One of the lessons that economists are taught is not to equate correlation with causality. For example, there may be a strong correlation between wealthy people and Italian shoes but that doesn’t mean that wearing Italian shoes will make you wealthy.
Take this new report on ‘stealth’ equalization. The report’s author finds that the federal government spends more money in Atlantic Canada – per capita – than in Alberta. Then he concludes:
The bottom line, Mr. Eisen said, is that “have-not” provinces are “trapped in a situation of low-level private-sector dynamism,” essentially “propped up” by massive government employment that saps the young, talented workforce.
Now, this conclusion may be true – but there is no way he can conclude this from the data. The study does not prove any causality between federal spending in Atlantic Canada and a ‘low level of private sector dynamism’.
It’s intellectually lazy.
I suspect the economic situation in Atlantic Canada – now really the Maritime Provinces because Newfoundland is a ‘have’ province – is based on a far more complex equation driven by a variety of variables. It seems to me the higher government spending here is an effect rather than a cause of a chronically weak economy.
I have said it before that government has stepped in and tried to prop up the economy in this region with more spending to make up for weak private sector growth.
Sound familiar? It should because that is what every country in the OECD did in the wake of the economic downturn. It was called fiscal stimulus. When we do it nationally, it’s good economic policy. When it is done in New Brunswick, it is bad economic poicy.
But the journalist in this story got my point across. The real issue is what is the right policy framework that would lead to economic development in the Maritimes? Because if someone in Alberta is suggesting we should accept our fate and watch our region wither and die – that is unacceptable. It is just as unacceptable as if Alberta was asked to accept its fate and die.
She missed one little point in the article. I said that I had been watching politicians and community leaders in Atlantic Canada play the victim card for 20 years and it was kind of fun to watch western Canadian politicians playing the victim card.
Richard Currie talked about the rich uncle – what does it say about the rich uncle when he is bitter and resents the poor nephew and wants to impoverish him even more?
Now some in the West say they are genuinely interested in their Maritime cousins and their demands to reduce equalization are meant to help us get off the hind teet and unlock our entrepreneurial spirit.
I’m ready to test that theory. Let’s have at it. Why doesn’t the federal government partner with the NB government on a brand new economic development agenda that includes tax breaks for targeted industries (like the oil sands in Alberta), massive investment in R&D in targeted sectors (the feds spend less on R&D in New Brunswick than any other province), the attraction of global companies to New Brunswick (why don’t you go and check how many of the multinational firms attracted to Canada with the help of the federal government have ended up in New Brunswick over the last 20 years – I’ll give you a hint – it starts with z) and an overall commitment to helping New Brunswick build its own tax revenue generation capacity to limit its exposure to transfers.
How about that?
Last point. If we are in the stealth business, here are a few tidbits to consider:
*$4 billion in federal agriculture subsidies to Alberta – 90% more than New Brunswick – stealth.
*It costs New Brunswick $40,000 to pay for the university education of a single New Brunswicker and something like $100,000 to pay for their entire education k-university - who promptly moves to Alberta – NB is subsidizing Alberta’s educated workforce.
*Several studies have shown that federal tax breaks to Alberta oil & gas producers have been worth billions in recent years. The feds have no tax breaks for New Brunswick’s growth industries.
*There are dozens of federal programs -such as the biofuels funding – that are biased towards western Canada and pour hundreds of millions in subsidies into that region.
I wonder if all that is sapping their economic development potential?