Tuesday, May 10, 2005

So What's New About B.C.’s Politics of Economic Growth?

I recently heard someone say that back in 1998, 17,000 people left British Columbia in search of economic opportunities elsewhere. While this remark was intended as a criticism of the NDP, it reminded me of the pervasive tendency in politics to focus on short-term fluctuations in unemployment and economic activity instead of a more important measure of our economic well-being and policy—our standard of living. This distinction between total GDP and average income appears quite academic. But if we succeed in raising employment through a lower wage, or in raising incomes in a particular sector, or in drawing a lot of labour from the rest of Canada, but do not raise the average incomes of British Columbians and Canadians in the process, then what have we actually accomplished?

In 1986 UBC economist Robert C. Allen wrote an important article on the history of the B.C. economy,[1] which asked this very question. His answer contained a perceptive critique of the Social Credit economic policies of the time . The essence of the Social Credit strategy in the early and mid-1980s was to promote growth by cutting social and education spending, thereby freeing monies to create “real jobs” through tax cuts, “Special Enterprise Zones”, and multi-billion dollar investments in megaprojects like the Northeast Coal Project ,the Coquihalla Highway, the Site C dam and Expo 86. Professor Allen showed that although government-induced economic surges directly increased B.C.’s exports and GDP, that they were not as likely to raise GDP per capita. In the case of Northeast Coal, profits from mining and shipping coal and the rise in real estate values in Tumbler Ridge were outweighed by the cost of drawing half a billion dollars from provincial general revenue. Allen concluded that such unprofitable megaprojects lowered average income, and that a fixation upon commodity exports and secondary manufacturing were diverting attention and resources away from policies that would be more effective in raising economic welfare-- such as increased spending to fight unemployment, helping resource communities to adjust to technical change, and expansion of educational services, especially in the areas outside of greater Vancouver and Victoria.

A fascinating part of Professor Allen’s analysis was its illumination of B.C.’s polarized politics, showing how important constituencies of both the right and the left had benefited financially from rapid subsidized growth. These included developers and owners of residential property in the vicinity of subsidized projects, along with the members of leading private sector unions in affected industries.

How well does this picture describe B.C. in subsequent years? While the NDP’s commitment to maintain health and education spending through the 1990s might have been an improvement over Socred restraint, Glen Clark’s attempts to increase the number of well-paying blue-collar union jobs in the forest, construction and ship-building trades through such devices as the Jobs and Timber Accord and the Fast Ferries project epitomized the left side of the coin that Professor Allen described. They were just as unsuccessful at raising average incomes as Bill Bennett’s most notorious boondoggles.

Premier Campbell’s background as a real estate developer and his Expo-like focus on 2010 naturally invite comparison with Bill Bennett. The tax and service cuts in Campbell’s first three years in office are reminiscent of the Socred restraint era, but there are also important differences. For one thing, the Liberals probably have a broader concept of economic diversification than did the Socreds. By ending appurtenancy (which guaranteed the local processing of timber) they have shown that they are no longer as wedded to the conventional theory that stresses secondary manufacturing as the sine qua non of economic development. They also demonstrate a deeper appreciation of the importance of human capital than did the Socreds, by continuing the NDP’s expansion of post-secondary education, particularly in the interior of the province, although the raising of fees and cancellation of grants have adversely affected cost and access for students.

But in doing everything he politically can to stimulate economic activity, Premier Campbell has been far too indiscriminate. His application of supply-side tax cuts and their predictable consequences for revenue, the tortuous saga of B.C. Rail, and his would-be privatizations of liquor stores and the Coquihalla Highway, all smack of ideological self-indulgence colliding with political reality. Cuts to environmental protection and lax enforcement of regulations, even if they have enhanced the business climate, carry long-run costs that have not been fully accounted for. In these respects, B.C.’s new politics of economic growth still bear a disturbing resemblance to the old.


[1] R.C. Allen, “The B.C. Economy: Past, Present, Future,” in R.C. Allen and G. Rosenbluth, Restraining the Economy: Social Credit Economic Policies for B.C. in the Eighties. Vancouver: New Star Book, 1986, 9-42.

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