If you were to boil down the major themes of this blog and its over 1,800 posts over the past four years, they would be things like the need for more international business investment here, the need for higher wage employment, the need for more R&D, the lack of media support for economic development, the bias towards fostering small business development, etc.
Of course, one of the major themes would be Equalization and my view that the very structure of the program is problematic – specifically that it rewards economic failure – the more an economy cannot generate enough of its own source revenues, the Equalization program steps in to make up the gap and the minute a poor economy starts to move in the right direction Equalization funding drops. I have called for a more rational approach that would see Equalization fixed for 10 year increments which would allow poor provinces to start to right size their economies, support strong economic development and then have a reassessment of the program funding based on its contribution to the successful re-economic development of a province.
That opinion has not been majority view and when I have floated it publicly in the media, a U de M economics professor called the idea ridiculous and I am paraphrasing here but not by much said that the Equalization program had nothing to do with economic development.
But increasingly, in say the past 8-10 years, my concern with Equalization has added another dimension. The original brand of Equalization was that it was supposed to help poor provinces provide their citizens with ‘equivalent’ public services. A noble mandate – that no Canadian would be penalized in their health care, education and other public services – because they lived in a poor region of the country.
But recently, starting with Mike Harris/Jim Flaherty and migrating to McGuinty, Equalization has been systematically rebranded as a major source of the economic problems of Ontario. McGuinty must have hired the top marketing gurus for this job. His first spectacular rebranding effort involved blaming Equalization for the declining funding for education in Ontario. That had the effect of stirring up anti-Equalization sentiment among the rank and file but even the elites – university and media types started to panic. The Toronto Star ran fairly nasty columns about Equalization. And, now, of course, that Ontario is close to being a ‘have not’ province itself, McGuinty is blaming the Equalization program itself and calling for it to be scrapped completely (remember when you read this article and when you read McGuinty calling Equalization ‘perverse’ that it is NB, QC, PEI and MAN that stand to hurt from changes not Newfoundland, Sask, or BC).
So, Equalization not only is hurting education in Ontario and hurting Ontario’s productivity – it is now responsible for Ontario’s overall economic decline.
Now, some dismiss this outright but that would be unwise. One third of Canada’s population lives in Ontario and politically this rebrand matters. And while newfoundland and Nova Scotia are dropping their need for Equalization, New Brunswick, Quebec and Manitoba are increasing their need so any fundamental changes are likely to hurt those three more than the rest.
Ontario’s hypocrisy on this is stunning – I have talked about this before at great length. Ontario gets far more than its share (population based) of federal goverment jobs, federal government R&D spending, etc. Almost all of the major economic development programs ranging from Technology Partnerships Canada to the Auto partnership are biased towards Ontario. Over 90% of the billion dollar federal government program to fund sustainable technologies development occurs in the GTA. And that is without mentioning NSERC, the Canada Innovation Foundation, etc. – all the broader R&D programs which are decidedly biased towards Ontario.
And of course let us not forget all the federal government agencies involved in promoting Canada abroad. Ontario, to a lesser extent Quebec and BC are widely promoted by the Feds, poor old New Brunswick hardly mentioned.
I have called in the past for a switcharoo. Ontario can have the Equalization, and we will take more of the economic development funding. That, again, is considered by most to be a laughable proposition.
But, this matters. Over a decade ago I would raise this will folks in the federal gov. system and was told time and time again – in a nice way – you get your Equalization, use that for economic development if you want but there is no way a Federal Cabinet is going to authorize more economic development spending while Equalization is increasing. And that has come to pass. Federal spending on economic development in Atl. Canada as a percentage of the federal budget has been steadily declining every year since the early 1990s. In fact, in the case of New Brunswick, Equalization is up by hundreds of millions, and federal spending on economic development is down dramatically.
So, this weird high stakes poker game continues. More Equalization, less interest in economic development and the former on shakier and shakier ground.
So, “what is to be done”?
I don’t know. I think a new fed/prov partnership that involves new economic development funding, bringing up R&D investments by the feds to at least the national average (we are now dead last in Canada for federal R&D), deliberate use of Canada’s international economic development efforts (DFAIT, Invest in Canada, etc.) to promote New Brunswick, the PM’s personal support in attracting economic anchors (large multinational firms) to New Brunswick, etc. in exchange for New Brunswick’s sincere effort to reduce its dependency on Equalization as a result of the taxes generated from the economic development partially supported by the feds.
So we need to get out of this downward cycle of more Equalization and less economic development, reverse the polarity on that and hopefully see New Brunswick with a reinvigorated economy and a place that attracts more people than it repels. A place where private sector wages are growing faster than public sector wages. A place where the universities are incubators of talent and and ideas for New Brunswick and not incubators for Ontario’s workforce. A place where international companies stop and take a look when considering their North American operations. A place where people are optimistic about the future. A place where our rural communities are models for economic development not inevitable places of decline.