Building on our successes #nlpoli

"First and foremost, be totally honest with the electorate,”  former Premier Clyde Wells told Anthony Germain on CBC’s Sunday Edition last weekend.  He was giving some general advice to the next Premier on how to handle the provincial government’s enormous financial problems.

“Don't go sugar-coating anything. Fully disclose what you're doing [and] why you're doing it. Have a logical plan that will treat everybody fairly.”

Right after honesty,  came communication in Wells' approach.  Hes told Germain that he took every opportunity to explain what was going on and why it was happening to the public.  He made a couple of televised province-wide addresses to do just that.   

People didn’t like it at first.  The opposition parties and the unions criticised everything.  That’s what they are supposed to do.  But, as Wells, pointed out, “the people of the province come around. In my case, it was proven that they come around, because in the 1993 election, after four years of the most severe cutting, we had an increased majority.”

Few Premiers have done that in Newfoundland and Labrador since 1855 and none have done it since Wells.  In 2007, with bags of cash, great times, and no opposition to speak of, the governing Conservatives won more seats than they did in 2003 but they did it with fewer votes.  In 1993, the Liberals got *more* votes than they received in 1989.

But that doesn’t really tell the whole story.

What started in 1989 was a change in strategic direction for the provincial government and the province. 

The provincial government didn’t just cut spending and eliminate jobs in the public service.  Reforms to health care and education organization and governance were supposed to shift power out of the bureaucracy in St. John’s and hand it to people in the regions where they lived. 

Education reform was tied to improving economic performance and opportunities laid out in the Strategic Economic Plan.  The plan was the product of a two-year-long process spearheaded by the economic planning group, appointed by cabinet in the summer of 1990 under the chairmanship of the Premier's chief of staff, Edsel Bonnell.  The group brought together a diverse set of individuals with an equally diverse set of ideas. There were within the group contending ideas, as former chairman of the Economic Recovery Commission Doug House describes in his book Against the tide. 

The process the SEP team used overcame those differences and built a consensus on a future direction found on three fundamental changes, as laid out in the introduction to the plan:

• A change within people. There is a need for a renewed sense of pride, self-reliance, and entrepreneurship. We must be outward-looking, enterprising, and innovative, and to help bring about this change in attitude we will have to be better educated. During the consultation process, most people agreed that education is essential to our economic development.
• A change within governments. Governments (both politicians and the bureaucracy) must focus on long-term economic development and planning, while still responding to short-term problems and needs. Government programs and services must place a greater emphasis on the quality of the services provided and on the client. Changes in education, taxation and income security systems are also considered critical to our economic development.
• A change in relationships. To facilitate the necessary changes in the economy, new partnerships must be formed among governments, business, labour, academia, and community groups. In particular, better co-ordination between the federal and provincial governments in the delivery of business and economic development programs is needed to eliminate duplication and to prevent confusion for those who use them.

What happened in 2003 abandoned that strategic approach in favour of (once again) using provincial spending as a substitute for economically and environmentally sustainable private sector development. Megaprojects were all the rage and economic development became basically an exercise in handing out cheques.  Changes to education and health care governance put power back in the hands of the central bureaucracy and minimised the connection between schools or hospitals and the communities they served.

In every respect, the current financial and organizational mess of the provincial government is the result of the strategic change of direction after 2003.   Dwight Ball’s “Way Forward” stays within all the same strategic premises. Not surprisingly, it hasn’t fixed the problems.

Any proposal from any political party that doesn’t change the strategic direction of the province won’t succeed in fixing the current financial problems the provincial government faces.  That doesn’t mean going back to the 1992 strategic plan, which was designed for a different situation. 

It means using the same integrated approach, though, starting with the understanding that only a strategic shift will work.  The process is important as:  strategic change is only possible with a consensus across the province. A strategic consensus is essential because making strategic changes will require a commitment that will last beyond one four-year administration.

That consensus will only come with a lot of public discussion and debate. There will be differences of opinion.  There needs to be a lot of disagreement to make sure we explore all the options before setting on a new strategic plan made up of elements that can work.  

The new strategic plan must shift the focus of economic development from government to the private sector.  Government needs to create the environment in which the private sector can succeed while protecting the public interest through proper regulation.

The plan needs to focus not on specific topics – like substituting “tech” for the current obsession with oil – but on creating an environment in which the private sector can respond to market forces.  We cannot know what will be important in the future.  Instead, we need to create the economy that can best respond to shifts.

The lesson from the 1990s is that Newfoundlanders and Labradorians can solve their own economic and financial problems. Wells’ interview this past weekend is the first he’s given in almost 30 years and it is a reminder of what happened here, not in Saskatchewan or Iceland. 

We’ve been ignoring what happened in the 1990s in Newfoundland and Labrador.  People are casting about for some easy answers to their current problems that don’t involve actually changing anything. Unfortunately for them, more of the same simply isn’t an option.  

Well, the answers are right in front of use.  We just have to decide to build on our past successes rather than continue with tales of doom and gloom that get us nowhere. After all, it’s not like we haven’t faced bigger problems than the ones we have today and solved them ourselves.

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Guiding Principles for Economic Development

from the

1992 Strategic Economic Plan

1. The Province must focus on strategic industries. With increasing competition in world markets and limits to growth in primary- resource industries, the Province must target high-value-added activities in which we have, or can develop, a competitive advantage.
2. Our education and training system must adapt to the changing labour market demands for a highly skilled, innovative, and adaptable workforce. In an increasingly knowledge-based economy, it is critical that governments, business, and labour work together to improve the level and quality of education, training, and re-training.
3. Newfoundland and Labrador must be competitive both at home and in world markets. To improve our prospects for economic growth and  development, and to maintain and expand local and export markets, the province must diversify its economic base by producing goods and services that are internationally competitive in price, quality, and service.
4. The private sector must be the engine of growth. While it is the role of government to create an economic and social environment that promotes competitiveness, it is the enterprising spirit of the private sector that will stimulate lasting economic growth.
5. Industry must be innovative and technologically progressive to enhance productivity and competitiveness. A competitive advantage can be created by integrating advanced technologies in the workplace with the innovation, skills, and creativity of our people.
6. To achieve economic prosperity, there must be a consensus about the need for change and a commitment from governments, business, labour, academia, and others to work together in building a competitive economy.
7. Government policies and actions must have a developmental focus where the client comes first. The structure of government must be streamlined, efficient and responsive to public needs and to changes in the economy.
8. The principle of environment must be managed to ensure that development can be sustained [economically and environmentally] over the long term.  

 

Afraid of a second moratorium #nlpoli

During the filibuster in the last session of the House of Assembly, education minister Dale Kirby reminded everyone of why the current administration is following its financial policy.

Didn't want to create a second moratorium,  Kirby said.  or words to that effect.

Significant cuts to government spending of the kind needed to cope with the government's financial problem would cause a second moratorium.  Kirby's point was that the current crowd were not gonna do that.

No way.

Continuing continuity #nlpoli

In the face of thousands of well-informed people telling Dwight Ball that the provincial government must change direction to survive, in the face of mountains of evidence that the province has been on the wrong course since 2005 or so, and lately, in the face of dire warnings from the folks who advise others about the value of the government's bonds,  Dwight Ball will continue to do what everyone knows doesn't work.

The provincial government is abandoning its economic plans, as the Telegram's James McLeod would have it last Friday.

Well, not really.

Process Question #nlpoli

Finance minister Cathy Bennett told CBC that "everything is on the table and we have to make sure that we don't leave anything that potentially could help us move to the destination that we all want to get to...So, my answer would be everything is on the table."

Soooo, my question would be "where is that destination?"

Two solitudes #nlpoli

CBC and the Telegram  carried a story on Tuesday that the province would be hit by a “mild recession” next year. There’s not much real news in that since oil and minerals will all be down in price for the foreseeable future. Major projects are coming to an end.  All known.  All foreseen. But since the Conference Board of Canada issued the release and used the words “mild recession” and so that makes it news.

Later on Tuesday,  everyone carried the story that Premier-designate Dwight Ball had written to the federal government to try and forestall the two percent hike in the harmonised sales tax. Same thing:  news release, therefore news.

At the risk of repeating the same thing again, let’s just recall that the latest change in oil prices means that 36% of government spending this year will be covered by borrowing from the banks.

The sales tax hike won’t make much of a difference this year.  The  $50 million or so it will bring in between January and March will amount to precisely 1.6% of the revised borrowing. It was frig-all before oil dropped. It is even moreso frig-all now when compared to the magnitude of the provincial government’s financial problems.

We can say that revenues won’t be much better next year.  This is another point worth bearing in mind.  The local media have habitually followed slavishly behind the provincial government’s lead over the past decade and talked about last year, not the year coming up. and in truth.  Well, this whole HST thing is another example of chasing mice when the deer are just over the hill.

Diversity #nlpoli

Labrador economy must diversify to survive, say opposition parties.

There is a CBC headline to conjure with.

Pure political magic for the two parties promising something different from what has gone on before.

Liberal leader Dwight Ball told CBC that we “must look at the other advantages that we would have available to us, things like power.” 

"This government talks a lot about the export of power. I want to talk about using that power as a competitive advantage for us."

Lorraine Michael, for the New Democratic Party,  said that "Government has to have long term plans that will deal with helping communities and workers when the issues arise."   Michael thinks that we have been too dependent on private sector corporations in Labrador.

No one has ever heard those ideas before

Gone, baby, gone #nlpoli

In September 2008,  four cabinet ministers went to Harbour Grace to announce that the provincial government was giving the company $8.0 million in public money,  interest free.

The provincial government communications people circulated a picture of the four at the time - from left, Jerome Kennedy,  Danny Williams, Paul Oram, and Trevor Taylor – as they tried on some of the boots made at the plant.  Every one is smiling.  The $8.0  million in taxpayers’ cash was supposed to help the company add another 50 full-time jobs on top of the 170 at the plant.

It’s an interesting picture because within 12 months of the announcement,  the two on the right – Taylor and Oram – would be gone from politics.  Williams left in 2010,  the year the provincial government started a “review” of the loan after the company cut the work force to 100.  They never did add any jobs. Kennedy hung on the longest of the lot,  but five years after his trip to the boot factory, Jerome was gone from politics as well.

Pollyanna Peek-a-Boo and the Economic Unboom #nlpoli

Premier Peek-a-Boo took time out of his long, slow wander to the Premier’s Office this week to do an interview with the Grand Falls-Windsor Advertiser.

Check it out.

Frank Coleman thinks everything is fantastic in Newfoundland and Labrador. 

Always read the large print #nlpoli

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.

Populations #nlpoli

Ross Reid has a new job. 

He used to be federal fisheries minister. 

Since 2003 or so, Ross has been a deputy minister in the provincial government.

Lots of people got excited last week when Premier Kathy Dunderdale announced that Reid would be deputy minister responsible for the provincial government’s population growth strategy.

Yeah, well, maybe people need to take a closer look before they get their knickers in a bunch.

The Enduring Principle of Newfoundland Mining Development Policy #nlpoli

If you want to understand the provincial government’s mining policy, look no further than Joe Smallwood and a speech he gave to the local chapter of what was then the Canadian Institute of Mining and Metallurgy in 1979.

Government cash give-aways #nlpoli

CBC’s Rob Antle has updated work done over the past couple of years on government give-aways to private sector businesses in the name of economic development:

The Newfoundland and Labrador government has funnelled more than $20 million into grants, loans and the direct costs of business-attraction initiatives that have provided a net benefit of fewer than 100 new jobs — a quarter of them seasonal.

Faithful readers will notice some familiar names in the story and the associated documents posted with the online version of it.

Kodiak got $8 million to expand its operations at Harbour Grace.  They laid off workers instead.That isn’t the only example of that sort of thing happening.

Then, there’s Dynamic Air Shelters,which has more government cash in it than many Crown corporations

None of this is surprising since Newfoundland and Labrador is the only province in Canada where the private sector prefers to be publicly funded.

It’s another way in which the provincial economy has grown increasingly fragile over the past eight years.

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Commodity prices and economic recovery #nlpoli

From the Globe and Mail:

“If commodity prices were to fall back – apart from Canada, of course – it would be a pretty good thing for most of the world because it would put purchasing power back in consumers’ pockets,” Mr. [Roger] Bootle said Monday in an interview in Toronto before an annual conference organized by Capital Economics.

Commodity producers would be hurt by lower prices for their raw materials, but accelerating growth in Canada’s largest foreign market, the United States, would boost demand for exports of Canadian goods and services, he said. “You’ve got a bit of a two-way pull there.”

Bit like the trigger point, eh?

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15 ideas (and more) for a stronger Newfoundland and Labrador – Introduction

In her first speech to the House of Assembly as Premier – which she and her staff erroneously and arrogantly like to call her inaugural speech – Kathy Dunderdale claimed that, since 2003, she and her party had “demonstrated an unwavering commitment to fiscal responsibility”.

The words turned up again in the Speech from the Throne and found their way into the finance minister’s budget speech for 2011.

There was nothing surprising about this.

The claim of fiscal responsibility, of having transformed the province’s finances from catastrophe to prosperity is the one thing that the provincial Conservatives claim as their singular achievement since taking power.

Last week the people of Newfoundland and Labrador learned that  - in the words of a famous politician – nothing could be further from the truth.

Through the 1980s and early 1990s successive Liberal and Conservative administrations managed to steer the provincial government successfully through treacherous financial times.  They laid firm foundations for future prosperity based on a diversified economy.  Included in that diversified economy was supposed to be an oil and gas industry that included local companies capitalising on local knowledge and experience to compete globally.

“One day the sun will shine,” Conservative Brian Peckford said, “and have not will be no more.”

“I can’t wait for the day”, said Liberal Clyde Wells less than a decade later, ”when we don’t get a penny” in federal hand-outs.

Last week, Memorial University economist Wade Locke described a future for Newfoundland and Labrador that is far bleaker than anything that either Wells or Peckford faced.  As the Telegram reported:

Unless something changes, Locke said the government’s debt could be up to $10 billion within the next 10 years. By 2020, he said the government could run a $1.6 billion deficit on the provincial budget.

“If we don’t start dealing with it, it will become quickly unmanageable,” he told reporters after the event.

The situation is far bleaker because the government is in this state despite having unprecedented income. It is far bleaker because the problem comes not as the result of global economic circumstances or forces beyond anyone’s control.  The financial mess is directly the result of actions taken by the provincial government since 2003.

Regular readers will know the story all too well.  Your humble e-scribbler first raised concerns in 2006 and each year after that as concerns grew.  Telegram editor Russell Wangersky’s column this weekend reminded everyone of his own comments over the years. As Wangersky notes, the province’s auditor general has also warned about the current administration’s spending. So too did former cabinet minister Paul Oram and at least one of the provincial government’s bond rating agencies.

With their one claim to fame now shown to be a complete fraud, the provincial Conservatives have even more problems to worry about as they head toward this fall’s general election.  The truth about their record of financial irresponsibility only compounds their dwindling public support.  Inevitably it will only add to public unease at the Conservative plan to increase the public debt beyond what Locke has forecast and at the same time saddle domestic electricity consumers with ever-increasing electricity prices while selling cheap power outside the province.

Even if the Conservatives could admit the province faces a financial mess of their making, they would be hard-pressed to do anything about it.  Election years are never good years for an incumbent government to face problems.  What’s more, Kathy Dunderdale remains a place-holder leader put in place via a backroom deal to avoid a possibly contentious leadership contest during an election year.  If voters re-elect the Conservatives under Dunderdale, they can bet on a new Premier within four years.

For their part, the New Democrats won’t be promising to do anything to clean up the mess. Federation of labour president Lana Payne already dismissed Locke’s analysis out of hand.  With the province’s labour unions taking a reactionary position, New Democratic Party leader Lorraine Michael will follow suit, first rejecting Locke’s assessment and most likely proposing policies that will make the bad situation that much worse.

While the Liberals under Yvonne Jones were quick to endorse Locke’s idea of a task force to study appropriate financial policies, it still isn’t clear what sorts of policy ideas the Liberal party will offer heading into the fall election.  They will likely be tempted to follow along with the others and offer ideas that look like what everyone else is talking about.

It wouldn’t be the first time.  Political parties in Newfoundland and Labrador seldom offer bold and innovative thinking.  They tend to rely on the hackneyed - blaming Ottawa in one way or another is a popular distraction – or the grandiosely ridiculous like Danny Williams 2003 obsession with an economically foolish stunnel to the mainland.

This post is the start of a series on some options for the future of Newfoundland and Labrador.  The next post will set the table, as it were, by describing the domestic, national and international environment in which the province must operate. Some of that will be a quick summary of other posts.  Some of that will be new.

After that, successive posts will explore a series of ideas for change.  They cover the economy,  government and society. They are offered to stimulate further discussion.

Some of you may notice that the series goes back to one started in 2008.  While the series never got beyond the first post,  the ideas didn’t die. Now that more people are seeing the situation as it is, perhaps this is a better time to talk about options and ideas.

The future is not bleak.

The future is ripe with opportunity.

We just have to be open to taking the first step toward a future that works.

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The looming debt problem

The government’s favourite economist is sounding alarm bells about the provincial government’s financial health.  The finance minister, on a local talk radio program, sounding stressed as more and more people start talking about what has been obvious to readers of this corner for some years now:  the provincial government is in a financial jam and the current crowd running the place have no idea what to do about it. 

Well, if they do have an idea, they have no intention of doing anything, at least within the next four or five years.

Part of the charade they’ve been relying on the past few years is the perception that not only are happy days here but they aren’t ever going to leave.  In some years, the finance minister hasn’t been above presenting completely laughable forecasts during the Christmas season to keep consumer spending going through one of the most tax-rich seasons of the year.

Just as the proverbial chickens are coming home to roost in Tom Marshall’s office, it may not be too much longer before a fewer fowl start fouling other bits of the province.

Last week local news media mentioned a report on consumer debt.  Newfoundland and Labrador saw the largest jump in the country last year – along with Quebec – at 7.8%.  As CBC reported, the average consumer in the province owes $23, 372. That doesn’t include household mortgages.

Flip back to March and you’ll find a red flag on that issue. It was a report by the Bank of Montreal that warned Canada’s housing prices were getting perilously close to a “correction”: especially in places where prices were outstripping incomes or if inflation rates changed rapidly.

Marketwatch.com’s Bill Mann summarised it this way:

The cautionary Bank of Montreal report  says average home resale prices compared with personal incomes are 14 per cent above the long-run trend, up from last summer, although still below the 21-per-cent peak that preceded the 1989 crash.

But that is not the case in all Canadian real-estate markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms. That province has a booming commodities industry, centered around potash and oil.

Also well above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

Overall in the province, debt servicing costs are the lowest in the country according to the most recent report from the Certified General Accountants Association of Canada. But that doesn’t mean there aren’t pockets of risk.  The CGAA also reported that incomes in the province fell short of previous growth:  problem is the year they are referring to isn’t clear, even though the report was issued in 2010.

Just thinking about it for a second, one could easily imagine there are a couple of potential hot spots in the province.  The northeast Avalon and western Labrador are experiencing particularly strong growth and that’s where you’d be more likely to see heavy debt loads and high debt to income ratios.

Not surprisingly, personal debt is one of three issues Bank of Canada deputy governor Jean Boisvin, right, highlighted in a speech in March that Canadians needed to watch as the country emerged from the global recession:

Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income. In the autumn of 2010, Canadian household debt climbed to an unprecedented level of 147 per cent of disposable income (Chart 7).

The relatively healthy financial condition of Canadian households at the beginning of the “Great” Recession helped the Canadian economy to better withstand the initial shocks of the crisis. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.

Here’s Chart 7 from the speech:

The other two issues were international competitiveness and productivity and investment.

There’s a parallel between the condition of the provincial government’s books and the household accounts in some areas of the province. Just as the provincial government has grown increasing susceptible to small shifts in economic circumstances, so too may more and more households in the province be vulnerable to shifts in the provincial economy.

If the province’s politicians scarcely recognise their own financial problems, it makes you wonder if they might be aware of the issues looming for consumers in the province.

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Locke warns of financial problems

Wade Locke’s been making the rounds of local media in advance of his talk tonight at the Harris Centre of Memorial University.  Your humble e-scribbler posted the details of it on Monday.

Some quick observations on this Telegram version:

1. There is nothing new in Locke’s presentation that hasn’t been in the public domain  - in some cases – for a couple of decades.
2. That said, the fact that the government’s favourite economist is now undermining the economist’s favourite government might be enough to get these issues into wider discussion.
3. Once that happens it should be fairly obvious the current crowd have helped shape the current mess and their intention is to make a bad situation even worse.
4. Locke’s solution – we need a plan – is a penetrating insight into the obvious. The current crowd got us into this mess precisely because they had no plan.
5. Unfortunately, there’s no sign of any pressure to create a plan in the near term.
6. Politicians – like some of the people on the panel with Locke tonight - will continue to deny there’s anything here that needs attention.  others, like the current administration will talk about doing something constructive and then either do nothing or make the situation worse.
7. There’s no sign any of the political parties in the province are ready to deal with the provincial government’s financial mess.

Put all that together with the volatile political environment and you have the potential for one of the most dramatic political years in the province’s history.

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Provincial government wakes up on EU trade

Almost two years after your humble e-scribbler pointed out the blatant stupidity of the provincial government’s decision to boycott free trade talks, the provincial government is now sorting itself out.

The provincial government trade gang will switch from observers to participants at the upcoming trade talks between Canada and the European Union in April.

The old policy  - supported unquestioningly by the same people who have now turned 180 degrees – was stupid because it jeopardized the existing and future economic interests of the province and left local industry to being left out of a new lucrative market.

What’s worse, the old, stupid policy threatened to increase the dependence of the local economy on  on the American market. As a result, the provincial economy would become even more fragile than it had already grown as a result of seven years of backward economic policy by the provincial government.

It may have taken two years but the current crowd have finally figured it out.

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The Fragile Economy: finance minister complains about his own policies

Finance minister Tom Marshall thinks its time for the private sector to step in and boost the economy around Corner Brook.

“Other than construction, I would like to see more economic investment; I would like to see more businesses coming in and investing here,” he said. “It is jobs ... What we have seen is government spending, in a massive way, in this area.”

That’s from a story in last Friday’s Western Star.

Two observations come readily to mind.

First of all, that’s a great big “D’uh” there, Tom.  Your humble e-scribbler has been banging out post after post after post over the past six years on this very subject.  The number of posts on it has gone up in the past two years because the fundamental situation is getting fundamentally worse. 

It is getting fundamentally worse – to hit the second point – as a direct result of government policy.  In everything from its energy policy to its disastrous seizure of private sector assets in 2008, the current administration has shown itself to be relentlessly opposed to creating an economic climate that attracts investment, promotes innovation and rewards entrepreneurship. 

The current fragile state of the provincial economy  - “fragile” is a word Tom Marshall used not so long ago, by the way - is a direct consequence of government policies.  Only a fundamental shift in those policies can move the province off the course it is currently on.

As it stands in early 2011, the current administration is firmly committed to continuing the policies that have contributed to putting the economy in its current parlous state.

We have seen the enemy, says finance minister Tom Marshall, and he is us.

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The Dismal Science: Debunking the “federal presence” fairy tale

Far from being hard done-by when it comes to federal jobs in the province, Newfoundland and Labrador is pretty much on par, according to a recent study conducted by the Frontier Centre for Public Policy, and reported by the National Post.

You can find a news release summarising the report here, while the full report is available in pdf format.

Some provinces  - Prince Edward Island, New Brunswick, Nova Scotia and Manitoba – have significantly more than the national average number of federal jobs per 100,000 population.  Quebec, Saskatchewan, British Columbia and Alberta have less.

Newfoundland and Labrador and Ontario are only slightly higher than the national average.

The study effectively refutes claims that this province is receiving something less than its “entitlement’ to federal pork spending.  The comparative figures also demolish two reports released by Memorial University’s Harris Centre in 2005 and 2006.  The provincial government has used those studies repeatedly to bolster its claims for increased federal transfers to the province to offset what turn out to be imaginary grievances.

The Frontier Centre study refers to these federal jobs as a form of “stealth” Equalization.  That is, they contend that the federal jobs serve as a type of federal transfer to the local economy in each of the provinces. More importantly, though, the Frontier Centre contends that the transfer comes in addition to the formal Equalization program and is particularly heavy in the provinces it refers to as “major” have-provinces.

The study also notes that the have-not provinces with the highest ratio of federal government jobs also tend to have higher than average reliance on provincial public sector jobs generally. They compare provinces based on the number of public sector employers as a share of the total population.  Newfoundland and Labrador is third highest on that scale, with Prince Edward Island and Manitoba coming, respectively, first and second.

Looking at the same information but as a share of the provincial labour force, Newfoundland and Labrador is by far the province with the largest dependence on the public sector.  Almost 30% of the provincial labour force is employed by the federal, provincial or municipal government.

The Frontier Centre study puts the findings into a particular context, namely transfer payment reform:

The stealth equalization of unbalanced federal employment described in this paper is part of a much bigger problem —an approach to public policy in Canada that transfers money out of high-productivity regions into low-productivity regions.

Not only is this policy approach harmful to our productivity growth, it is also, quite simply, unsustainable. Historically, the taxpayers in three provinces—British Columbia, Alberta and Ontario, have paid most of the bill for high levels of public sector employment in the have-not provinces.

At the same time, the study does point to issues that are especially relevant to Newfoundland and Labrador, even if the report’s authors simply missed the poster child for their argument of unsustainable public spending and the dangers of reliance on what the author’s call “the state driven approach to economic development”.

Most residents of the recipient provinces are unaware of the extent to which their economies are state-driven and reliant on transfers. Beyond the official equalization money, massive amounts of revenue from elsewhere flow into these provinces from a number of different sources. Stealth equalization through federal employment is one important example—but there are others. Higher dependence on federal
government transfers to individuals and discrimination in ordinary  operating programs in favour of the have-nots are two more examples of ways Canadian public policy transfers wealth into the have-nots.

Most residents of Newfoundland and Labrador are unaware of the extent to which the provincial economy is state-driven and reliant on federal transfers in addition to overall public sector spending.

They aren’t alone, of course.  The current provincial administration operates as if going off Equalization was a tragedy of biblical proportions.

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Related: 

• Fragile Economy:  staying the course
• Fragile Economy:  reductio ad argentum
• Fragile Economy:  The public sector
• Fragile Economy: …and two steps back
• Fragile Economy: …now three steps back and loving it

Drop-out drop detail

The 2008 report on schools from the provincial education department is a wealth of useful information on one of the most important government service areas.

Chapter 10 is about school leavers.  In light of the Statistics Canada report on drop-outs, it’s worth taking a closer look at the way the drop-out rate dropped in this province.

As we know from the Statistics Canada report, 19.9% of young people dropped out of school in Newfoundland and Labrador, on average, in the three years 1991-1993.  By 1996, that figure had declined to 16.7%.

By 2006, that number was down to 8.9%. The rate was lower in 2003, continued downward for the next two years and then jumped up in 2006. The current rate  - 7.4%  - is actually about what the rate was in 2005. The table is taken from the provincial government report.

Media reports indicate that a higher percentage of males than females dropped out in this province in 2009 (103% versus 6.6%). That’s a change from a decade and more ago when the male rate was dramatically higher.  According to CBC, “while rates have declined for both sexes, the rate of decrease was faster for men, narrowing the gap between the two.”

The provincial education department has another statistic, though.  It compares rural versus urban rates of school-leaving.  Here’s the provincial government table comparing the rates for all provinces and for the country as a whole.

This sort of statistic doesn’t bode well for economic development in rural Newfoundland and Labrador. And it doesn’t get any better when one considers the trend in the Eastern district, for example, that shows those graduating high school in rural areas are more likely than urban students to leave with a general pass.  n other words, they aren’t necessarily more likely to enter post-secondary education or training.

If a provincial government could only focus on one area in order to produce economic and social benefits to individuals and to the community as a whole, improving educational performance would be it.

Now it is interesting to pick up on comments on the other post on this report.  Both noted the possible influence of the cod moratorium in 1992 on the decline.  On the face of it, the answer seems to be that the moratorium did influence the rate.  Young people in rural areas, especially males, tended to leave school since they could make a living in the fishery or other similar work with a limited education.  Without the cod fishery they might have stayed in school.

Maybe.

The idea is worth exploring but the answer is likely to be more complex. Don’t forget that about 70,000 left Newfoundland and Labrador in the aftermath of the moratorium.  While the drop-out rate declined dramatically in the period between 1993 and 2005, the persistence of a high drop-out rate in rural Newfoundland  suggests there might be other factors at work.

Still, these numbers bear further consideration.

Especially considering the literacy and numeracy rates in the province.

- srbp -