Thursday, March 15, 2001
The National Post

Atlantic business still depends on subsidies

By Brian Lee Crowley and David Murrell

Astonishing as it may appear to people in other parts of the country, there has recently been some talk in Atlantic Canada that, far from being a black hole into which the rest of the country pours money, the region has been travelling third class on the subsidy gravy train. While this claim has some superficial plausibility, on closer examination it melts away as quickly as snow in the strengthening sun of spring.

The claim involves government subsidies to private sector businesses. The notion that Atlantic businesses were undersubsidized relative to the national average was based on Statistics Canada numbers that looked at business subsidies per person in 1998 (the most recent year for which data are available). And indeed, to everyone’s surprise, the numbers showed that, per capita, we Atlantic Canadians received less than the national average by a pretty substantial margin ($248 per Atlantic Canadian versus $368 per Canadian to be precise).

But wait a minute — business subsidies per person is not the right measure. If you want to know how heavily farming is subsidized, you don’t take the total amount given to farmers and divide it by all the bankers and teachers and homemakers in the population. You divide it by the number of farmers or the number of farms.

It’s the same with business. To measure the degree to which business is subsidized, we have to compare total subsidies with the size of the private sector — not the population as a whole. Furthermore, it turns out that Statistics Canada includes agricultural subsidies in its numbers, but not many forms of subsidy to the fishery, like fishermen’s Employment Insurance. That overstates subsidies in the West and understates them in this region. Finally, 1998 was not a representative year; a three-year average presents a more accurate picture.

We use two ways to determine the degree of subsidization of the private sector. First, we looked at business subsidies per private sector employee, leaving aside both agricultural and fisheries subsidies. Over the period 1996-1998, the average private sector employee in this region was subsidized to the tune of $819 per year, whereas the national average was $643, a difference of 27%.

Then we looked at business subsidies as a percentage of private sector investment, again subtracting farm and fishery subsidies. The same pattern holds. Over the same three-year period, subsidies so measured were 29% higher than the national average.

These trends are even more pronounced if one excludes business subsidies in the province of Quebec. Unnoticed by most of the rest of the country, Quebec has been ramping up its business subsidies hugely. They now dwarf anything in the rest of the country, and heavily distort the national averages. Indeed, looking only at provincial (not federal) subsidies to business, Quebec’s $3.14-billion of such spending in 1998 was greater than the $2.28-billion spent by the nine other provincial governments combined!

Thus, if we compare non-farm, non-fishery business subsidies per private sector employee in Atlantic Canada from 1996-98 with the national average excluding Quebec, Atlantic Canada’s level of subsidization is 55% higher. Business subsidies as a proportion of private sector investment are 70% higher.

Interestingly, the regional averages mask some very striking differences among Atlantic provinces. In terms of subsidies per private sector employee, New Brunswick is actually slightly below the national average, and Nova Scotia is just somewhat over. Newfoundland, on the other hand, is nearly twice the national average, and more than twice if Quebec is excluded.

The situation shifts markedly, however, if you look at subsidies as a share of private sector investment. There, Newfoundland turns in the best performance — although still above the national average — no doubt helped by massive private investment in the offshore oil patch. On both measures, tiny P.E.I. comes off as most dependent, but its economy is so small that even relatively modest subsidies in dollar terms can look huge.

The important question, though, is why should anyone care about the level of business subsidies? The answer is that having an accurate picture of where you are gives some important clues about where you want to go next. The level of subsidization of business in a region is simply a rough measure of its lack of competitiveness and sustainability, not to mention its vulnerability to changes in government policy.

If business in Atlantic Canada were truly less dependent on subsidies than the rest of the country, far from a cause for complaint, that would be a tremendously hopeful sign of a region weaning itself off dependence. As it is, while progress has been made, the region’s businesses and governments still have a lot of work ahead of them. What businesses need to succeed is not subsidies, but access to markets, trained workers and profits earned by satisfying customers. Government can help, through infrastructure, trade agreements, good quality education, low taxes and well-designed social programs, for example. Winding down subsidies and making sure that businesses get what they need to succeed in the marketplace still must be the centrepiece of a sustainable growth strategy for this region.


In dollars, 1996-1998

Atlantic Canada: $819

Canada: $643

Canada without Quebec: $528

Source: National Post

Brian Lee Crowley is president of the Halifax-based Atlantic Institute for Market Studies and David Murrell is professor of economics at the University of New Brunswick.