I used to make the statement that bigger is not necessarily better and we may have to ‘right size’ the population of certain areas of Atlantic Canada to bring it more in line with the size of the economic pie in those areas. I used the example of Miramichi which had roughly 30,000 population and I said that if it had 22,000 it would have very low unemployment and a healthy – if smaller – economy. This view is widely held across Canada. Economists and pundits from Halifax to Victoria told us in the 1990s that all Atlantic Canada needed was a large scale out-migration and that would solve our unemployment and economic problems. I have speculated elsewhere that former Premier Lord’s inner circle held this view.
However, our theory was flawed (in fairness to me I knew the effect below but I didn’t clearly articulate it at the time in the essence of simplicity):
Take a economic area with a population of 45,000 people, an adult population of 30,000 and total employment of 15,000. That leaves you with a very low employment rate of only 50% (although this is actually higher than some New Brunswick communities).
The theory states that if we reduce the adult population by 8,000 and total population by 11,000 through outward migration we will end up with:
|New total population||34,000|
|New adult Population||22,000|
|New employment rate||68%|
Now we have an employment rate at the national average and a ‘right sized’ population and economy. Wunderbar, right?
It turns out that 80% of more of the employment in a local community is actually based on the economic activity (and population) in that community – nurses, electricians, hairdressers, waiters, plumbers, taxi drivers, teachers, etc.
Therefore, if we reduce the population by 11,000, we reduce the overall local economy by a significant amount leading to widespread losses in the 80% of the economy that was hurt by the loss of those 11,000.
So we really end up with:
|New adult population||22,000|
|New total employment||11,000|
|New employment rate||50%|
So we have done nothing to impact the low employment rate (and hence high unemployment rate) but we have unintentionally created other negative impacts.
The other deeply flawed assumption regarding the ‘rightsizing’ of communities is the linearity of public services and public infrastructure costs. If you drop the population by 20%, the theory goes, you will reduce the cost of these services by 20%. This turns out not to be the case. In fact, you could argue that public spending goes up – particularly in the area of income transfers – where EI, social assistance and even workers’ compensation costs rise. The insurance firms will quietly tell you the number of homes that burn down also rises as economic prospects fall.
The learning here is that we can’t shrink communities to economic health.
Or, to be more direct, we need to spend far more time on the 20% of the economy that is export-based.
The reality is that many of these economically challenged regions are in that place because of a steep decline in their export businesses. The Miramichi is a perfect example. The community lost its largest mills (and mining) and tried to replace it by encouraging local small businesses (i.e. the 80%). It didn’t work.
This brings us full circle to my theory about the need to attract investment and foster more ambitious (i.e. export oriented) entrepreneurship. Increasingly I include immigration as the third leg of the stool.
The proper ‘right sizing’ of a community will be focused on understanding the mix of local services and export-based activity needed to have low unemployment, moderate population growth and the economic foundation that will allow governments to carve off enough tax revenue to pay for good quality public services and infrastructure. Further, it will involve having the wisdom to have a proper role for government that doesn’t exacerbate the problems.