______________________________________________________________________________ Why Change? Saskatchewan has epitomized great promise and potential since its creation through an Act of Parliament 100 years ago. It is the country’s second largest producer of oil and the third largest producer of natural gas. Saskatchewan is home to a third of the world’s supply of potash, a third of the world’s supply of uranium and the most arable acres in the Dominion. We are well positioned for success in the new knowledge-based economy thanks to Canada’s only synchrotron and leading-edge research parks at the province’s two universities. Saskatchewan’s wealth in human and natural resources is truly staggering. Given our potential, Saskatchewan should have finished the 20th century as one of Canada’s economic leaders – ready to compete in the emerging global economy. Instead, our province entered this century after having spent most of the last century as a ‘have-not’ province. The statistics are startling. Between 1981 and 2000, total employment in Saskatchewan grew by only 12.5% compared to 34% in Alberta and 32% across Canada. Only Newfoundland posted a worse job creation record than Saskatchewan during these two decades. Over the same period, Saskatchewan’s economy grew by 60%. While that was more than Manitoba, it was less than the national average and half the GDP growth experienced by Alberta. The lack of meaningful growth in personal disposable income and per capita income is another indication of how far Saskatchewan has fallen behind. Between 1981 and 2000, real disposable income in Saskatchewan increased by only 7.6% -- well behind the rest of Canada (36.8%), Alberta (34.6%) and Manitoba (18.8%).1 In 1974, Saskatchewan per capita personal income was 102% of the Canadian average. By 2002, Saskatchewan’s per capita personal income had declined to just 83% of the Canadian average -- a 19% reduction in less than three decades. 2 But, perhaps the most disturbing trend of all is the continuing exodus of young people. In 1991, 30.2% of the Saskatchewan population was in the 20-39 age group. By 2001, only 25.9% of the Saskatchewan population fell into that age group.3 If this trend continues, only one in five Saskatchewan residents will be in the 20-39 age group by the year 2014. How can both of these descriptions, the one of promise and the current unflattering reality, possibly describe the same province? Simply, because the promise of Saskatchewan has not yet been realized. If we do nothing and the status quo becomes our comfort zone, there is every reason to believe Saskatchewan will continue to suffer an exodus of young people, skilled workers and capital. If our economic reality remains unchanged, our future will entail fewer taxpayers accepting more responsibility for the provision of health care, education and other services; a future which could only mean higher taxes or fewer services. It’s time to change. 1 Fraser Institute, Saskatchewan Prosperity: Taking the Next Step (Vancouver: Fraser Institute, 2002), pp.5-6. 2 Government of Saskatchewan, Saskatchewan Bureau of Statistics “Economic Review 2003” (Dec. 2003) pp. 36. 3 Ibid, pp. 11. The Promise of Saskatchewan — September 2004 1 ______________________________________________________________________________ A New Vision for Saskatchewan’s Economy If you only have a hammer, you tend to see every problem as a nail. - Abraham Maslow Why has Saskatchewan failed to capitalize on its tremendous promise? The answer lies in understanding past economic policies and the extent to which government has played such a major role in our economy. Saskatchewan has enjoyed the benefits of public investment in those areas where the private sector was unable or uninterested in providing effective and affordable services, such as utilities like power, energy, telephones and car insurance. There has, however, been significant government intervention in the economy well beyond infrastructure and utilities. Saskatchewan’s challenges over the past sixty years must have all looked like nails to policy makers, because our toolbox of economic development has rarely contained anything but the hammer of government. Perhaps we have become comfortable with the notion that geographically large and sparsely populated jurisdictions must rely on the public sector and government involvement at every turn for their economic development strategies. This would appear to be the case in Saskatchewan, where governments of three different political stripes have allowed public sector solutions to eclipse the potential of private investment, innovation and entrepreneurship as sustainable economic development options for growth. No doubt the temptation, the tradition and the immediate political gratification of public sector intervention and politically motivated public investment has been strong. Fiscal policy, program spending, mega-project debt financing, mega-project equity, loans of last resort, targeted investment, joint ventures, Crown corporations, infrastructure investment, strategic investment, not-so-strategic investment and grants to business have been employed by governments for sixty years with unacceptable results. Even though there has been considerable political debate on the merits of these strategies – the 1957 Mossbank debate between Liberal Leader Ross Thatcher and then Premier Tommy Douglas stands as a notable example – nobody has fundamentally deviated from this approach. Political history aside, it is time to look at the question more objectively and to take stock of the consequences of the strategic choices that successive Saskatchewan governments have made over the past sixty years. Our population statistics compared to Alberta, Manitoba, or even the national average make the case quite adequately that economic development approaches which rely on government intervention have not helped to realize the great potential of a The Promise of Saskatchewan — September 2004 2 ______________________________________________________________________________ province so naturally endowed.4 A brief overview of the economic development strategies pursued by successive Saskatchewan governments is instructive if we are to find new ways of solving old problems. Saskatchewan’s Economic Development Strategy: 1975 to 2000 In recent years, there have been some significant academic examinations of public policy approaches to economic development. Professor Peter Phillips at the University of Saskatchewan reviewed the economic policies utilized by provincial governments in our province from 1975 to 2000, and has highlighted four types of economic public policies:5 1) Macroeconomic stabilization (fiscal and monetary policies designed to expand or stabilize the size of the economy). 2) Export Promotion (targeted trade policies designed to encourage a certain mixture of production or exports). 3) Investment policy (tax, subsidy, and policy measures designed to encourage or support specific projects with targeted firms or sectors). 4) Innovation policy (policies intended to establish a climate in which entrepreneurial activity can flourish). Macroeconomic Stabilization Macroeconomic stabilization policies such as home improvement programs, direct government investment, or tax cuts are tools utilized by governments to control the economy. The problem with such tools, according to the Economic Council of Canada as quoted by Phillips, is that “wide fluctuations in the macroeconomy impede capital accumulation and lead to a suboptimal use of existing capital which together reduce the rate of growth of productivity and income”.6 Aside from the question of whether any government can effectively thwart the fiscal realities over the long-term, this type of public policy is also very expensive. For those governments that try it in earnest, Professor Phillips highlights the necessity of pushing hard in the other direction when the fiscal reality of the policies set in and the bills are received. With a low multiplier effect in Saskatchewan, the potential for these policies or other direct public interventions is low, compounding the expensive fiscal implications of this approach.7 4 Saskatchewan’s total population in 1931was 921,785. By 2004, that number had increased by only 73,000 people, an astoundingly low figure in comparison to Alberta which had 190,000 fewer people than Saskatchewan in 1931, but whose population has grown by almost 2.5 million since then. Statistics Canada, Historical Statistics of Canada, Ottawa: Canada Communications Group, Cat. No.11-516 XIE. Also see Statistics Canada, “Demographic Statistics,” January 1, 2004. Preliminary estimates, The Daily, March 22, 2004, http://www.statcan.ca/Daily/English/040322/d040322e.htm, June 3, 2004. 5 Peter Phillips, “Whither Saskatchewan: A Look at Economic Policies 1975-2000,” Canadian Business Economics (November 1998), pp. 36-37. 6Economic Council of Canada, Pulling Together: Productivity, Innovation and Trade, 1992. Quoted in Phillips. 7 Phillips, pp. 40-41. The Promise of Saskatchewan — September 2004 3 ______________________________________________________________________________ Export Enhancement Policies Controlling the trade of goods and services with other provinces or nations is a second way in which governments have intervened in the economy. Export policies such as local preference procurement (Buy Saskatchewan), and Crown corporation-levered industrial development – such as Phillips Cable and the Northern Telecom plant in Saskatoon – illustrate this approach.