Over at cbc.ca/nl, John Gushue has an excellent column on the recent prosperity, in particular the apparent contradiction between a supposedly booming economy and the government cuts or the sense some people have that they aren’t part of the boom.
Take some time and go read John’s observations, if you haven’t already. You will always be rewarded by John’s accessible style that reveals some very sharp insights.
For all that, though, there’s a sense that there’s something missing from Gushue’s column. The piece gets right up to the edge and then just doesn’t bring the thing to a satisfying conclusion.
The relentless labradore fills in the bit John missed.
The prosperity everyone is soaking in? It’s driven by the public sector.
Now regular readers have heard this all before but labradore does a new set of tables and charts to illustrate the point, yet again.
He shows the increase in public sector employment as a share of employment.
The mid point on that chart is 2007.
He also looked at a comparison of public sector, private sector, and self- employment.
His conclusion is absolutely correct:
These figures are not consistent with a prosperity driven by industry, commerce, and a naturally growing economy. They are consistent with one thing only, the thing that some of us have been Cassandra-ing about for years, only to be shouted down, or worse: the "prosperity" is an economic Potemkin village, driven by massive public spending, spending that even Williams and his contemporaries, three, four, five years ago, were already calling unsustainable.
What’s particularly striking about this sort of information is that it flies squarely in the face of the claims by the Board of Trade and other employer groups about the booming private sector economy. It isn’t. What they are seeing is public sector spending.
Odds are good that the folks at the Board know that. It’s why the Board of Trade, for example, was so keen on Muskrat Falls. And it is likely why the Board is shilling so hard for the provincial government these days as it cuts spending in some areas and pushes it out the door in other areas.
Newfoundland and Labrador versus Norway
Meanwhile, in the labour union corner, they’ve been busily attacking any reduction in the share of the labour force occupied by the public sector. Labour federation boss Lana Payne has talked to countries like Norway, for example, where the public sector makes up about 30% of the labour force.
That’s an interesting claim. For one thing, the situation in Newfoundland and Labrador is dramatically different financially and in just about every other way from Norway. But still, the comment is interesting enough that it is worth examining more closely.
So your humble e-scribbler worked up some figures for this post just to make sure the comparisons are accurate. The Statistics Canada labour force survey estimates for 2012 and the provincial government’s labour force outlook use the same data.
For comparison, let’s start with information from the Organization for Economic Co-operation and Development.
In 2011, Norway and Denmark were both above 30%. Norway hit 35%, if you include employees of state-owned corporations. The OECD average is 15%. Canada – nationally – is pretty much spot on that 15%.
If you look at Norwegian government information, you discover that the 30% is actually comprised of municipal and state employment. The state share is actually only about 10% of the total.
In 2002, the Newfoundland and Labrador public sector (provincial, municipal and federal, accounted for 24% of the labour force. The labour force grew six percent in the subsequent decade but the public service jumped 16% from about 60,000 to about 70,000 people. That pushes the Newfoundland and Labrador public sector up to about 26% of the total labour force.
Mark that one down for deeper analysis.
Real Equalization Reality Check
Gushue also mentions Equalization and a misunderstanding about what that meant. Becoming a “have” province means that the provincial government no longer qualifies for Equalization transfers from the federal government.
In the months before we went off equalization, Tom Marshall, the finance minister at the time, said adjusting to a "have" reality would not just mean having a new fiscal arrangement, but "a revolution between the ears." Premier Danny Williams even mused about having a public holiday to mark the historic turn.
In other words, our expectations went up, probably far higher than was necessary — or healthy. Now, we're adjusting to a cool-down, a more realistic phase where we recognize we cannot get everything we want, and realizing that "have" does not automatically mean "have it all."
Yeah, well, no.
The policy Marshall and Williams pursued on taking office was simply to never have that revolution. They fought to have the federal government ignore mining and oil revenues when calculation Equalization. That would have effectively doubled the cash from those resources. Initially, they wanted a third payment equal to oil on top of that.
While they eventually settled for one cheque worth about $2.0 billion and another year of Equalization worth about another $600 million, the Conservatives have never stopped moaning about the loss of federal hand-outs. Once the payments stopped, Marshall blamed provincial deficits on the ending of Equalization transfers. Marshall’s successor just did the same thing in 2013. Not only did the Conservatives work to avoid the “have” province revolution, they’ve bitched about it endlessly since it happened.
After taking office in 2003, the Conservatives used the Equalization fight with Ottawa for tremendous political advantage. Until now, the local media shied away from describing what Equalization and “have” status really meant. In November 2008, local media carried the reports of Danny Williams’ hasty night-time scrum even though, at least one of them knew the provincial government was still entitled to make an election on Equalization formula that would allow the province to receive payments.
Flip ahead three months and the local media also dutifully reported Danny Williams’ screaming hissy-fit that the federal government had changed the formula so that Newfoundland and Labrador wouldn’t receive Equalization. In other words, Williams cheered at being a “have” province and then screamed in anger that he led a “have” province.
What we’ve witnessed over the past decade on Equalization is not a case of mistakenly heightened expectations. Rather Newfoundlanders and Labradorians likely carry around a great deal of misinformation and confusion, much of it fostered by the current provincial administration. It’s just too bad that the conventional media didn’t de-torque the government media lines on this stuff from the beginning.