[HALIFAX] — Economic growth is not a mysterious force that strikes unpredictably or whose absence is inexplicable, according to Fred McMahon, the author of a new book released today by the Atlantic Institute for Market Studies.
Road to Growth (available on the AIMS website at www.aims.ca) shows that successful economies maintain moderate costs, particularly labour costs and taxes. That leaves room for healthy profits, which in turn attract and fund further investment. For example, in the late 1980s, Irish unions, government and business negotiated a society wide agreement to restrain wage demands and cut taxes. Virtually overnight, the agreement transformed Ireland from perennial laggard to Celtic tiger. It laid the groundwork for Ireland’s extraordinary growth, rising living standards, and job generation through the 1990s. Far from being a race to the bottom, economic growth has increased government revenues while new investment and increased productivity have lead to large wage increases without squeezing out profits.
The other examples explored in the book – Holland and Georgia, Massachusetts and Michigan – each began their turnaround story from unique economic conditions as well. As different as their circumstances were, however, a certain number of common factors unite their happy experience with significant economic progress. They saw that:
¨ Costs, including taxes and labour costs, needed to be kept keenly competitive;
¨ Trying to prop up dying industries was a mug’s game.;
¨ Public debt needed to be brought under control, taxes lowered, and excellent value offered in public services when measured against the taxes paid;
¨ Politics needed to be banished from decisions about where and how to invest, whether in public infrastructure or private industry;
¨ Work incentives needed to be improved by reforming social welfare;
¨ Profitability in the private sector needed to be improved.
The sum of these measures was a policy environment in which business had every reason to invest and build productive capacity, while workers had every reason to work hard and build their job skills. As the capital investment grew and workers became more skillful, real wages rose along with tax revenues, and a virtuous circle was created. Growth bred more growth, success bred more success.
According to AIMS president, Brian Lee Crowley, “What the examples Fred McMahon has gathered show is what public policy analysts have been saying for years: incentives and public policy matter. That should be comforting news for lagging regions, like Atlantic Canada, that are still searching for the key to success. That key is simply to put sensible policies in place, and then let the intelligence, industriousness and ingenuity of people do the rest.”
Road to Growth is the first volume of a two-volume study. Volume II, Retreat from Growth, will document how policy makers over the last 30 years in Atlantic Canada have pursued policies diametrically opposed to those pursued by Ireland, Holland, Georgia and the other economic Pheonixes described in Road to Growth. Volume II will be released in the Spring of 2000.
For further information please contact:
Brian Lee Crowley, AIMS President, (902) 499-1998, [email protected]
Fred McMahon, (416) 964-9223, ext. 256, [email protected]