The Conference Board of Canada released a report last week that assessed economic performance in each of the provinces in Canada.
“The resource-driven economies of Alberta, Saskatchewan and Newfoundland and Labrador can boast A+ grades for their economic performance,” read the first sentence of the news release accompanying the report, titled How Canada Performs: Economy.
Amazing stuff and more than a few people - most likely provincial Conservatives – stuck their chest out in pride. They should have read the big print in the report. The first sentence is more than a wee bit misleading.
If read further down, the Conference Board news release explains that they made up their report on the economy out of several indicators. The links are from the original release and take you to detail on each.
- income per capita—gross domestic product (GDP) divided by population (2013)
- GDP growth—percentage increase in economic output after accounting for inflation (2013)
- employment growth—percentage increase in employment (2013)
- unemployment rate—share of unemployed in the labour forces (2013)
- inflation—2013 inflation rate in comparison to the Bank of Canada’s target range of between one and three per cent
- labour productivity growth—percentage change in output per hour worked (five year annual average, 2008–2012)
- outward greenfield foreign direct investment (FDI)—investment by domestic firms abroad that expands an existing business or creates a new business, as opposed to a merger or acquisition (five year annual average, 2008–2012)
- inward greenfield foreign direct investment (FDI)—investment from abroad that expands an existing business or creates a new business, as opposed to a merger or acquisition (five year annual average, 2008–2012)
Logically, you’d think that a province that scored at the top of the pile would score highly on each of the indicators. And evidently logic had little to do with the Conference Board’s conclusions.
Newfoundland and Labrador did well - relative to the top country the Board selected for comparison - on two indicators. One was the growth in the value of goods and services produced in the province. That’s driven entirely by prices. The Conference Board considered this an indicator of economic sustainability.
One problem with this claim is that the known reserves are not infinite. That is pretty much the definition of unsustainable.
A second problem is that another indicator in this calculation of sustainability – labour productivity growth – is the worst of any of the provinces and countries in the study.
The third problem is that the third indicator of “sustainability” – employment growth – is an anaemic one percent. That’s below the Canadian average as well as the employment growth of non-resource provinces like Quebec and Ontario and is on part with places like the United States and The United Kingdom. Alberta and Saskatchewan experienced employment growth of about triple that of Newfoundland and Labrador.
You can see pretty quickly that the Conference Board clear missed something in the logic of its analysis that put Newfoundland and Labrador on par with provinces with booming economies.
The distorting impact of oil shows up in some other places as well. Take this discussion of per capita income as an example, a calculation that involves nothing more fancy that dividing the total population into the value of all goods and services produced in the province:
Until the early 2000s, Newfoundland and Labrador generally earned “D” grades. However, the province’s oil reserves, combined with rising world oil prices, have since boosted levels of real GDP and per capita income. In the mid-2000s through 2013, Newfoundland and Labrador earned mainly “C” and “B” grades.
What the Board really needed to do was take oil out of the equation for Newfoundland and Labrador and see what the rest of the economy looks like. If the Board did that, you’d likely see something in line with the poor employment growth. You’d also be able to explain why the supposedly booming economy of Newfoundland and Labrador doesn’t perform across the board like Alberta and Saskatchewan.
It pays to read the big print.
-srbp-