A new government in Ottawa could pose serious risks for Atlantic Canada or present a new area of opportunity.

The risk is that the region could continue with its habit of constantly seeking more funding from other Canadian taxpayers to address local problems.

This fifty year old approach has created the most bloated public sectors in the developed world, larger than Greece before its financial crisis. It has also created provincial economies with astonishingly weak private sectors that are dependent on continuing subsidies from other Canadians for anything approaching normal North American standards of living.

Nova Scotians are subsidized by other Canadians by about $5,000 per person per year in equalization and all the other ways federal governments have subsidized particular regions. The corresponding figures for the other Atlantic Provinces are less but still substantial.

Despite this policy failure, it is possible that the new federal government will continue with current arrangements and indeed enhance them. There are plenty of new MPs to do the special pleading.

Another factor that could prolong this catastrophic situation is ignorance. Ottawa has never tabulated the regional subsidies it provides, including the many that are built into operating programs. Nor does it measure the comparability of provincial programs even though comparable levels of public services is the goal of the effort.

There are several factors, however, that suggest that even if the region is initially successful in the lobbying efforts that are likely underway, they cannot succeed for long:  Alberta is in a fiscal crisis and Ontario has not yet found its footing in the new global economy.

Moods in these provinces have changed, in part because the scale of the regional subsidy effort is impairing Canada’ productivity and competitiveness.

Canada’s weak productivity performance is due in large part to the transfer of tens of billions each year from high productivity provinces such as Ontario and Alberta to low productivity regions such as Atlantic Canada.

So, what is the opportunity side of this equation?

The opportunity is for regional leaders – especially business leaders – to  come to terms with the disastrous state of the Atlantic regional economy and propose steps to address the region’s essential problem – oversized governments that are insufficiently coordinated, impair private sector vitality and weaken the attractiveness of each province to immigrants.

Many commentators have noted this problem. Their work can be simply summarized: economies that are driven by the culture of government and its ecology of rules, top-down management and sometimes cronyism are less likely to perform well than those that emphasize markets, entrepreneurship and minimally necessary government intervention.

The first step would be to set a goal that personnel levels to deliver provincial programming in the Atlantic region should be similar to those found in other Canadian provinces.

The second step would be to commission external reviews of government spending in the region and individual provinces, along the lines of the Drummond Report in Ontario. Independence from provincial governments would be essential to avoid political influence on the results.

The third step would be to form a common services organization that would deliver most provincial programming under contract to the three Maritime Provinces and in some cases to Newfoundland. This would permit orderly downsizing of provincial public services while still protecting provincial identities.

Business and community leaders should argue, also, that eligibility for equalization should be made conditional on bringing the size of the  public sectors in each province in line with levels experienced elsewhere in the developed world, with measurable targets for each year and annual assessments of eligibility.

The federal government should also play a role in this restructuring. It should alter equalization so that funds are distributed based on need, not currently considered, and revenue considerations. This would ensure fairness and also that the real needs of provincial populations, including demographics, are considered in determining equalization entitlements.

Ottawa might contribute to restructuring costs as long as future demands from the region are reduced by equivalent amounts.

In summary, Atlantic Canada now faces a future of greater outmigration (including grandparents moving to be closer to families that have already migrated), stagnant economic performance and possibly even solvency crises unless fundamental change occurs.

The Ivany and OneNS proposed solutions such as enhanced immigration and greater attention to small children will not be possible unless the regional economy is strengthened.

Downsizing the excessive public sectors that are the defining characteristics of the Atlantic region is urgently needed to restore balance, pursue new directions and achieve a better future.

David MacKinnon is a Fellow at the Atlantic Institute for Market Studies (AIMS.ca). He served as Director, Planning and Economics and as Executive Director, Development Strategy in the Nova Scotia Department of Development from 1976 to 1981. He later served in senior capacities in the Ontario Public Service, the Bank of Montreal and as CEO of the Ontario Hospital Association.


This article also appeared in the Chronicle Herald.