September 2000 Fraser Forum: Atlantic Canadians React Rationally to Irrational Policies
Recently, Newfoundland Premier Brian Tobin was in high dudgeon, upset by remarks from a Canadian Alliance official. The official, now resigned, implied that Atlantic Canadians are subsidy-seeking idlers, who’ll vote for anyone who promises quick cash.
This slanders a varied population of 2.5 million, but it holds some truth. Ottawa has poured hundreds of billions of dollars into Atlantic Canada. Large parts of the region depend on short spells of work and long spells of Employment Insurance (EI). Cacophonous voices demand more federal subsidies for everything from enriched EI to gold-plated miners’ pensions. When the federal Liberals cut regional subsidies, Atlantic voters shifted parties.
Yet the whining society that much of Canada sees has nothing to do with Atlantic culture. Government hubris and vote-buying politicians created this artifice from the ground up through the Trudeau era.
By the end of the 1960s, government thought it could solve any problem. Coincidentally, Atlantic Canada had become a potential swing region. Defeat or victory, majority or minority could hinge on a handful of Atlantic seats.
The money gates were unleashed. Unemployment insurance (UI) became absurdly generous. The federal government built its first big regional development department. Ottawa mailed increasingly large cheques to Atlantic governments. Economic development and make-work projects were everywhere.
The impact was devastating, particularly because the times had been so promising.
Atlantic Canada flourished through the 1960s, helped—it’s true—by a dollop of federal money for transportation infrastructure, education, and health care. Atlantic Canadian per capita GDP growth outpaced that in the rest of the nation. Private sector investment rose to the national level.
Most remarkably, except for Newfoundland, Atlantic unemployment was the same as the national rate. PEI’s unemployment was consistently lower. Nova Scotia’s and New Brunswick’s rates both dipped below the national rate for at least one year.
Then the good news stopped. Rich UI was the most deadly government-borne disease. UI became a right. Soon a remarkable situation developed in Atlantic Canada. Unemployment rose to the double digits, and in some months twice as many people collected UI as were officially unemployed. Yet both StatsCan and the Atlantic Provinces Economic Council reported labour shortages throughout Atlantic Canada, even of low-skilled workers.
Unemployment was too good a deal for some people to accept work. This remains a problem. Human Resources Canada recently sponsored a study offering subsidies to seasonal workers who took off-season work, rather than a government cheque. Ottawa killed the study because of lack of interest among seasonal workers.
Through the 1970s, Atlantic wages skyrocketed as employers competed with UI for workers. Atlantic Canada became a costly place to do business. Private sector investment stagnated. Soon the old investment gap between Canada and Atlantic Canada was gaping wide.
Nothing escaped government’s web. The fishery became a bloated political artifice, a make-work, vote-buying scheme that had nothing to do with the traditional fishery. By the end of the 1980s, two-and-a-half times as many people were working in the fishery as in the early 1960s, an economic and ecological disaster.
Government money propped up firms across Atlantic Canada, making for an economic forest of dead wood. The most famous example is Cape Breton’s industrial structure of coal and steel. In the 1960s, even the United Mine Workers opposed nationalization of the coal mines and favoured phasing them out. A heroic federal government created the polluting mess that is only now being unravelled.
Atlantic businesses were ripped away from productive activity and diverted into favour-seeking. A government study of Nova Scotia business revealed shocking facts: Nova Scotia firms paid workers less than New England firms. Subsidies supplied newer equipment than New England firms could afford. Low wages and free equipment should have produced a competitive edge. Instead, the Nova Scotia firms made lousy products and over-priced them. The study said the firms had lost interest in the marketplace because they could make gobs of money harvesting government largesse.
These perversities began to fade as the money flow slowed, but Atlantic Canada has become very dependent on government money, and adjustment creates real hardship. Canadians need to understand this.
Atlantic Canadians aren’t some genetically inferior creatures who prefer idleness. Instead, Atlantic Canadians have reacted rationally to irrational policies, to borrow a phrase from Thomas Courchene. If Ottawa insists on throwing money at you, why not reach up and grab some?
Atlantic Canada can regain its lost edge, but leaders like Premier Tobin
will have to confront and understand the failures of the past, rather than
act defensively, if the region is to move forward.
Fred McMahon (fredm@fraserinstitute.ca) is Chief Analyst: World Economic Freedom Index at the Fraser Institute. Formerly with the Atlantic Institute for Market Studies, his most recent book is Retreat from Growth: Atlantic Canada and the Negative Sum Economy.
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