A Conversation with Brian Lee Crowley

Brian Lee Crowley, Canada, Equalization, Interview, Uncategorized

DR. BRIAN LEE CROWLEY is the founding president of the Atlantic Institute for Market Studies in Halifax, an economic and social policy think tank that encourages broad debate on strategies for economic development in Atlantic Canada and nationally. Frontier interviewed Dr. Crowley after a Frontier Centre speaking event in September.

Frontier Centre: You founded the Atlantic Institute for Market Studies. How long has it been operating and what are your institute’s central concerns?

Brian Lee Crowley: We are going to celebrate our fifth birthday in January. We founded the Institute to address the chronic problems of underdevelopment, unemployment and social dysfunction in Atlantic Canada. We said to ourselves, “We have been following the same strategies for thirty years and the problems just seem to be getting worse. If we were going to be successful, we would have succeeded long ago.” We wanted to challenge people to think in new ways about these problems.

FC: AIMS published a study that shows that Atlantic Canada was most successful economically during the years of low Federal government subsidies and least successful when it was receiving the most from Ottawa. Why is that so?

BLC: When transfer payments get out of hand and exceed some critical mass, they begin not to supplement the natural economic activity that goes on but to displace it. People begin to see that governments are the biggest source of money in the region and they organize their activities to make themselves better off largely through subsidies and other forms of rent-seeking from government. Instead of getting out in the marketplace, examining opportunities and finding new services and products to offer to people as a means of improving their standard of living, they turn their efforts and energy towards government. It is absolutely wrong to think that people in Atlantic Canada are not entrepreneurial or dynamic. On the contrary, they are extremely dynamic and extremely successful. They just happen to be successful in getting money out of government as opposed to success in the private sector.

FC: Subsidies take many forms. Could you distinguish between the effects of three different kinds? Subsidies to individuals through Employment Insurance or the tax system transfers from the Federal government to provincial governments and direct government investment in projects like the heavy water plant in Nova Scotia. Which kind is the most harmful?

BLC: They are all damaging in their own characteristic way. My view is that the most damaging subsidy has been unemployment insurance. Employment insurance has represented a net transfer into the region of about two billion dollars per year. The effect of that transfer — the way that EI is organized is to subsidize seasonal work — has been to encourage people to stay in communities with poor economic prospects rather than to examine opportunities in other locations and to dissuade them from getting into new lines of work, even in their existing communities. There is one set of incentives for individuals created by transfers to individuals and a different set created for provincial governments. Those incentives involve trapping the Provincial government into a kind of dependence on Ottawa, rather than encouraging those governments to develop their own economy, to become reliant on their own revenues and to see local economic development as the key to making themselves better off. They become prisoners of a rent-seeking mentality.

As far as governments having the illusion that they can pick winners, the list of failures is so long it’s laughable. We have squandered resources in the region. Governments have taken tax dollars from successful businesses and transferred that money to enterprises that governments thought would succeed. Frankly, the government’s judgment about what consumers actually want in the marketplace is very poor.

I am reluctant to give a gold star to any one of these as most damaging. They are all pretty bad. But I think that overall the EI transfers to individuals are the worst.

FC: New England’s economy at one time closely resembled that of the Maritimes, but it is now much more diversified. What made those States thrive while the Atlantic provinces have not?

BLC: That’s a complicated question. Let’s boil it down to the essence. When this country was founded, John A. Macdonald closed the borders with a high tariff wall to force the development of local industries serving a pan-Canadian market. He built a transcontinental railway that linked an artificial east/west economy together. The effect of that was to cut Atlantic Canada off from its natural markets in the Caribbean and New England and to undermine its traditional industries. The quid pro quo for that was a system of transfer payments to the Atlantic provinces as a part of the original confederal bargain. There has been a long, slow undermining of the economy of Atlantic Canada ever since. It is only now that we have free trade – we’ve opened the border and dropped the tariff wall — that we begin to see Atlantic Canada resuming some of its economic vigour. That comes from exploiting its natural economic link with its close neighbours rather than relying on goods and services from Central Canada and transfer payments to people.

FC: So New England’s economy thrives more because of it’s freer economy?

BLC: You have got to remember that roughly three-quarters of economic growth comes from innovation. Because New England is in a free economy without transfer payments, it had to constantly adjust its economic activities. It had to get into new lines of work. It had to move from primary industries like farming and fishing into manufacturing and then into third-wave industries like software. But Atlantic Canada got stuck with the old industries that couldn’t evolve because we were a high-tax region with poor productivity, unattractive circumstances in which to get new industries going.

FC: Most people are unaware that after the Maritimes, Manitoba and Saskatchewan are the provinces that receive the most Federal largesse – even more than Quebec when calculated per capita. How has this dubious distinction affected the two Prairie provinces?

BLC: I think a lot of people are under the impression that lagging provinces within Canada get this money because they are lagging. We have come to the conclusion that the money itself is at least one of the causes of lagging behind wealthier parts of the country. You see in Saskatchewan and Manitoba some of the same reliance on primary industries and agriculture, and a lack of diversification within agriculture. These are many of the symptoms that we identified in Atlantic Canada. Manitoba and Saskatchewan have the advantage of being in a much better place to export their surplus labour and population to places like Alberta and British Columbia than Atlantic Canada, so the effects haven’t been quite as bad. But I think it is pretty clear that governments in Saskatchewan and Manitoba have suffered the same kind of dependency syndrome vis-à-vis Ottawa that the ones in Atlantic Canada have. They suffer the same kind of perverse incentives to get involved in the wrong kind of policies and have them subsidized by Ottawa.

FC: Former Manitoba Premier Howard Pawley led Manitoba’s last New Democratic Party government. Why is his administration regarded as a failure? What went wrong?

BLC: I was policy advisor to Howard Pawley’s Deputy Minister, the Clerk of the Executive Council, George Ford, and I was principally involved in inter-governmental affairs. I was one of his chief advisors during the constitutional negotiations. I think the Pawley regime kind of lost its way. They lost any sense of where they were trying to take the Province of Manitoba. They won a very equivocal electoral victory in 1986 by a very small majority. They were too much prisoners of powerful interest groups in the public sector unions. As a result, they weren’t able to come to grips with the very serious public policy problems that Manitoba faces. When the small majority proved to be their undoing, people grasped the opportunity to get rid of a party and a regime that had run out of intellectual steam.

FC: Gary Doer has led the NDP back to power in this year’s provincial election. What advice would you give him?

BLC: I would give him the same advice that I think Bob Rae, the former NDP Premier of Ontario, would give him. There is no advantage for any government in building its support base on public sector unions. They are fair-weather friends. They are out to promote their own interests and nothing but their own interests. No government that builds its support on the idea of trying to appease public sector workers can ever pursue anything like the good of the population as a whole. The NDP, as its first item of business, should try to expand its power base far beyond that. It should begin to cut back the size of the public sector in Manitoba, which by almost any measure is one of the largest in the country, consuming great tax resources and not giving good value for money.

FC: The NDP is widely regarded as the “father of failed provincial governments”. Besides Pawley, the Party has to live down the years of Bob Rae in Ontario and Mike Harcourt and Glenn Clark in B.C. Roy Romanow is usually considered to be a successful Premier, yet he nearly lost power in the recent Saskatchewan election. What happened?

BLC: I doubt that the election in Saskatchewan was a rejection of the NDP’s general stewardship of power. I think they have been a well-organized, well-administered government. They stood up to ministers, pressure groups and public-sector workers in the interest of repairing public finances after the disastrous Conservative government of Grant Devine. My sense is that there is a growing and deep divide in Saskatchewan between urban and rural. The rural areas are going through a significant set of economic pressures that they don’t quite know how to deal with yet. A populist party like the Saskatchewan Party had a more appealing program for rural voters in Saskatchewan than Roy Romanow and he underestimated the anger and disaffection of that sector of the population.

FC: Manitoba’s fishery, especially in the North, has been as depressed as the Atlantic and Pacific fisheries. The Frontier Centre has suggested that one cause of this is the Freshwater Fish Marketing Corporation’s monopoly on processing and marketing. Do you agree that market mechanisms could restore the fisheries, on the coasts or inland?

BLC: Monopolies, whether in the private or public sectors, are always the great enemy of both efficiency and consumer satisfaction. There is no such thing as a good monopoly. Monopolies are always organized to extort benefits from producers and consumers and pass them on to the people who control the monopoly. I don’t think that the fishery in Manitoba is any exception to that. In my view, there are two policy changes that are necessary to give the fishery in Manitoba the kind of vigour it is capable of. One is to end the common property regime where the fish belong to the government or the people collectively. What belongs to everybody belongs to no one and this system gives people an incentive to overexploit the resource. It is relatively easy, with individual transferable quotas, to give people working in the fishery ownership over the resource and an incentive to husband that resource, so it is not only productive today but for future generations. The other policy change that would be necessary is to free both producers and buyers of the fish resource to take advantage of the opportunities that the marketplace offers them to get the best value for their resources. If they want to do it collectively through cooperatives or any other mechanism that is always open to them. If they do so freely, that makes perfect sense. But to force them to deal with a government monopoly unconcerned about whether they exercise due care with the resource or whether they get the best possible price for their product, dooms the fishery to a slow decline and eventually extinction.

FC: Do you suppose these same arguments could apply to the Canadian Wheat Board?

BLC: Absolutely! I think it is very simple. You give individual farmers a choice. That’s all you have to do. You don’t have to abolish the Wheat Board, you don’t have to say farmers are not going to be able to continue to use it. As soon as you give farmers choice, they are the ones who control their lives, they control what they do with their resources, they control when they sell their wheat. In those circumstances, if they want to continue to use the Wheat Board, more power to them. Many farmers would see that it is to their immediate and long-term advantage to club together and do their marketing in some form of co-operative. Others would perceive an interest in going it alone or signing long-term contracts with large companies, and to use hedging and other mechanisms in order to protect their incomes. All of these things are going on all the time with other crops. People who farm wheat or barley are no less capable of these kinds of strategies than people farming other commodities. We would rapidly see the entrepreneurial energy of farmers diversify both the crops that they plant and the uses that are made of them when they realize the benefits from making those decisions themselves.

FC: What do you think would happen to the Maritimes if Quebec should secede from Canada? Would it head towards closer ties with the U.S., or retain its connection to the rest of the Canadian economy?

BLC: I sincerely believe that it won’t happen. I do not believe that Quebec will leave confederation, slam the door and become an independent country. I believe that the Canadian economic and political space will remain unified. Whether it’s in the form of current constitutional arrangements or not is another question, but I don’t believe that Canada is defined by the Constitution. If we change our current arrangements to make more members of the federation feel more welcome, I don’t believe that would be the end of the world or would cause Canada to cease to exist.