Rejecting Subsidy, Shunning Dependency: Maritime Provinces wish to sail to self-reliance.

Commentary, Equalization, Marco Navarro-Genie, Uncategorized

Last week (November 10), the National Post reported about a nascent movement in the Maritime provinces rejecting a “dangerous dependency" on federal subsidies. Yes, you’ve read that correctly. Prominent Maritimers are calling for an end to their own federally-induced dependency. Using the language of dependency in the context of regional economic subsidies in Canada shifts a traditional paradigm.
That Maritimers are shunning dependency is a great thing, but the dependency they seek to break from is worse than they may realize. Yesterday (November 15), my colleague Ben Eisen at the Frontier Centre published a study (Stealth Equalization) concerning a practically unseen aspect of regional economic subsidies to the Maritimes by way of disproportionate federal government employment. Eisen shows how federal employment assists in syphoning large sums into the economies of major “have not” provinces.
The federal government (including its business enterprises) employs significantly larger numbers of people as a proportion of the population in major recipient provinces than in the “have” provinces. It is not just that there are more people on the federal payroll in each of the Maritime Provinces and in Manitoba than the national average (The national average of Canadian federal employees per 100,000 people is 1,602). It’s that the numbers are off the scale in favour of these recipients. 
At the extremes, Alberta has the lowest (936) and PEI the highest number (3,657) of federal employees per 100,000 residents. PEI may be an exception given its peculiar size, but the pattern holds well elsewhere. Nova Scotia, for example, has more than twice as many (3,210) federal employees per 100, 000 than the country taken as a whole. The rate of federal employment in Nova Scotia is almost four times higher than in Alberta and close to twice as high as Ontario –and Ontario is home to the national government. 
Just in case you might think the comparison is between apples and oranges, Manitoba (2,619) with a similar demographic portrait to Saskatchewan’s (1210) has more than twice as many federal employees as a proportion of the population compared to its western neighbour.
The study shows these four small “have not” provinces additionally receive over $2 billion paid to government employees located there above what would flow into the province if federal government employment were evenly distributed across the country. Meanwhile, more than half the economic activity in the Maritimes comes from government.
All of it constitutes quite the cash injection into “have not” economies over what they already receive from formal equalization. In the cases of Nova Scotia and Manitoba, the below-radar federal employment excess that Eisen calls “stealth equalization” constitutes a 68% and a 30% top up, respectively, over their formal subsidy receipts. It’s not peanuts. These large infusions perpetuate inefficient economies.
In light of federal generosity, the changing attitude in Atlantic Canada amounts to a revolution in thinking. These folks mean to say “no” to unearned federal money. They recognize that handouts create dependency and that the antidote to dependency is economic development propelled by investment that puts people into productive work. Quebec MP Maxime Bernier, by the way, has made similar arguments about equalization concerning his own province.
Dependency theory sprung in the academy, and it is typically laden with Marxist tones. Dependency theory was designed to reject modernization theory. Modernization holds that prosperity for poor countries will be found in development and sound economic growth. Dependency theorists countered that industry and development, capitalization of markets and foreign investment, were a capitalist ruse to keep recipients in a materialistic trance to imprison developing societies. 
The language of dependency theory had a clear anti-market agenda. Its proponents contended that building new schools and roads, increasing staple crop production, and investing in mining and fisheries, for example, created dependency. Interestingly, the same individuals perceived receiving the same things from a supposedly selfless Soviet Union as the furthering of human solidarity.
Catchy slogans notwithstanding, the Orwellian nature of the language of dependency theory ultimately crumbled under the weight of economic realities. Societies that create economic wealth through investment, using their ingenuity and resourcefulness, and putting their people to work can generally pull themselves out of economic hardship. In our own economic hemisphere, Chile’s economy far exceeds Cuba’s; the Dominican economy outperforms Nicaragua’s. The proof is in the pudding.
That’s why the reference to Canadian equalization as “dependency” in the Maritimes–and its recognition as a serious problem-changes the paradigm to an endorsement of self-reliance.
Eisen issues a warning not just to Canadian subsidy recipients but to the entire country. “Stealth equalization harms the country…by transferring capital out of high-productivity jurisdictions and into low-productivity regions.” The sooner dependency ends, the better off we all will be.