19 July 2010

Fragile Economy – The Public Sector

Last week, labradore comments on the size of the provincial labour force occupied by the provincial government public sector.  He capped it off with a chart (below) showing a comparison for all 10 provinces over the past decade.

All this brings home one of the points made here earlier this year in a series of posts on the increasingly fragile state of the provincial economy. More the provincial economy is dependent on trade with a single market, namely the United States.  There are fewer private sector industries driving the economy and, at the same time, provincial government spending has assumed an increasingly large role in the economy as a whole.

If you extend the picture back over the three decades for which data is available, you can see both the persistent over-reliance in Newfoundland and Labrador on public sector labour compared to the situation in other provinces as well as the increase in the public sector labour force over the past three years.

These charts go a long way to demonstrating the extent to which popular perceptions of local prosperity  are entirely wrong.  Whatever is going on locally is most certainly not the result of private sector economic development.

Rather there are more public servants making more money, 20% more, in fact over the most recent four year contract.  Couple this with the dramatic increase in overall provincial government spending – upwards of 60% in four years – and the picture is unmistakeable.

Those who want to talk about prosperity in the province or those who want to celebrate the province’s “have” status would do well to look at the three provinces with the smallest proportion of their labour forces working for the provincial government.  It is no coincidence that those provinces with the strongest economies are also ones in which the public sector labour force is a relatively small proportion of the overall working population.

That doesn’t mean that public servants and public services are unimportant.  Rather, the situation in Newfoundland and Labrador demonstrates the extent to which successive provincial governments in Newfoundland and Labrador – but most particularly the current one – have failed to create the climate in the province for sustainable economic development let alone diversification of the local economy.

What makes the current administration stand out, though, is that increasing the role of the public sector in the economy, whether through NALCOR or through admittedly unsustainable growth in public spending, is openly stated as the goal.

The fact that observers outside the provincial government have repeatedly failed to notice that this is occurring is another matter.  No surprise, though, that if they cannot even correctly identify the trend to growing fragility, they may not pay any attention at all to the very serious implications from policies that promote the hollowing out of the province’s economic underpinnings.

- srbp -