The Shining Jurisdiction on the Economic Hill: Saskatchewan

Commentary, Role of Government, David Seymour

Once, when General Motors was an assumed powerhouse of North American industry, the rest of the continent could afford to look smugly at Saskatchewan’s radical governments that intervened in its economy and stifled its growth. This year the Saskatchewan economy is forecast to grow in the midst of a global recession, while governments elsewhere can’t seem to figure out their proper role. So, it is time to reflect upon the cause of this effect, and give credit where it is due: to the immediate past and current governments.

Any government that pulls a third of its revenues from the ground is partly lucky, but natural resources are not necessary or sufficient for success. Barren but well-managed Hong Kong, with a higher GDP per capita than Canada, demonstrates that resources are not a necessary ingredient for prosperity. Meanwhile, resource-rich Venezuela and Nigeria show resources alone are insufficient if corruption and anti-business policies cancel out massive resource endowments. Indeed, all the resources in the world are worthless without a stable policy environment in which to use them.

In contrast to some of Saskatchewan’s past foibles, the new government and the one before it have been remarkably restrained as economic managers. They have not run deficits or built up debt. In fact, public debt has been halved from 26 to 13 per cent of GDP in the past decade. Also, the respective governments haven’t imposed arbitrary and punitive taxes (unlike in Alberta); in fact Saskatchewan’s government has now removed economically damaging capital taxes and several surtaxes on personal income. And a plus for Saskatchewan: neither the Saskatchewan party nor the NDP in their latter years made any more disastrous forays into business, at least not to the extent of nationalizing any more industries or trying to make shoes. The result has been a gradual return of investor confidence and the province coming closer to its economic potential.

In comparison to Saskatchewan’s newfound policy stability and prosperity, wider North America has seen a series of policy disasters and an economic malaise.

Deficit spending in most other jurisdictions is out of control. The former “conservative” president took federal spending from two trillion to three trillion in eight years (not all of it spent in Iraq) and the new president seems determined to make him look stingy.

Meanwhile, the U.S. housing market has been subject to a tragic combination of policies that would be funny if they hadn’t created an economic meltdown. With its government mandate to manipulate the money supply in pursuit of economic growth, the Federal Reserve flooded the market with dollars post 9-11, thus under pricing capital and inflating investment in long term assets like houses. On top of that, mortgage lenders were forced to make otherwise irresponsible loans for political reasons under the Community Reinvestment Act since the 1970s; homebuyers then paid house prices as high as eleven times income in areas where tight land-use planning regulations created artificial housing shortages. But nobody seemed worried about any of this because government-backed mortgage insurers, Fannie Mae and Freddie Mac, bought all the bad debt they could, until they collapsed under their own weight.

Then there is the GM intervention, just another chapter in this endemic government meddling. Astonishingly, governments seem to believe they can achieve what successive GM managers have failed at for at least thirty years –producing cars that will out-compete nimbler rivals.

The perverse impacts include resentment of the very GM brand supposedly saved, injustice for competing manufacturers who are now forced to fund their competition as a result of being successful, increased uncertainty about the safety of investments from government intervention, and about $160 from the pocket of every American and $330 from every Canadian to invest in a company whose shares they have hastily dumped for months. Such decisions to pick winners instead of creating a stable business environment nicely illustrate the contrast between Saskatchewan’s policy direction and that of others over the past two decades.

The Fraser Institute recently and properly reflected on this trend by downgrading the United States to behind Canada on their Economic Freedom of the World index. By the same measure at provincial level, Saskatchewan now generally ranks sixth or seventh out of ten where it ranked seventh or eighth in the early nineties.

This shift should be recognized in any honest assessment of what now defines the province’s political culture. Saskatchewan has certainly proven over successive generations that haphazard interventions based on the politics of envy, utopianism, or vested interests all spell economic stagnation. However, just as other governments are about to find that out for themselves, Saskatchewan’s more modest approach to economic management has revealed future for the sunshine province that is arguably brighter than ever before.