Wednesday, July 17, 2002
The Chronicle Herald
Moncton Times Transcript

ACOA “giddy with success”

By Brian Lee Crowley

In the early days of the Soviet Union, the only industry that really thrived was propaganda. As agricultural production dived, people starved and every economic decision was politicized, the government communications machine continuously cranked out ever more brazen claims about the latest five year plan and the great strides that central planning was achieving. The propagandists always assured the world that the Soviet Union was, in the words of one famous pamphlet, “giddy with success”.

The minister responsible for ACOA, Gerry Byrne, should remember what happened to the once powerful Soviet Union, whose greatest downfall was that it could not distinguish its own propaganda from reality. For the minister has been publishing articles around Atlantic Canada in recent days to trumpet the successes of his agency and to ridicule those who think that the money devoted to ACOA would be better spent on federal tax cuts in the region.

Now far be it from me to say that ACOA has never accomplished anything worth while. Recent emphasis on university research, where private sector money often cannot be relied upon to foot the bill, has its merits, for example.

But the minister repeats claims about the overall impact of ACOA that beggar belief, and destroy the credibility of his more modest but real accomplishments.

For example, he pooh-poohs federal tax cuts as an alternative regional strategy, suggesting, without saying in so many words, that ACOA spending produces more benefits for the region than leaving the money in people’s hands to spend as they see fit.

Now remember that the amount that ACOA spends in this region is roughly equivalent to what the federal government collects here in corporate income tax alone.

You know what that means — the federal government takes money away from private companies that have proven themselves successful in investing money and putting people to work in sustainable jobs. It then takes that money and filters it through a bureaucracy employing hundreds of highly paid civil servants in the region and in Ottawa. They, under heavy pressure from the Atlantic Liberal caucus (and the Atlantic Tory caucus under the previous government), then distribute that money. Unsurprisingly, they do so in such a way as to maximize the political rather than the economic benefits.

And yet, according to the minister, for every dollar spent by ACOA, five dollars have been “returned to the region’s GDP”. Because of ACOA, the region’s unemployment rate is “2.8 percent lower” than it would have been otherwise. And ACOA offers a “real return” on its investment: for every dollar spent, $1.25 in tax revenues has been generated.

Now that all sounds pretty impressive. But let’s put it to the test. If the minister truly believes that roughly $350-million in ACOA spending does all that, then twice as much ACOA spending would produce results twice as good. I assume, therefore, that he is making the case in Ottawa that taxes on the region’s private sector should be doubled, and the money given to ACOA.

But of course such a policy would be nonsense, and would fly in the face of his own government’s commitment to lowering taxes nationally as the best way of stimulating growth and competitiveness.

What Mr. Byrne and his advisors still don’t get is this. The value of ACOA spending cannot be judged by the activity it generates. Money in any form whatsoever generates some economic activity.

If you took 350 barrels containing $1-million each and plunked them down in towns and villages across the region and let people help themselves, economic activity would be “generated.” Jobs would be “created” because people would spend the money on groceries and house repairs and new cars. Tax revenues would be “generated” by all of those transactions and the incomes that they produced. And if you followed each of those dollars out of the barrels as they changed hands over and over in the economy, they would generate a “return” to the region’s GDP. But the economic activity isn’t real — it only lasts as long as the barrels keep coming.

The only way to judge the value of ACOA, then, is to compare what it chooses to do with our money compared to what we would do with it ourselves if we were allowed to keep it. Not only would we spend it differently, but we would avoid all the costly distortions that taxation imposes in addition to its direct costs.

So next time Gerry Byrne gets too giddy with success and starts to make incredible claims on behalf of ACOA, remember: ACOA creates no new activity in the region. It substitutes activities that Gerry Byrne and friends want to promote for activities that Atlantic Canadians would choose to spend their money on if they weren’t so heavily taxed to begin with. So who’s giddy now?

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: [email protected].