and before that it started with a number of other things, etc). I started the company just out of university – to create a job for myself. I’ve also lived and worked in the states– and from my own personal experience – there are definite differences (albeit subtle) between what they reward (scoially) and what gets rewarded here.

    I will move on from this topic – but it is all good discussion.

    http://en.wikipedia.org/wiki/Thomas_theorem

  17. mikel says:

    First, what politicians or senators do or do not do for the region is REALLY hard to guess because there is literally NO media coverage of the inner workings of parliament. Even political shows are generally publicity stunts. So who in ACOA gets funding is always SAID to be political, but nobody really parses that out to see what it means.

    For the Tim and Richard theme, its worth pointing out research in randomness. People’s success IS often largely a matter of luck-but if you don’t engage in the ‘event’, then obviously you can’t ‘get lucky’. You can hear interviews from successful people in any number of fields who will readily admit to that.

    Its particularly true in business, where so many factors are at play that which attributes are successful is very hard to gauge. The ‘pet rock’ guy may be an urban myth, but any number of other inventions are similarly spurious. Who would have thought when capitalism was first being created that a couple of the most powerful and wealthy corporations in the world would be manufacturers of sugar, water, and carbon dioxide? And currently, some of the wealthiest people in the world are entertainers-people who make faces, funny voices, or sing mundane songs endlessly repeated over the airwaves.

    Randomness has a HUGE impact on the business world, and one of my favourite quotes is “if you want success-double your failure rate”. Of course this is VERY difficult in a region where every failure is amplified and maybe even corrupt. That is the most important part of a public corporation though, it is FAR easier to ‘communally’ build a business than for one lone person to attempt to slog it out and become a millionaire-its the ‘american dream’, but its EXTREMELY remote.

    So the province essentially needs MORE ‘Tims’ and more supports for those willing to take the plunge. It doesn’t even have to be economic, because currently you can write an ‘app’ that has as much chance of making you rich as any other venture. But people need to be educated to want to make that motivation-and not have to feel that they need to give up on everything in life to the grind of making money.

  18. richard says:

    “if you want success-double your failure rate”.

    Absolutely true. And that is also why short-sighted thinking often fails when it comes to R&D investments. Too many around here expect to see a 3-5 yer payoff and it ain’t goin’ to happen. I can’t see that changing since it is a common attitude everywhere. A leadership that is commited to long-term R&D investment (not just political leadership, but societal leadership) is required. That does not mean a change in ‘cultural fabric’ just a slight incremental increase in appreciation for some long-term strategies.

    I stll can’t figure out what Tim is trying to say, but perhaps a biology PhD is not sufficient. I never took a major in bullcrap, but I know lots of people make a good living at it.

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