Friday, May 19, 2000
The Globe and Mail

Not quite ready to kick the habit

This week, Atlantic premiers prayed that Ottawa would set them on the path to economic self-sufficiency – but not too fast, says Brian Crowley. That federal cookie jar is too appealing

By Brian Lee Crowley

These guys still don’t get it. The old regime is dying all around them, and still they bang out the old tunes on the fiddle.

This is not to say that New Brunswick’s Bernard Lord, Nova Scotia’s John Hamm, Newfoundland’s Brian Tobin and Prince Edward Island’s Pat Binns didn’t do something useful when they met earlier this week in Moncton and consecrated their union in the Council of Atlantic Premiers. Lord (not the Premier, the other one) knows, there is a host of regional issues on which more co-operation is needed among the provinces, and this is the first time that a formal institutional framework that includes Newfoundland has been established for such co-operation. Of such small steps is progress made.

But building the vehicle is less important than the choice of destination. In Moncton, the premiers chiefly indicated that they had built a time machine, but one that only goes into the past, not the future.

While they announced one minor initiative on collaboration to approve drugs for their provincial health-care systems, virtually the entire press conference to announce the new Premiers’ Council was devoted to one theme: There’s nothing wrong in Atlantic Canada that more money from Ottawa won’t put right.

Now this is a region where the average provincial government receives 40 per cent of its budget from Ottawa. Net transfers into the region hit their peak in the 1970s and early 1980s, when we got the equivalent of as much as 40 per cent of the region’s GDP in money from Ottawa. We were the most heavily subsidized region in the Western world. If money from Ottawa was the solution to our problems, they would have been fixed long ago.

The premiers know, of course, that going to Ottawa with their hand out these days gets a chilly reception, so their latest rhetorical device is to claim that they’re looking for more money in order to end their dependence. This is the Atlantic Canadian equivalent of Saint Augustine’s plea to give him chastity and continency but, please, oh God, not just yet.

Their justification for this, repeated several times in their press conference, is the Irish experience. Ireland, the Celtic Tiger whose GDP per capita went from 40 per cent of Canada’s to greater than ours in 15 years or so is, indeed, a wonderful model to follow. But the premiers should be careful what they wish for.

What has the premiers salivating is the fact that Ireland got some special help from the European Union in Brussels in the early period of this phenomenal growth. Oh ho, they cry, just give us extra booty like Brussels gave Dublin. We promise to grow really fast, and you’ll never hear from us again.

It’s a touching theory, guys, but a bit short on the facts.

What actually happened in Ireland is recounted in revealing detail by Fred McMahon in his recent book, Road to Growth. Numbers, as one of my old professors used to say, are a wonderful discipline to the mind. As Mr. McMahon shows, the total of all transfers to Ireland from the EU rose from just over 5 per cent of GDP in 1986 to a peak of 7 per cent in 1991, and have now fallen to about 4 per cent of GDP.

This compares to net transfers to Atlantic Canada which, as I’ve already mentioned, peaked at about 40 per cent of GDP and are now equal to between a quarter and a fifth of GDP. The actual per capita transfers are even more unbalanced, since, through much of this period, Atlantic Canada’s per capita GDP exceeded Ireland’s.

About half of that money comes in agricultural subsidies under the Common Agricultural Program, and has contributed little to the high-tech, urban-based growth Ireland has known. So the key spending is the so-called structural funds, the subsidies that flow from the wealthier to the less-developed regions of Europe.

Here the Irish have been very strict self-disciplinarians, and created arm’s-length mechanisms for ensuring that money is not captured by politics, but is invested in genuine, economically justified infrastructure.

Of course, the Irish model is the right one for Atlantic Canada, but here’s what it really means: less federal money, not more — and what does come cannot be used for ordinary spending, but only genuine infrastructure. It means significant tax cuts, labour flexibility, social welfare and UI reform and improved profitability for business.

The Council of Atlantic Premiers could become a powerful, concerted voice for the right policies. If it does, their announcement this week will have been an important turning point for the region. But they’re going to have to raise their expectations of themselves and of Atlantic Canadians before they get there.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think-tank in Halifax.
Email:BrianLeeCrowley@aims.ca