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Returning British Columbia to Prosperity

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Returning British Columbia to Prosperity PUBLIC POLICY SOURCES Number 47 Returning British Columbia to Prosperity by Jason Clemens and Joel Emes with a Foreword by Jock Finlayson, Business Council of BC Contents Foreword .....................................................3 Executive Summary ............................................ 5 Economic Performance ........................................ 15 Government Spending: The Root of BC’s Economic Problem ............ 28 Government Tax and Revenue Policy: Aggravating BC’s Lack of Competitiveness ...................................... 37 Regulatory Policy: The Hidden Tax ................................ 56 Health Care: Getting British Columbia Healthy Again ...................74 Education Policy: The Future of British Columbia ......................87 Social Policy: Achieving Welfare Reform ............................106 Industrial and Privatization Policy: Getting Government Out of the Business of Business .....................................115 References ................................................. 126 Acknowledgements ............................................139 About the Authors ........................................... 140 A FRASER INSTITUTE OCCASIONAL PAPER Public Policy Sources is published periodically throughout the year by The Fraser Institute, Vancouver, B.C., Canada. The Fraser Institute is an independent Canadian economic and social research and educational organi- zation. It has as its objective the redirection of public attention to the role of competitive markets in pro- viding for the well-being of Canadians. Where markets work, the Institute’s interest lies in trying to discover prospects for improvement. Where markets do not work, its interest lies in finding the reasons. Where competitive markets have been replaced by government control, the interest of the Institute lies in documenting objectively the nature of the improvement or deterioration resulting from government intervention. The work of the Institute is assisted by an Editorial Advisory Board of internationally re- nowned economists. The Fraser Institute is a national, federally chartered non-profit organization fi- nanced by the sale of its publications and the tax-deductible contributions of its members, foundations, and other supporters; it receives no government funding. For information about Fraser Institute membership, please call the Development Department in Van- couver at (604) 688-0221, or from Toronto: (416) 363-6575, or from Calgary: (403) 216-7175. Editor & Designer: Kristin McCahon For media information, please contact Suzanne Walters, Director of Communications, (604) 688-0221, ext. 582, or from Toronto: (416) 363-6575, ext. 582. To order additional copies, write or call The Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, B.C., V6J 3G7 Toll-free order line: 1-800-665-3558; Telephone: (604) 688-0221, ext. 580; Fax: (604) 688-8539 In Toronto, call (416) 363-6575, ext. 580; Fax: (416) 601-7322 In Calgary, call (403) 216-7175; Fax: (403) 234-9010 Visit our Web site at http://www.fraserinstitute.ca Copyright 8 2001 The Fraser Institute. All rights reserved. No part of this monograph may be repro- duced in any manner whatsoever without written permission except in the case of brief quotations em- bodied in critical articles and reviews. The author of this study has worked independently and opinions expressed by him are, therefore, his own, and do not necessarily reflect the opinions of the members or trustees of The Fraser Institute. Printed and bound in Canada. ISSN 1206-6257 Foreword n many ways, the 1990s qualify as a “lost dec- However, since British Columbians cannot influ- Iade” for the British Columbia economy. As ence what happens in the outside world, it makes documented in this important and timely new sense to direct attention to the domestic policy study from The Fraser Institute, since the early and institutional environment. 1990s the province has fared poorly on most measures of economic success. BC has been a lag- The main policy directions charted by the BC gard within Canada when it comes to increasing government in the decade from 1991 to 2000 may not just gross domestic product per capita, but be summarized as follows: also disposable incomes, business investment, and productivity. From 1992 to 2000, it posted vir- • A bias toward interventionist approaches to tually no gains in real GDP per person, ranking economic management. This was achieved last in the country on this basic indicator of pros- using not only the familiar instruments of perity. Even more telling, by 1999 British Colum- taxation and regulation, but also through bia had slipped below the national average in real bail-outs of troubled businesses, the creation after-tax income per person. On this score, BC has of new government entities such as Forest Re- descended, even if only temporarily, to the status newal BC, the Jobs for Power Act, egregious of a “have-not” province. political manipulation of large-scale capital projects (e.g., Skytrain and “Fast Ferries”), Facts are one thing, but how do we account for and the largely unfettered control exercised this disturbing trend? Broadly speaking, two by the BC government over both Crown Cor- sorts of explanations for BC’s sub-par economy porations and the public sector quasi- have been offered by analysts, commentators, monopolies that have become entrenched in and politicians. The first points to external forces the fields of education, social services, and and how they have long shaped the province’s health care. economic fortunes. According to this view, feeble • The emergence of an ever-growing number of growth in per capita output and income in BC can restrictions on the ability of companies and be traced to the Asian crisis of 1997-98, high Cana- individuals to make use of private and public dian interest rates earlier in the decade, the pro- lands and natural resources for economic and tracted economic slump in Japan, shifts in global industrial development (i.e., wealth- and job- commodity markets, and constraints on access to creation) purposes. the American market under the managed trade scheme enshrined in the Canada-US Softwood • The creation of a labour and employment law Lumber Agreement. regime designed to promote the interests and bolster the economic and legal powers of Explanations of the second type put the analytical trade unions. spotlight on internal factors. This perspective, • Adoption of sharply higher timber- which is reflected in the current study, links Brit- harvesting levies (stumpage), and the imple- ish Columbia’s economic decline to the actions mentation of a plethora of cumbersome and and policies of the NDP government that took of- costly new regulations on the forest indus- fice in late 1991 and then won a second electoral try—still BC’s biggest economic engine and mandate in 1996. Of course, in reality, external and internal forces both weigh on the economy. The Fraser Institute 3 Returning British Columbia to Prosperity PUBLIC POLICY SOURCES, NUMBER 47 the source of more than half of its exports and coincidentally, the economic performance gap manufacturing shipments. between BC and these other two “have” prov- inces has widened over time. • A marked reluctance by BC policy-makers to match the tax cuts instituted in Alberta and The authors of Returning British Columbia to Ontario, or to follow other provinces (or in- Prosperity believe that British Columbia has been deed the federal government) in paring back punching well below its economic weight—a sen- the size of the public sector. timent widely shared across the province—and that it can do better. To that end, they propose a Of particular significance has been the expanding series of policy and institutional changes in- presence of government in the BC economy. tended to marshall British Columbia’s impressive There has been a divergence across Canada in the natural and human assets in the quest for en- growth and intrusiveness of what might be called hanced prosperity. These recommendations the “provincial state.” Over the past 10 to 15 touch on fiscal and taxation policy, labour mat- years, several other provinces chose to sell off ters, regulatory reform, natural resource develop- some of their state-owned enterprises and other ment, land use, the manner in which public public assets; BC has shown little initiative on this services are provided, state-owned enterprises, front—indeed, Crown Corporations arguably and the management of the provincially- play a larger role in the economy today than they regulated education, health care, and social serv- did 10 or 12 years ago. Other provinces have ice systems. taken steps to introduce more competition into areas previously dominated by heavily regulated Not all readers will agree with all of the individ- and/or government-owned monopolies; BC has ual recommendations put forward in this study, resisted pressure to move in this direction. Fi- but they will profit by reviewing it closely and nally, in British Columbia, real provincial govern- with an open mind. The overall thrust of the ment spending has surged almost 30 percent analyses and prescriptions outlined here will ap- since 1991, compared to increases of less than 7 peal to those who, like this writer, believe that an percent for Ontario and for all provinces collec- overweening state and a failure to understand the tively, and a small decline in next-door Alberta. A unrivalled wealth-creating power of markets longer-term perspective confirms the above pic- have contributed
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