Returning British Columbia to Prosperity

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Foreword

In many ways, the 1990s qualify as a "lost decade" for the British Columbia economy. As documented in this important and timely new study from The Fraser Institute, since the early 1990s the province has fared poorly on most measures of economic success. BC has been a laggard within Canada when it comes to increasing not just gross domestic product per capita, but also disposable incomes, business investment, and productivity. From 1992 to 2000, it posted virtually no gains in real GDP per person, ranking last in the country on this basic indicator of prosperity. Even more telling, by 1999 British Columbia had slipped below the national average in real after-tax income per person. On this score, BC has descended, even if only temporarily, to the status of a "have-not" province.

Facts are one thing, but how do we account for this disturbing trend? Broadly speaking, two sorts of explanations for BC's sub-par economy have been offered by analysts, commentators, and politicians. The first points to external forces and how they have long shaped the province's economic fortunes. According to this view, feeble growth in per capita output and income in BC can be traced to the Asian crisis of 1997-98, high Canadian interest rates earlier in the decade, the protracted economic slump in Japan, shifts in global commodity markets, and constraints on access to the American market under the managed trade scheme enshrined in the Canada-US Softwood Lumber Agreement.

Explanations of the second type put the analytical spotlight on internal factors. This perspective, which is reflected in the current study, links British Columbia's economic decline to the actions and policies of the NDP government that took office in late 1991 and then won a second electoral mandate in 1996. Of course, in reality, external and internal forces both weigh on the economy. However, since British Columbians cannot influence what happens in the outside world, it makes sense to direct attention to the domestic policy and institutional environment.

The main policy directions charted by the BC government in the decade from 1991 to 2000 may be summarized as follows:

• A bias toward interventionist approaches to economic management. This was achieved using not only the familiar instruments of taxation and regulation, but also through bail-outs of troubled businesses, the creation of new government entities such as Forest Renewal BC, the Jobs for Power Act, egregious political manipulation of large-scale capital projects (e.g., Skytrain and "Fast Ferries"), and the largely unfettered control exercised by the BC government over both Crown Corporations and the public sector quasi-monopolies that have become entrenched in the fields of education, social services, and health care.
• The emergence of an ever-growing number of restrictions on the ability of companies and individuals to make use of private and public lands and natural resources for economic and industrial development (i.e., wealth- and job-creation) purposes.
• The creation of a labour and employment law regime designed to promote the interests and bolster the economic and legal powers of trade unions.
• Adoption of sharply higher timber-harvesting levies (stumpage), and the implementation of a plethora of cumbersome and costly new regulations on the forest industry—still BC's biggest economic engine and the source of more than half of its exports and manufacturing shipments.
• A marked reluctance by BC policy-makers to match the tax cuts instituted in Alberta and Ontario, or to follow other provinces (or indeed the federal government) in paring back the size of the public sector.

Of particular significance has been the expanding presence of government in the BC economy. There has been a divergence across Canada in the growth and intrusiveness of what might be called the "provincial state." Over the past 10 to 15 years, several other provinces chose to sell off some of their state-owned enterprises and other public assets; BC has shown little initiative on this front—indeed, Crown Corporations arguably play a larger role in the economy today than they did 10 or 12 years ago. Other provinces have taken steps to introduce more competition into areas previously dominated by heavily regulated and/or government-owned monopolies; BC has resisted pressure to move in this direction. Finally, in British Columbia, real provincial government spending has surged almost 30 percent since 1991, compared to increases of less than 7 percent for Ontario and for all provinces collectively, and a small decline in next-door Alberta. A longer-term perspective confirms the above picture. Expenditures by the provincial public sector rose by the equivalent of six percentage points of GDP in BC between 1975 and 2000. In contrast, neither Alberta nor Ontario recorded any meaningful increase in the size of their provincial public sectors over this 25-year period. Not coincidentally, the economic performance gap between BC and these other two "have" provinces has widened over time.

The authors of Returning British Columbia to Prosperity believe that British Columbia has been punching well below its economic weight—a sentiment widely shared across the province—and that it can do better. To that end, they propose a series of policy and institutional changes intended to marshall British Columbia's impressive natural and human assets in the quest for enhanced prosperity. These recommendations touch on fiscal and taxation policy, labour matters, regulatory reform, natural resource development, land use, the manner in which public services are provided, state-owned enterprises, and the management of the provincially-regulated education, health care, and social service systems.

Not all readers will agree with all of the individual recommendations put forward in this study, but they will profit by reviewing it closely and with an open mind. The overall thrust of the analyses and prescriptions outlined here will appeal to those who, like this writer, believe that an overweening state and a failure to understand the unrivalled wealth-creating power of markets have contributed to the economic malaise that has befallen British Columbia in recent years.

—Jock Finlayson
Vice President of Policy
Business Council of BC*
Vancouver, British Columbia

* The views expressed by this author are his own and do not necessarily express the opinions or views of the Board or members of the Business Council of BC.

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