Tuesday, March 07, 2000
The Globe and Mail

United We Fall

An Atlantic union has often been proposed as a cure-all for Eastern Canada’s provinces. But what they really need are smaller, smarter governments.

By Brian Lee Crowley

If you could wave a magic wand and change the single most important thing holding back Atlantic Canada’s economic and social progress, what would it be? If you’re elsewhere in the country, you probably think it’s an Atlantic union, creating one big province on the East Coast. But you’d be wrong. The region’s problem is not too many governments, but too much government, a very different proposition. An Atlantic or Maritime union — an idea put forward as a solution to Atlantic Canada’s woes since before Confederation and recently picking up steam — would make that key problem worse, not better.

This is not to defend the old romantic view that a union won’t work because of the established identities and shared history that define each of the existing provinces. I’m saying something quite different: The advocates of union are the romantics now. Despite the evidence to the contrary, many people still cling to the quaint idea that a bigger public sector is a more efficient public sector. Hospitals are merged, municipalities amalgamated. Yet the reality remains that nobody ever saved any money by creating a bigger bureaucracy. In fact, contrary to what the “bigger is better” advocates believe, the private sector, which is properly taken as the model of efficiency, is far less centralized than government, not more. The key is competition, not scale.

As noted U.S. economist Gordon Tullock once remarked: “There is much more centralization in governments than in the economy. This is in spite of the fact that there do not seem to be any very obvious economies of scale outside a few very special areas like the military and, possibly, diplomacy.” And the work that has been done within the Atlantic region on the idea of union shows it would be hugely costly to buy off the necessary special-interest groups, while the benefits would be small.

But don’t put away your magic wand. The basic analysis, that Atlantic Canadians are overgoverned, is right, it’s just that the prescription — union — won’t cure the disease.

Instead of a single, more powerful government, what we need are more ways to restrain the existing governments from doing the foolish things they have grown so fond of. That means stopping them from trying to create closed cottage industries to favour local workers and businesses, leaving them too uncompetitive to reach any further than their own protected market. A classic example is the offshore oil and gas industry.

In the name of jobs for the locals, for example, several Nova Scotians crewing a ship working offshore recently had to be replaced by Newfoundlanders, or the ship would not have been allowed to do work in Newfoundland’s offshore waters. This prompted a tit-for-tat challenge of a Newfoundland-crewed vessel working off Nova Scotia.

This kind of narrow provincialism is an anathema to an industry with opportunities that beckon to it around the world. We have to earn a long-term commitment and spin-off benefits from that industry by being hard-working, productive and willing to admit that we’ve got lots to learn. Governments cannot extort benefits out of industry and then think that they’re creating a climate for economic success.

In those areas where government has seen the light, such as telecommunications, new opportunities are being created for local people. In the bad old days, each government kept the pressure on each provincial telephone monopoly to maximize employment, and efficiency be damned. Now competition has forced the merger of the three local companies into a new entity called Aliant, and many redundant costs are being squeezed out of the system. But at the same time, one of the components of Aliant is already winning work from Bell Canada to do specialized Internet support work nationally. That’s the trade-off that the region really needs: Stop trying to do everything inefficiently on a tiny scale, and start doing a few things we’re very good at nationally and internationally.

We don’t need to merge the provincial governments to get this kind of efficiency. We need to get them to stop their political interference with what should be business and economic decisions. The best kind of regional integration is nation-building. Ottawa should get off its duff and move decisively on freeing interprovincial trade, investment and movement of workers. The current agreement on internal trade isn’t worth the paper its written on if it allows provincial governments to deny to Canadians the right to live, work, and invest wherever they can add the most value for themselves and society. The best companies and the greatest opportunities in the region are too frequently sacrificed on the altar of parochialism and local preference.

The last thing we need here is one big government, single-mindedly pursuing bad policies. What we need are enforceable national rules that keep all governments from indulging their protectionist preferences at the expense of Canadians, including Atlantic Canadians. Start waving that wand.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies.