THREE VIEWS OF ATLANTIC CANADA’S FUTURE

Three people who have thought a lot about the problems of Atlantic Canada and what to do about them are Brian Crowley, President of the Atlantic Institute for Market Studies, Elizabeth Beale, President of the Atlantic Provinces Economic Council and Wade Locke, professor of economics at Memorial University. Policy Options’ editor William Watson sought their views on the region’s problems and what to do about them in a conference call in the second week of November. Au cours de la deuxième semaine de novembre, le rédacteur en chef d’Options politiques, William Watson, s’est entretenu par téléphone avec trois personnes qui ont longuement étudié les problèmes des provinces atlantiques et les solutions à y apporter, soit Brian Crowley, président du Atlantic Institute for Market Studies, Elizabeth Beale, présidente du Conseil économique des provinces atlantiques, et Wade Locke, professeur d’économique à la Memorial University.

William Watson: I’d like to begin by ask- approach to business climate and so the reason for that poor performance. ing each of you for your overall view of on—lagging regions catch up with There’s a whole series of reasons for the questions I’d like to discuss today: more advanced regions at a rate of that but most have to do with the How would you characterize the poli- somewhere between two and three per excessive politicization that it intro- cies that Atlantic Canada has been cent a year. If you look at what we’ve duces into economic decision-making favoured (or cursed) with in the past? done in Atlantic Canada, we have not in the region. It’s got to with the fact What do you think their effects have had such an ordinary policy regime. In that, as a result of particularly massive been, and how do you think the poli- fact, we have had a regime of heroic transfers from Ottawa, governments in cies should be changed? efforts by both federal and provincial this region have been extremely inflat- Brian Crowley: The starting point governments to attempt to close the ed in their importance relative to the for this conversation is both the economic gap between Atlantic rest of society. Governments and their research on and our experience with Canada and the stronger parts of the priorities loom far too large in Atlantic convergence. Convergence is the area Canadian economy in the western part Canadian society, and that crowds out of economics that deals with lagging of the country. The result of that hero- a whole series of business and eco- economies and their relationship with ic policy regime has been a rate of con- nomic decision-making which has and economic performance relative to vergence with the Canadian average resulted in our poor economic per- stronger, more advanced economies. which is less than half what one would formance. What the research on convergence expect to find based on the conver- Wade Locke: I think it’s important shows very clearly is that if you do vir- gence literature. These heroic efforts in any discussion like this to distin- tually nothing—if you just have an have not made up for what would guish between what was done in the ordinary tax regime, ordinary infra- have been an even worse performance past and what’s being done now. structure policies, an ordinary without them, but are, in fact, part of Without question, there were mistakes

12 OPTIONS POLITIQUES DÉCEMBRE 2000 Three views of the future in some of the things done in the past, without really understanding either region’s economy well remember the and they may not have been as effec- the problem itself or the effects of the kind of parameters they were dealing tive as they could have been. I’d take policies on the problem. And some- with back in the late 1960s and early that as given. But we have learned a lot times how policies are implemented 1970s. It’s very easy now to discount or from what has worked and what hasn’t has not been as effective as it could criticize the policies that were followed worked, in terms of both economic have been. then, and there are some that are wor- theory and practical application of Elizabeth Beale: If you look back to thy of criticism, but, in general, I think regional policy here. I wouldn’t argue the 1960s, when the federal govern- they have improved the overall effi- that the policies that were tried in the ment started to expand its more inter- ciency of the Canadian economy and past are policies we ought to concen- ventionist role in this region’s econo- have strengthened the economic trate on now and in the future. But, my, you can point to enormous union—for example, by expanding the these are not the policies we are trying changes, though it is difficult to tie post-secondary education system right now. those changes to effects, either nega- across the country. That has encour- We also want to be very, very care- tive or positive, that took place subse- aged mobility of well-trained individu- ful about drawing direct lessons from als right across the country. some particular jurisdiction or even a Crowley We have had a The programs that were tried have number of jurisdictions and applying pulled up per capita incomes, and they them to Atlantic Canada without con- regime of heroic efforts by have improved overall equity, which sidering their full implications. both federal and provincial really is the goal of a lot of this. The I think past policies have been governments to attempt to problem occurred in the 1990s when effective to some degree. We have close the economic gap all of a sudden the parameters for moved up in terms of our standard of many of these programs changed, sub- living, and in terms of our GDP rela- between Atlantic Canada sidies to business were reduced, and in tive to the national average. and the stronger parts of the mid-1990s several federal pro- It’s also important to make sure the Canadian economy in grams were cut back. It’s not so clear people understand that some things the western part of the whether overall trends in the policy that aren’t usually considered regional environment either benefit or hurt policy end up having very important country. The result of that Atlantic Canada. But some of the new regional effects. For example, Industry heroic policy regime has initiatives that have come up leave Canada has provided support for busi- been a rate of convergence Atlantic Canada fairly exposed. For nesses and research and development with the Canadian average example, we have seen attempts to in central Canada on a much larger pull back on national programs pro- scale than anything that has occurred which is less than half what viding support to EI workers, but a here in eastern Canada. It’s as if we’re one would expect to find refusal to address the longer-term on a scooter and they’re in a car. The based on the convergence adjustment challenges of getting those additional support they have received literature. individuals back into the labour force has allowed them to build knowledge- or providing them with some longer- based infrastructure that has enabled run income support to last out their them to move farther and farther quently. But there were clear reasons lives. So, a lot of the longer-term struc- ahead. why the intervention took place: The tural issues for Atlantic Canada have So, I’m not sure I agree with the high degree of rural poverty and the not been dealt with successfully in this characterization that the policies have total lack of any kind of private sector more decentralized, more provincially- reduced the level of convergence or investment in the major resource oriented environment we find our- reduced other regions’ ability to move industries that were driving the selves in at the end of the 1990s and ahead. Policy may not have been as region’s economy are just two. the beginning of the 21st century. effective as we would have liked—I can Through a whole range of programs, Brian Crowley: I think Elizabeth accept that—but those policies aren’t whether it was regional development properly draws our attention to the in place any longer. Right now, most spending or expansions in personal 1960s as the beginning of a major policies are based upon improving pro- transfers or, indeed, an expanded role experiment in Canadian regional poli- ductivity and competitiveness and for our government-to-government cy in which federal transfers and other enhancing Atlantic Canada’s position transfers, there’s no doubt that policy forms of intervention were really in the knowledge-based economy. In contributed very strongly to conver- ramped up to a very remarkable the past, policy has aimed more at tra- gence, and particularly the conver- degree. One of the things our research ditional industries, and at dealing with gence in per capita incomes. Many at AIMS (the Atlantic Institute for an immense problem of adjustment people who are very active now in the Market Studies) shows is that when

POLICY OPTIONS 13 DECEMBER 2000 Beale, Crowley et Locke

Locke I have a real problem approach to policy. That’s extremely tives. Though you might applaud or with the suggestion that important. Without it you can have criticize some of them, you have to one type of policy running up against keep that in mind in terms of assessing what went on in the 1960s another type of policy and making the aggregate effect. is now relevant for what’s both ineffective. So if that’s the mes- What I am most critical of in going on now: The policy sage you’re trying to send, that’s fine. terms of the federal government’s framework is completely But I do have a real problem with the strategic thinking about Atlantic suggestion that what went on in the Canada is that we now are often treat- different... If you want 1960s is now relevant for what’s going ed as an afterthought rather than as to criticize regional on now: The policy framework is com- integral player in the development of development policy, let’s pletely different. It’s like saying eco- national policy. So, for example, we not go back to the 1960s. nomics has nothing to say about the have a whole range of policies that are Canadian or international economy. developed under the Industry Canada Let’s talk about what’s Years ago, up to the mid-1970s, we framework that have very strong being done right now. talked about being cre- regional implications—and not just ated by too little demand and inflation here in Atlantic Canada. The response transfers were at a relatively low level being created by too much demand, then is to assign us something like the in the 1960s there was in fact a posi- and then came a period when we had Atlantic Investment Fund, which came tive correlation between federal trans- significant inflation while the econo- out last June and which attempts to fers to the region and economic my stagnated, and as a result we start- pull a whole range of initiatives growth and convergence. But when ed to concentrate on other issues. We together under a package for Atlantic the transfers got very significantly started to learn from that, saying, Canada. It clearly comes with the ramped up in the 1970s and early “Okay, supply side issues are impor- wrong kind of political connotations. 1980s that relationship was reversed. tant as well.” Our level of sophistica- But it also comes as an afterthought in As the transfers have declined—and tion and understanding has evolved terms of federal strategy. nobody’s disputing that net transfers over time as we have faced new and This lack of strategic focus could- into the region have declined—we’re different problems. n’t be more apparent than with respect beginning to see that earlier pattern The same is true for regional to the region’s energy industries. assert itself again. development policy. Things may have Current investment in this region’s So my argument is not that all been tried in the 1960s or in the offshore energy industries is the most transfers are bad by definition. That’s 1950s—for example, the Smallwood substantial investment in Atlantic certainly not what’s borne out in the industrialization program—that may Canada that has taken place in the evidence. However, I do think the evi- not have worked as well as they could post-war period. It’s not even that dence shows—to my mind pretty have worked. But that doesn’t reflect recent a phenomenon because clearly—both that it matters very on what is being done now in terms of Newfoundland and Labrador have much in what form the money policy. If you want to criticize regional now had three years of growth that has arrived, and that there is a limited development policy, let’s not go back either reached or exceeded the nation- capacity on the part of the economy to to the 1960s. Let’s talk about what’s al average. There are all sorts of ways to absorb such transfers in a positive and being done right now and whether it is capitalize on and speed up the rate of constructive way. an effective way of trying to get growth and to extend the regional I should emphasize, as well, that regional economic development. benefits of these new opportunities, we shouldn’t be looking only at pro- That’s the more important thing. and yet the federal government has grams that were intended explicitly as I think you want to be very careful regional development programs. The in terms of assigning causality to a cer- Beale What I am most impact of unemployment insurance tain kind of policy simply because you critical of in terms of the on Atlantic Canada vastly dwarfs observe correlation. That’s an impor- federal government’s things like ACOA or many other tant consideration, as well, and we can strategic thinking about explicit regional development pro- debate the evidence that you’re refer- grams. Its impact, especially on this ring to. Atlantic Canada is that we region’s transition from a natural Elizabeth Beale: I do think that is now are often treated as resource-based economy to a more an extremely important point. It is an afterthought rather modern economy, has been extremely very easy to assign causality to any than as integral player in damaging. individual initiatives but the reality is Wade Locke: I agree that we need that it is extremely difficult to sort out the development of to have an integrated, coordinated the effects of any one of these initia- national policy.

14 OPTIONS POLITIQUES DÉCEMBRE 2000 Three views of the future simply not been present as an active the best, but that doesn’t mean you Crowley If we’re talking player. It did, of course, negotiate the can’t have requirements that say that about improving the Offshore Accord with the provinces, but you want it also to meet some other in terms of looking at ways to engage parameters. If you want government productivity of the region in industrial spin-offs or extended intervention in the economy, then it’s and so on, programs like industrial benefits across Atlantic quite appropriate to say we’re trying to unemployment insurance Canada, or indeed for Canadian firms build up centres of excellence in a key have a vastly greater impact in general, there has been very little area but that we have other parameters forward thinking. So we tend to see a to meet, too. As you well know, when in the short and medium retreat back to old ideas such as re- you define these programs, you set up term compared to a few opening the issue of experience rating the parameters to get certain results, so research chairs and a for EI as a response to the needs of they usually aren’t blind to begin with. couple of universities. Atlantic Canada. Wade Locke: But it’s more than William Watson: Elizabeth, could I that. Success breeds success, and if clarify what you’re saying about the you’ve never had an opportunity to funds to meet the CFI requirements. Industry Canada programs? Is it that develop research and development Where some of the larger universities Industry Canada is essentially operat- and productivity as a result of those in the country are able to find indus- ing on a regionally-blind basis, and particular innovations, then you can’t trial partners or even provincial gov- then, after allocations have been made build on what you do. The cumulative ernment partners to do this, the small- on that regionally-blind basis, the gov- effect of R & D has an important impli- er provinces in Atlantic Canada simply ernment comes forward and packages cation for your economy and so, if as a cannot provide those funds, and we what was done for Atlantic Canada as result of other kinds of policies that don’t have the large industrial players a policy for Atlantic Canada? were developed years ago, you never so we simply lose out. Our researchers Elizabeth Beale: It has the appear- got into being able to have an advan- may be as good here as anywhere, but ance of being regionally blind, but at tage or get a step up, you will always be they simply can’t get to first base least in terms of the application of a lagging region. And it’s very impor- because they can’t access that contri- some of these programs, it’s not, of tant to have research and development bution. course. They don’t apply across the and innovation and productivity Brian Crowley: I think it’s impor- country. They have very specific increases if you’re ever going to be tant to say that there are clearly roles regional effects just because of the competitive, and it’s important that that government can and should play nature of the industries they target. we spread it across all of the provinces in helping to close the economic gap What I’m saying is that Atlantic as well. between Atlantic Canada and the rest Canada tends to be an afterthought William Watson: But if cumulative of the country. The question here real- rather than being treated as integral to causation is important, doesn’t spread- ly is: What is it appropriate for govern- the definition of a number of Industry ing the effort out across the country ment to do? Frankly, as important as Canada programs. I don’t mean to pick mean that we’re not going to have these research chairs and so on are for on Industry Canada because the same very good success anywhere? the universities, I don’t think they get thing has happened with some of the Wade Locke: No, that doesn’t nec- to the heart of the matter. big new spending on the research and essarily follow. But, again, I would It may illustrate a larger problem development side, with the Canadian argue that there are other objectives that we have to deal with, but I find Foundation for Innovation, for exam- we have for policy. Efficiency is not the these discussions often get hijacked by ple. It wasn’t until after the program only objective of policy. Equity and such questions. To come back to my had been defined and had started up fairness are also considerations and earlier point, if we’re talking about that we found that it didn’t meet the certainly in the Constitution, under improving the productivity of the needs of the smaller universities. So we section 36.1, equality of opportunity is region and so on, programs like unem- come in with a specific initiative that important, as well. That’s all part and ployment insurance have a vastly is designed to compensate for that. parcel unless we don’t believe in that. greater impact in the short and medi- William Watson: To be devil’s advo- Elizabeth Beale: You have to realize um term compared to a few research cate for a moment, if we are going after there are some, for want of a better chairs and a couple of universities. excellence in science or technology or term, systemic barriers that restrict our We’re talking about a region of the indeed universities, why should we participation in a number of national country in which productivity is sig- have regional dimensions to these pro- programs on the research and develop- nificantly below the national average, grams? Why shouldn’t we just reward ment side. The larger universities in in which we pay ourselves over our the best? the region have all pointed to their productivity relative to workers in Elizabeth Beale: We should reward lack of capacity to raise matching other parts of the country, in which

POLICY OPTIONS 15 DECEMBER 2000 Beale, Crowley et Locke

Locke The real problem is highways in Nova Scotia and instead don’t have accountability, then you’re that we do not have a good went to a tertiary road in his con- unlikely to have any efficiency in the stituency. Elmer McKay did the same allocation of funds. That’s certainly appreciation of what the in his day. This sort of stuff is repeated true. But the fact that you and I and strengths and weaknesses constantly around the region. There’s Elizabeth might be able to point to of this economy are, and simply too much politics in the deci- particular abuses or inappropriate without knowing exactly sions that governments make about implementation may not be the most the money that they have to spend on important consideration. Obviously, if where we’re at, it is really these things. there are problems with how money is difficult to propose with One of the reasons why the feder- being spent or not being spent, then any degree of specificity al government’s $700 million program accountability has to be improved. what the appropriate that they announced back in May was There’s a whole variety of things that not very enthusiastically received in can be done and that’s what elections policies ought to be to many quarters is that, while the theo- are about. Hopefully we’ll get more move us forward. We really ry sounds good, the practice down accountability as things go on. don’t have a good vision of here has been that every time the gov- But what I see is a new direction of where we want to go to. ernment sets up a pot of money, the policy, and I don’t see any problem patronage seekers buzz around it, the with what I think people here are now politicians get a hold of it, and it gets trying to do. Whether it will work or we’re pricing ourselves out of the mar- diverted to purposes quite different not, I don’t know. But what we are try- ket, in which there are significant from the ones that were stated as the ing to do is improve innovation here. labour shortages that coexist with sig- intentions of the program. As I’ve been We’re trying to improve human capital nificantly higher unemployment than saying since the beginning of this con- here, we’re trying to improve export the rest of the country—which indi- versation, one of the problems we capacity and the ability to export. I cates a major mismatch between the have is too much politics in what think those are good things, given the job skills possessed by the population should be economic and business deci- small size of the market and given and the job skills actually needed by sion-making, and we won’t change what our weaknesses are. employers. These are the significant that unless we change the balance in The real problem is that we do not issues that Atlantic Canada has to deal Atlantic Canada between government have a good appreciation of what the with right now, and that a great deal of decision-making and the resources it strengths and the weaknesses of this government policy is actually making controls, and business and economic economy are, and without knowing more difficult to deal with rather than decision-making and the resources it exactly where we’re at, it is really diffi- helping. And I would put unemploy- controls. cult to propose with any degree of ment insurance at the head of that list. Wade Locke: Of course accounta- specificity what the appropriate poli- William Watson: Could you pro- bility is extremely important. If you cies ought to be to move us forward. vide one or two more examples of the kinds of things governments should and should not do. Brian Crowley: One of the things that governments should do, but that I think governments in this region tend to do badly—though I’m not sure they necessarily do it better in other parts of the country—is infrastructure. I certainly am convinced of the value of appropriate infrastructure for this region, when it’s been subjected to rig- orous cost-benefit analysis, and so on. But of course our experience in this region is that, to a very great extent, government spending inevitably gets badly tainted by politics. We’ve all got examples that we can trot out, money that diverted, that was Canadian Press Picture Archive supposed to go for “hundred series” Regional policy that worked: PEI’s Confederation Bridge

16 OPTIONS POLITIQUES DÉCEMBRE 2000 Three views of the future

We really don’t have a good vision of of where government policy can come Beale One example of a where we want to go to. So, we’re not together with the right kind of private- federal project that has sure where we’re at, we’re not exactly sector support. They’ve got an extreme- sure where we want to go to, but we’re ly strong group in there and can really clearly changed things is perfectly prepared to make suggestions effect very positive change in the PEI the fixed link to PEI. on how to get there. economy. It has contributed to a That was extremely Elizabeth Beale: I find it so difficult strengthening of labour markets. You controversial at the time to talk about policy as some big lump, can see the growth in the employment so I was thinking about controversial base, but you can also see the growth in and was questioned as yet federal support which I can point to as per capita incomes and spending on another inefficient having really had an impact in terms the Island. You have to be careful of transportation subsidy for of changing the economy of Atlantic these examples and do good evaluation Atlantic Canada. But since it Canada. I think Wade’s point in push- of them, but nevertheless there’s an ing research and development is that example of policies that were contro- was begun and now that it’s it’s not about channeling resources versial at the time and now we can say open the PEI economy has into the universities and the appropri- contributed to a positive adjustment. been going through an ate way to do that, it’s really about Brian Crowley: I often use the fixed enormous adjustment. how to effect the same kind of transi- link as an example of a piece of infra- tion here in this region’s economy as structure that has paid good returns. we’re talking about at the national or Now I haven’t sat down and looked at ment should be creating a policy global level. the hard-nosed cost benefit analysis of framework within which, whatever One example of a federal project it, but certainly on the surface it the strengths of Atlantic Canada, they that has clearly changed things is the appears to be a piece of infrastructure can be developed and exploited by fixed link to PEI. That was extremely which has played a tremendously pos- people who run the commercial and controversial at the time and was ques- itive role for the economy, and I business operations, who make deci- tioned as yet another inefficient trans- applaud it. But what I was trying to say sions on investment and employment portation subsidy for Atlantic Canada. earlier is that there’s a whole series of based on the business case. That’s what But since it was begun and now that it’s policies that government needs to get we’ve had too little of. Having visions open the PEI economy has been going right in order to encourage the econo- about the Atlantic economy isn’t gov- through an enormous adjustment. my to grow. You asked what other ernment’s role. They’ve had the fastest rate of growth kinds of policy. I’d certainly mention, Wade Locke: Whether it’s the gov- of export intensity of any province in for instance, immigration policy. ernment that has the vision or we as Canada. As exporters they’re still small Immigration policy has really short- the people living in the region, we relative to larger provinces such as changed this region very, very severely. really want to have some vision where and Quebec, but access to that As far as Wade’s point about how we’re going. If we took the approach transportation route has really support- we need a grand vision of the econo- you’re suggesting, the offshore oil and ed increased value-added production in my that we’re trying to get to, I actual- gas sector in Newfoundland would not a lot of food processing industries and ly think that that’s exactly what we have been developed to the state it is other kinds of manufacturing. And it don’t need. I think we’ve had too many today. Very clearly, Hibernia would not was closely associated with some other politicians with too many visions on have proceeded as it did without the very beneficial federal policies, in par- the go, picking winners, deciding what support of government. You may say ticular, the downloading of Slemon the industries of the future are, decid- eventually it would have. Well, maybe Park, the military base in Summerside, ing what companies and what indus- it would have eventually, but it is clear PEI, that the federal government had tries should get resources, which as a that after Gulf pulled out of the project tried many times to get rid of, to great result have been politically allocated and even though reserves went up and opposition from the province and oth- rather than allocated by the market. If costs went down, they could not find a ers in the area. That has been turned you look at the aggregate effect of partner for a year. And only with the into a very successful initiative with all those policies, it has not redounded, I support of the federal government and sorts of private sector participation and think, onto the plus side on the ledger its taking a working interest and bring- an enormous expansion in PEI’s of Atlantic Canada. We should be at ing in other partners was that project exports in the aerospace sector. There the point now where we should be ask- able to proceed. That it did proceed are now 6,000 commercial flights in ing government not to have a vision of has allowed the further development and out of there a year and they’ve the economy and where it thinks it of other resources and a demonstra- become a major repair base for jet tur- should be and what its strengths tion effect and the transfer of technol- bine engines. It’s a really good example should be and so on. Rather, govern- ogy and the building of skills so that

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Crowley All I’m hearing here We have a lot of people making state- Brian Crowley: But that’s what we ments based upon specific examples or do have to argue about because that’s is, “Gee, let’s not look at the experience or their belief, but very lit- the record on which we should draw past because we can’t draw tle has been done in terms of serious conclusions about what works and any conclusions from it. It’s research in this area. what doesn’t. All I’m hearing here is, all confusing, it’s all a William Watson: My question was “Gee, let’s not look at the past because partly rhetorical. How would you pos- we can’t draw any conclusions from it. mess.” Are we just going to sibly infer that a wide-ranging set of It’s all confusing, it’s all a mess.” Are ignore the past and pretend policies had given you the results you we just going to ignore the past and that there’s nothing on wanted? I could see that judging trans- pretend that there’s nothing on which which we can base our fers might be okay: You either got the we can base our decisions for the money to the people you wanted to future? I don’t understand what you’re decisions for the future? get it to you didn’t, but ... saying here. Wade Locke: But we have no prob- Wade Locke: What I was saying we now have an industry that helps lem with attributing the fact that they earlier was “Look, policy has changed diversify our economy. And as a result haven’t worked, right? from the mid-1960s, and early 1970s. of that particular industry, Newfound- William Watson: Well, Brian’s at Policies have changed.” The focus of land has been leading the country in least got the correlation on his side, policy now, as I understand it, is economic growth in terms of GDP. doesn’t he? increasing productivity and competi- Brian Crowley: But you know, Wade Locke: That’s a debatable tiveness, innovation, human capital, Wade, I think we would all agree that point. I don’t want to get into the trade—things that will allow us to individual examples don’t make the specifics of the case that he’s put for- succeed in the transition to a knowl- case. I could trot out a hundred exam- ward, but there are counter-perspectives. edge-based economy in a period of ples of failures pursuing exactly the Elizabeth Beale: I don’t think that enhanced globalization. If we’re same policies that you’ve just men- correlation is well established at all. going to talk about whether or not tioned. So, I don’t think we can draw William Watson: But you would recent development policies are conclusions from individual successes have to rely on a correlation of that appropriate, let’s talk about what or failures. I celebrate the success of sort to make the case that a wide-rang- these things are doing, and why the offshore industry in both ing intervention in the industry of they’re likely or not likely to suc- Newfoundland and Nova Scotia. I’m Atlantic Canada had worked, would ceed—not about what some Nova not going to go back and argue, “Gee, you not? How do you actually measure Scotian politician did with some road you know, we shouldn’t have done success in this type of operation? grants back in whenever. I don’t that.” What I’m trying to do is to get Elizabeth Beale: Any time you know if that’s terribly important. If at the underlying causal effects of dif- intervene in the economy at all, you you’re going to say “We’ve got all this ferent kinds of policies spread across a should have some guidelines on what evidence,” well, as you’re aware, we number of industries, a number of your objectives are and what you will had some serious concerns with the investors, a number of decisions by define to be success. I would argue that evidence you put forward. Now, you economic agents, and I think the the improvements in the personal can agree with that or disagree with aggregate is what we’re looking at and transfer schemes and some of the that, that’s fine, but what I would be not individual examples. increased transfers to provincial gov- more interested in talking about is William Watson: For the policy- ernments improved per capita incomes. whether or not these kinds of new maker, there is a real dilemma here. If I think you can draw a correlation changes in regional development you are helping a lot of different indus- between the growth of per capita policy will work. tries, how do you actually measure suc- incomes in the region and those kinds Is regional development policy an cess? Do you measure it by whether the of policies. And if you look at the gap appropriate thing to do, anyway? I firm survives or its profits go up? Are that remained between earned think it is, and doing nothing ... In my you looking at region-wide aggregates, incomes per capita and per capita mind, you might not win if you play value-added, exports, employment in incomes, you could argue convincing- the game but boy, you sure as hell will the region, and then if so, how do you ly that the fact that that gap persisted lose if you don’t play the game. That’s make the attribution from the specific suggests some of the other policies for the problem I’ve got here, doing noth- policy to the regional effect? economic development assistance ing. You believe doing nothing is the Brian Crowley: There has not been weren’t as successful. But, still, trying best policy. Well, that might be the a very good attempt at trying to effec- to draw very broad correlations over best policy. Doing something might tively identify what we should attrib- very fuzzy time periods is dangerous make it worse, I understand that. The ute to what, and what’s caused what. and misleading. problem is we don’t know with any

18 OPTIONS POLITIQUES DÉCEMBRE 2000 Three views of the future degree of certainty. I understand you Wade Locke: We obviously need Locke If we’re going to believe that. I don’t believe it, but I some kind of performance indicators talk about whether or not understand that you believe it. to see if we can determine whether recent development Brian Crowley: But Wade, I haven’t policies are working or not. But it has said anything like that. What I said to be within a certain time frame. You policies are appropriate, was that there was actually a positive can’t invest in education and expect it let’s talk about what these correlation between transfers to the to have an impact tomorrow. It’s a things are doing, and why region and economic growth in the long-term investment. So, if you look they’re likely or not likely 1960s. I said that appropriately evalu- at lags of one year or even five years, ated, cost-benefit analysis justifying you may not see the effect. But to my to succeed—not about infrastructure was perfectly reason- mind, given what’s happening in the what some Nova Scotian able and a policy that I supported. I world economy, in terms of transition politician did with some said that immigration policy was an to the knowledge-based economy, road grants back in important piece of this puzzle. I said investment in human capital is an that unemployment reform was an important thing to be doing. And how whenever. important piece of this reform. There you measure its success, well, if it does are a hundred things that govern- nothing more, it at least provides indi- other countries. We can learn from ment can and should do. We’re hav- viduals with the ability to take advan- elsewhere. I don’t have a problem with ing an argument about which of them tage of whatever opportunities may that, either. But don’t take their expe- are the appropriate things to do. exist, either here or elsewhere. rience and apply it directly to here. Don’t attribute to me the view that I think that’s important, but I also Think about the institutional differ- there’s nothing to be done because I think it’s important that the regional ences that might make it difficult to did not say that. development agencies are moving apply directly here. William Watson: Wade, in looking away from direct subsidization of busi- William Watson: I’d like to hear to the future, we do have this effort nesses into trying to facilitate and whether each of you is satisfied that now to raise productivity and innova- enable firms to innovate, increase pro- the EI reforms of 1995 were a mistake tion and so on. How will we measure ductivity, and expand their export and that we should therefore reconsti- that? By whether the region’s rate of capacity. I think those kind of things tute the pre-1995 regime? innovation exceeds the national aver- are good, and I don’t have a problem Brian Crowley: No. In fact, I wanted age for ten years? Will we consider with them. to dispute this notion that if we take these policies a success if the catch-up Now, whether they will actually federal government action in the region in productivity accelerates? The fixed work, I don’t know, but I think what as a whole, federal government policy is link case is a very nice and interesting we need to do as researchers here in now to encourage improvement in example, but perhaps the exception the region is to start looking at what’s human capital and investment and that proves the rule. For these other been happening here, and at what les- innovation. Let’s take the fishery as an policies we have to look at the aggre- sons we can learn from elsewhere. example. The impact of the 1995-96 gate data, don’t we? Brian has talked about Ireland and employment insurance reform was not a tightening of employment insurance When the fish go ... in the fisheries, it was a loosening. As a Newfoundland population/ Population de Terre-Neuve result of those changes, if you are 18 years old, you go out fishing with your old man in the boat for a high-value species like crab or shrimp, you can get stamped up for UI in a few days’ fish- ing. You do that and the federal gov- ernment will now pay you $10,000 in effect not to go back to school—because if you go back to school, you don’t qualify for unemployment insurance. If you stay out of school, they’ll give you 10,000 bucks. If you go to school, espe- cially university, you’re liable to have to accumulate several thousand dollars of debt at a minimum in order to get through your university courses. What

POLICY OPTIONS 19 DECEMBER 2000 Beale, Crowley et Locke

does this say about a set of priorities as Brian Crowley: Wade, with all due labour markets, than it does elsewhere. reflected in public policy? respect, I’ve got the numbers right I’m not happy about backtracking We’re not talking about a small here. In 1998-99, 3,220 claims were on some of the changes that have made number of people. We spent $350 mil- filed by new entrants to the fishery. in EI because, difficult as they have lion to buy out fish licenses under the Even more telling, 2,000 fishermen been to adjust to, I think they are the TAGS programs. But, amongst other under the age of 25 filed claims for the way to go in terms of strengthening the things, the changes to the UI program first time. Those are official Employ- insurance component of the program. that I’ve just described have now ment Insurance figures. To say that we Where I am critical of the federal gov- attracted more young people into the have moved people massively out of ernment is in its lack of willingness to fishery than we have bought out old the fishery is not borne out by these look at the longer-term adjustment people. So the suggestion that the figures. More people are being drawn needs of those who are dependent on EI major thrust of federal policy in the in to first-time claims from fisheries as a form of income support. Because of region is an accumulation of human than have left the fisheries as a result the profile of the labour force here and capital and innovation is, I think, non- of the buy-out program. the population, there are many who fell sense. The overall effect of federal poli- Wade Locke: All I’m saying is that into that post-45 age category with low cy is the reverse. it is also true that the population of levels of education where it simply isn’t Wade Locke: Obviously, I don’t Newfoundland has declined dramati- realistic to think that you can train agree. If you look at the population of cally—I suspect in response to the lack them to adjust productively to the Newfoundland, what you’ll see is not of opportunities in the fisheries and other economic sectors. That’s never huge numbers of people moving into the change in the UI program. That been dealt with successfully in any the fishery, but huge numbers of people has been the impact of the UI. It’s not HRDC policies, and there’s no doubt moving out of the province. In a very that they’ve moved into other employ- that we haven’t really argued for that short period of time, we’ve gone from ment, they’ve just moved right out of successfully across the region. In fact, it over 570,000 people to under 537,000 the province altogether. Now, maybe was Brian Tobin himself who argued in people. It’s been a huge outmigration. that’s a good thing and maybe that’s a favour of the TAGS program, which was So, it’s not true that people are sticking bad thing, I don’t know. But that’s primarily a short-term assistance pro- around to take advantage of UI and been the impact of the revisions to the gram. So, I think it’s unfortunate that opportunities that are created in the UI program. we haven’t dealt more successfully with fisheries. That’s just not a true state- William Watson: Elizabeth, you get the long-term needs of these displaced ment. There’s been a massive outmigra- the last word on UI. workers. tion of people at all levels of education, Elizabeth Beale: It disturbs me that William Watson: What would you not just the more highly-educated peo- so much of the focus on policy for do? If it’s hard to retrain people who ple, because opportunities no longer Atlantic Canada is coming back to a are a little older, are you essentially exist in the traditional industries and discussion about EI, so my first point talking about a cash annuity for the people have reacted to that. People do would be to remind everyone that it is rest of their lives? respond to incentives. The relaxing of a national program: If it’s distorted, it’s Elizabeth Beale: Possibly. The other the UI? Well, in terms of efficiency, it’s distorted for seasonal workers right thing would have been to restructure going to have the implication that Brian across the country. It plays no more federal-provincial transfers. If you is suggesting, in that it provides people distortionary a role in Atlantic think it’s the provinces who most incentives to stay where they are. Canada, which has very active urban effectively offer social income support, and you recognize that you’ve got a large group who are going to flow AIMS on EI While the 1996 fishery. As a result, the number of fish- through the system for years until reforms to the EI program have gener- ermen is rising steadily and the average their retirement, then you allocate ally accomplished their objectives, the income of fishermen while on benefits more resources to the provinces so move to a cash-based system in the is $100 a week above the national aver- they can handle this group for whatev- harvesting sector of the fishery has age for all EI claimants. As difficult as it er period of time you think is appro- proven to be a big mistake. Prior to was to enforce, it is imperative that EI priate. But we’ve never been particu- 1996 fishermen had to fish for 12 for fishermen revert to the former larly creative, and as a result, we get a weeks before qualifying for unemploy- weeks-based rule that ... at least predictable political response, which is ment insurance benefits. With the 1996 ensured that fishermen fished for more to backtrack on the delivery of those move to a cash-based system, fisher- than a day. toughening measures. men could, and did, quality for benefits William Watson: Let me thank the with as little as one day’s work in the Peter FENWICK October 2000 three of you very much for participat- ing in this discussion.

20 OPTIONS POLITIQUES DÉCEMBRE 2000