Is equalization a disincentive to growth?

AIMS and Fraser think so.

“Equalization makes it easier for political actors to turn their backs on national resource development even though it is a potential source of jobs, revenue and economic growth,” said Ben Eisen, director of research at the Atlantic institute. “Economic incentives to move forward are weakened by the fact that when you do so, a large chunk of the money is clawed back through reduced equalization payments. So that is one of the ways equalization creates a disincentive to pro-growth economic policies in recipient provinces.”

If you search this blog for the word ‘equalization’ you will find dozens of blogs dealing with the subject of equalization and I am not, in general, disagreeing with AIMS and Fraser on this.

But I think there is a lot more going on here than just equalization.  Saskatchewan was an equalization receiving province in the early to mid 1990s (remember that?) and that didn’t stop it from implementing the largest resources development expansion in the country – oil, potash, uranium, etc. Much of this expansion, by the way, was initiated under an NDP government.  Saskatchewan is now the leading fracking jurisdiction in Canada.

I haven’t read the full AIMS report so they may have already pointed this out but to hang the reluctance to pursue natural gas development on equalization would be too simplistic.

There is also the issue of age.  The median age in the area is now pushing 45 years compared to the early 20s in the 1970s.  Public interest in development of any kind looks different when you have a young population looking for careers and opportunities compared to when the majority are either retired or so to be.

The lobbying efforts – public opinion – are stronger now than even a decade ago.  It doesn’t seem to matter that virtually all of the anti-shale gas propaganda is coming out of the US and doesn’t reflect the Canadian experience.  It’s powerful stuff.  Take another look at Gasland – the slickly produced movie or search for ‘fracking’ on Amazon.ca – you will see multiple books on why fracking is going to destroy our world as we know it.

And I would say New Brunswickers – even more so than Nova Scotians – have a greater suspicion of big, evil corporations – particularly from the USA.  The protests I have seen focused on this fact – “they come here – destroy the land, leave us nothing and take all the economic benefits away – leaving us with nothing but an environmental mess to clean up”.

The question is how to get New Brunswickers to take a look at this issue afresh.  To study the experience in Saskatchewan and elsewhere in Canada. To think about practical development issues.  To study the set of rules which are among the most stringent in North America.

I don’t think the equalization argument will work.  It feeds long term stereotypes about lazy, entitled Maritimers sitting around sucking the hind teat.

If Maritimers could be convinced that natural gas development will not destroy the environment or despoil the water and will bring economic benefits they might come around to the idea.  If they are convinced the industry can be properly managed and that gas wells at the end of their lives will be properly sealed and brought back to the land’s original state they may be convinced. If they can be assured their quality of life will not be significantly impacted (negatively) beyond the normal impacts of natural resources development (i.e trucks on the roads,   etc.), they may come around.  If they can be convinced we need the gas – and if we don’t develop it New Brunswick homes and firms will face big increases in costs – they might come around.

As John Herron used to say, “You can’t address an environmental question with an economic response”.  This axiom will hold, IMO, until people’s basic living standards come into question – which in a country such as Canada is not likely at least in the next 20 year time frame.

 

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2 Responses to Is equalization a disincentive to growth?

  1. Mike E says:

    Another issue New Brunswick will have with pursuing shale gas is that its geology is different from elsewhere and viewed as riskier and the long term prospects for energy prices on the continent are down significantly from just a few years ago.

    There hasn’t been a moratorium in place for a long while and people haven’t been beating down the door to get at NB natural gas. The idea that the same companies that operate in dangerous countries in Africa or in politically unstable countries in south america, are scared off by some anti-fracking signs on peoples’ lawns is ludicrous.

  2. I think this is a good analysis.

    I’m one of those who has written fairly consistently against the ‘big evil corporations’ because, well, as you say, “they come here – destroy the land, leave us nothing and take all the economic benefits away – leaving us with nothing but an environmental mess to clean up.” (I’m more concerned about the local incumbent big corporations, but that’s a quibble).

    So it strikes me as suspicious and a significant cause for concern that no corporation or government has come forward to state the three principles for development I’ve posted here and elsewhere before:
    – economic returns from the development must reach the people of the province
    – harm to land and people caused by the development must be fully and completely compensated
    – the development must contribute to a reduction in global warming emissions

    None of these precludes shale gas development a priori. I would support shale gas development if these conditions were met. The fact that they will not be met is what turns me into an opponent of shale gas. To me, it’s a very simple and obvious calculation. I don’t see why the governments and corporations cannot focus on these principles for these and all developments. Most of the resource-based discord in the province would disappear overnight.

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