Brian Lee Crowley

Is Saskatchewan the counter-example?

In response to my op-ed about the addition of new seats to the House of Commons in the Globe of 26/9/09, one reader wrote in with a familiar objection:

Brian Lee Crowley, in attributing Quebec’s loss of national political influence to its pursuit of a “big state strategy” , conveniently chooses to overlook a province that does not support his thesis. Saskatchewan , with its family of crown corporations and large public sector, is currently a national leader in economic growth, investment and in migration. Even the recently elected Conservative government has chosen not to interfere with this arrangement, recognizing that its low cost infrastructure and public services provides the province with an economic advantage.

Busted! My whole thesis has just been disproved and my career is in tatters because I forgot about Saskatchewan.

I don’t think so.

Back when Saskatchewan was a bastion of Canada’s founding values, a vigorous work ethic, small government and low taxes, it rapidly grew to become the third largest province in Canada by population. Alberta was its poor cousin. Both provinces have magnificent resource endowments. Both provinces faced the same commodity-based economies, boom and bust cycles, etc. Tommy Douglas used the provincial government to broaden access to health care and to build infrastructure, but made it very clear, as I show in the new book, Fearful Symmetry, that he had no interest in creating big social welfare programmes that might create dependence. He was a vigorous advocate of workfare. When equalization was first put in place in the late 1950s, Alberta was a recipient, as was Saskatchewan. Saskatchewan, not Alberta, was tipped in the early days to be the centre of the western oil and gas industry.

Then what happened?

Saskatchewan largely lost its way. Oh, it didn’t go badly wrong, as Quebec and much of the Atlantic provinces did. But it didn’t get things right either, as its very similarly situated neighbour, Alberta, largely did. Saskatchewan rubbed along for years, no economic out-performer, but no basket case either. Some years it was on equalization, some years it was off. The anti-business attitude of the government scared off the oil and gas industry, which set up shop in Alberta, which had a much more encouraging tax and regulatory regime. When the CCF became the NDP, policymaking soon became more heavily dominated by public-sector unions, who naturally favoured big government, high taxation and high levels of public sector employment. For an economic model that the Globe’s letter writer celebrates, it hardly created an economic powerhouse. Most years Saskatchewan’s population barely grew, the province lost population relative to the rest of the country and it attracted no immigration to speak of.

Over the last 35 years (1973–2007), the population of Saskatchewan has
grown from roughly 912,000 in 1973 to its current level of 997,000 in 2007
(9.3% growth). This stands in stark contrast to the population growth experienced
by Alberta (101.4%) and British Columbia (85.0%) over the same
period. Even neighboring Manitoba (17.8%) managed to post population
growth that exceeded that of Saskatchewan. Indeed, Saskatchewan’s population
growth of 9.3% (1973–2007) ranks ahead of only Newfoundland &
Labrador, which actually experienced a decline in its population of 7.2% over
the same period.

Private investment levels were poor:

In terms of net business investment per worker—the accumulated
investment by business (adjusted for the number of workers and inflation)—
Saskatchewan fairs [sic] poorly for the period between 1978 and 2007 when
compared to the western provinces and the national average. As of 2007,
Saskatchewan ranked 9th among all Canadian provinces in terms of net business
investment per worker. Indeed, Saskatchewan’s performance was only
49.4% of the national average as of 2007.
The results for the more narrow measure of business investment,
namely net business investment in machinery and equipment (adjusted
for the number of workers and inflation), are equally as poor. By 2007,
Saskatchewan had the lowest level of accumulated per-worker net business
investment in machinery and equipment among all Canadian provinces.
Indeed, Saskatchewan’s performance of $7,175 in accumulated net business
investment in machinery and equipment in 2007 was only 38.1% of the
national average, 73.0% of that achieved in Manitoba, and just 15.8% of that
achieved in Alberta.

Saskatchewan suffered from  many of the dysfunctions of Quebec, with the happy exception that, being next door to BC and Alberta, it could export its unemployed and many of its retirees.

Our letter-writer now claims that Saskatchewan’s big government model explains its current economic success. But then that model was the one that was in place during the years of relative economic under-performance as well, and so he must accept that the model is responsible for that under-performance. He can’t have it both ways. The really interesting question, then, is why are things different now, because it is certainly true that Saskatchewan is enjoying a bit of a boom and may be the only province to grow in 2009.

No doubt many things could be mentioned, but here are two that I think are key: lower taxes in Saskatchewan and policy fumbles in next-door Alberta.

Since 2001, Saskatchewan has been converging on the low tax policies of its neighbours to the west after years of high taxation. In 2001 the province reduced personal income tax rates and raised the thresholds at which those rates kicked in. In 2006, the NDP government our letter-writer praises for their left-wing bent, took a leaf from the copy book of nasty neo-cons like Ralph Klein and Gordon Campbell and cut corporate taxes. And not by a little. The CIT rate went from 17% to 12% (i.e. dropped by about a third) and those particularly nasty corporate capital taxes were largely eliminated.

Next door in Alberta, the government launched a review of the royalty regime in the oil patch just at the moment of the collapse of prices. The certainty and good business climate the industry had enjoyed for years were badly damaged. Exploration and development activity has fallen sharply. Premier Wall of Saskatchewan went out and made it clear to the companies that his province was now open for business, and they have come in significant numbers to check out the new business climate. Ed Stelmach is celebrated in Saskatchewan as the province’s biggest supporter.

Other decisions are helping. The removal a few years ago of the restrictions on non-residents owning Saskatchewan farmland have increased investment in the province. A few minor changes to the interprovincial-trade deal throwing open cross border trade between BC and Alberta (the so-called TILMA), has made it possible for Saskatchewan to sign on in just the last few days.

As for the alleged superiority of the Crown corporation model in Saskatchewan, the evidence for this claim is poor as well. While the current government may have had to promise not to privatize on a large scale in order to minimize attacks by the province’s extremely well-organized, well-financed and vocal public sector trade unions, the evidence is poor that the Crown model has served Saskatchewan well. Just one example: the privatization of the Crown telephone service in next door Manitoba gave an excellent chance to compare the two models. The result:

Ten years after the Manitoba government devolved MTS, the results for company size and profitability are dramatic. Despite slight advantages to SaskTel early on, MTS today earns twice the revenue, has three times the assets and employs 20 per cent more people.

Since the telecommunications market is highly competitive and federally regulated, MTS could not have achieved such growth by gouging customers or providing a more inferior product. In fact, service levels in both provinces remain essentially similar according to a Frontier Centre analysis of prices, geographical coverage and numbers of customers served. Nonetheless, the differences between MTS and SaskTel are vast, and the only noticeable cause is their ownership model.

Saskatchewan has momentum, but it has absolutely nothing to do with the legacy of tired old policies of the past. Even the NDP was jettisoning those policies before they lost power, and the Saskatchewan Party is pushing in the same direction. Apparently the Globe’s letter-writer is one of the last Saskatchewan residents still yearning for policies abandoned even by the province’s social democrats.

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