Canada West Foundation Blog

By: Robbie Rolfe

I sometimes find myself getting weary of ideologues on environmental issues. One argument I find particularly tiresome is the insistence that there are significant tradeoffs when it comes to the economy and the environment. The conclusion of these extreme viewpoints is that we can be prosperous polluters or penniless hippies. Apparently, there is no middle ground.

These zero-sum views neglect market-based instruments (MBIs for short) that can make us both prosperous and green. The careful deployment of MBIs can address a major difficulty facing governments trying to encourage good environmental practices: people and businesses will not provide enough ecological goods and services because the costs of providing them accrue to individual persons or businesses while the benefits are enjoyed by the wider community. An MBI is a mechanism that shares the costs of environmental protection among its many beneficiaries.

Take a farmer who is nearing retirement and needs cash. If he sells his farm to a developer, he gets the money he needs. If he holds onto the land to ensure that it continues to provide a nearby city’s water system with valuable natural filtration, he takes a direct financial hit. There are significant tradeoffs in that situation: the farmer gives up some of his livelihood to maintain ecological benefits or gives up ecological benefits to enhance his livelihood. An MBI could pay the farmer for the ecological goods and services his land provides. To ensure a fair price, the amount the farmer gets could be set by a market, or at least market-like mechanisms. Taxpayers living in the city who benefit from the natural filtration on the farmer’s land could fund the MBI through their taxes, thereby sharing in the costs associated with the benefits they receive.

The good news is that these kinds of policies are increasingly under consideration in western Canada. The Alberta Land Stewardship Act, for example, urges the use of market-based instruments on a regional or local level to better provide ecological goods and services, particularly when it comes to land use and land management.

Though market-based instruments show great potential, we are only beginning to explore their varied applications. If we can tap that potential, then one day we may be able to have our cake and eat it too.

MBIs are explored in detail in a new Canada West Foundation report entitled The Invisible Hand’s Green Thumb: Market-based Instruments for Environmental Protection in Alberta. To download the report, click here. 

By: Dr. Roslyn Kunin

For many Canadians, there never seems to be enough time in the day. Taking the long view, time stretches to infinity, but, within the scope of our lives, it is much more limited. It has no substitutes and it cannot be re-used or recycled.

Lack of time is the excuse we give for not doing all the things we would like to do or that we have to do. We each have only 24 hours in a day and, like land, they aren’t making any more of it. Unlike land, unfortunately, you can’t buy it.

We can, however, make much more effective use of the time that we do have, both in our personal and our working lives.  There are lots of suggestions for making better use of time at the individual level, but it is in our collective working lives that the inefficient use of time is doing us the most harm. Not a lot is being said about this and less is being done, it seems.

Productivity is the measure that is used to determine how effective we are in our working lives. There are many yardsticks of productivity, but the most basic one is output per hour worked.

By this measure, Canadian productivity has been lower than that of the United
States, our biggest trading partner, for at least the last three decades. What’s more, the gap is widening. Although productivity has been rising in Canada, it has been creeping up at a rate of about 1% per year for the last decade. Meanwhile, in the United States, productivity has been charging ahead around double the Canadian rate.

Why is it so important for Canadians to be churning out the greatest amount of goods and services each hour that we work? Because the wages we earn and our standard of living depend upon it. No one can afford to pay anyone more than the value of what it is they produce. If our output is just creeping upward, our incomes and our standard of living can do no better.

And how do we improve our productivity to make better use of the working hours that we put in? We make use of a resource that is widely available and often underused—our brainpower. We have the smarts to develop, adapt and implement the technology and systems that will allow us to become more productive and prosperous.

Now all we need to do is to find the time.

By: Michael Holden

Just in time for Christmas, the federal government has announced a new funding plan for health care. The present funding agreement, in which federal cash transfers to the provinces and territories grow by 6% per year, is set to expire in 2013-2014. The new ten-year plan will see that 6% annual escalator maintained through to 2016-2017. Thereafter, federal cash transfers for health care will be tied to annual growth in nominal (i.e., not adjusted for inflation) economic output, with a floor provision that guarantees a minimum increase of 3% per year, regardless of how well the economy actually does.

This unilateral announcement caught many people off guard. Federal-provincial transfers have always been a sensitive and nuanced subject and new funding agreements typically come only after extensive, public, and often bitter negotiations between Ottawa and the provinces. Many people were just beginning to get geared up for the next round of talks, which now appear to have been cut off at the pass.

Reaction across the provinces to the new arrangement has been mixed. Alberta is strongly supportive, for reasons that I will discuss below, while BC and Saskatchewan are also largely in favour. In the rest of Canada, however, the backlash has been harsh. It being the Christmas season, “lump of coal” metaphors abound.

This backlash is rooted in the interpretation of a Conservative Party campaign promise during the last election; several provinces had expected the 6% escalator to be maintained over the entirety of the new funding arrangement. Tying federal transfers to economic output will almost certainly result in slower growth in health transfers beginning in 2017-2018.

How much slower is anyone’s guess at this point. However, historical data suggest that nominal economic growth in Canada has actually been quite consistent over the long term, averaging 4.2% over the past 10 years, 4.7% over the past 15 years and 4.5% over the past 20 years. Assuming growth at the low end of that range (4.2%) over the duration of the new plan, total federal health transfers to the provinces can be expected to increase from about $30 billion in 2013-2014 to about $47.7 billion in 2023-2024. Had the 6% escalator remained in place, transfers would have reached $53.7 billion.

As I hinted at above, Alberta is the clear winner under this new funding arrangement. One of the less-publicized changes it will bring is that cash transfers for health care will be distributed across the provinces on an equal-per-capita basis. At present, this is not the case. The history and complexities of federal transfers are too complicated to get into here, but the end result is that wealthy provinces (with strong tax bases) currently receive less cash per person from the federal government for health care than poorer provinces. Since Alberta is by far the wealthiest, it receives far less on a per-capita basis than the other provinces.

When the new funding arrangement comes into effect, there will be a large increase in per-capita cash transfers to Alberta in order for it to reach the same level as the other provinces. This change is bound to be controversial. Alberta is already the richest province in Canada. For it to receive a perceived “windfall” of cash may not sit well with some provinces, especially since the increase in payments to Alberta will, by definition, come at the expense of increases to other provinces (because all funds come out of a fixed pool).

One thing is for certain; after a few quiet years, fiscal federalism and issues about federal-provincial transfers suddenly are back in the public policy spotlight. We will be writing more on these subjects in the months ahead.

By: Dr. Roger Gibbins

Throughout 2011, Canadians took comfort in the fact that as the world around them seemed to go to hell in a hand basket, life was pretty good here at home. Although the Canadian economy sagged a bit, it held up well by comparison with our major trading partners. Stock markets rebounded, employment did not plummet, and across western Canada there was real economic growth and widespread prosperity.

Unlike the political deadlock and acrimony that has become increasingly characteristic of political life south of the border, Canadian governments enjoyed reasonably strong electoral support and, for better or for worse, we have been freed from the paralysis of minority governments in Ottawa. All in all, 2011 goes down as a pretty good year for Canada admidst a general international environment of uncertainty and unease.

Nonetheless, it is difficult to look forward to 2012 with anything close to unbridled optimism. Economic and political conditions in the United States, still our major market for virtually anything we produce, are unlikely to improve as Americans lurch toward the November elections. Economic conditions in Europe remain grave. Closer to home, western Canadians face huge challenges in moving resource assets to new international markets while at the same time, American markets are soft and/or overflowing with conventional Canadian products such as natural gas.

So often western Canadians believe that we have the resources the world needs, and assume the world will beat a path to our doors. Quite understandably, resource wealth breeds complacency. Increasingly, however, we realize that we will have to do much of the beating, that our competitors are many and often better positioned geographically, and that the barriers to international market access are challenging in the extreme. Being resource rich in the absence of markets is not a recipe for sustainable prosperity.

In 2012, Canadians from across the country will also have to come to grips with growing regional imbalances within the national economy, and how these play out through the frameworks of fiscal federalism and in a period of growing financial constraints for all governments—federal, provincial and municipal. On balance, western Canadians are doing very well, but how do we reconcile regional prosperity here with more disadvantaged regions of the country? How do we ensure that regional economic strength is encouraged as a national asset, and not seen as a target?

None of this means that Canadians should be fearful when looking ahead to 2012. At the same time, we will face some truly intimidating policy and political challenges as we try to re-jig the Canadian federal system and national economy to meet unstable and rapidly changing global conditions. The upcoming year will not be a time for the faint of heart, or a time for complacency. But then, to quote the last words of Australian bushwhacker Ned Kelly as he stood on the scaffold, such is life. Or, in the more current vernacular, bring it on!

On behalf of the Foundation, I would like to wish you all the best for the holidays. Thank you for your engagement over the past year. As 2012 approaches, we look forward to continuing our work as the only think tank dedicated to being the objective, nonpartisan voice for issues of vital concern to western Canadians.

By: Roslyn Kunin

Any reporter knows that if you can get the answers to six questions, you have a story. The questions are Who? What? Where? When? Why? And How?

The biggest economic story that is likely to affect all parts of Canada as we move out of 2011 and into 2012 is not within Canada. Nor is it in Asia, the source of much of global economic growth. It is not in Africa which we should be starting to watch as that continent begins to exhibit growth patterns similar to those in China and India of a few decades ago.

The story concerns the very precarious financial situation in Europe and the on-going, increasingly desperate attempts to ameliorate things or at least generate enough stability to avoid conditions becoming any worse.

So far, we have answered the “what” and the “where” questions. The “when” is now. The “why” is generating growing concern among both political and business leaders and informed citizens. Failure to put Europe back on a secure financial footing could spell the end of the euro as a widespread and growing common currency. It could threaten the European common market and the resulting free trade and mobility. The simple uncertainty of the situation could generate economic retraction in Europe, which could then spread to the rest of the world.

This has led the political leaders in Europe to earnestly seek out “how” to avoid these dire consequences. Greece and Italy have positioned unelected technocrats as heads of their governments, hoping they will be able to find and implement the tough answers needed.

An almost continuous series of summit meetings has been held, featuring Nicolas Sarkozy of France and Angela Merkel of Germany, each meeting seeming to lead only to the next summit meeting. The latest meeting did result in some more specific proposals, including a tax on financial transactions.

Already Britain and others in Europe are stepping back from this potential solution. Nevertheless, the situation is serious enough that this proposal just might work. Merkel has already stated progress could be made even if not all countries choose to participate.

However, there is still one very important unanswered question. The current proposal, and indeed any solution, will involve imposing fiscal and monetary requirements on individual countries. Rules will be set and penalties specified for breaking those rules. The big remaining question is “who” will apply and enforce these rules and penalties?

Europe and the euro zone have always had rules. They were often broken. If previously established deficit limits had been adhered to, Europe would not be in its current mess. So putting in place more rules that will intrude even more deeply into national sovereignty and expecting them to work requires a leap of faith. Unless, and until, there is an agreed upon body with both power and widespread consensual support, an effective solution to the European problem will remain elusive.

By: Larissa Sommerfeld

In Canada, we often think within our respective provincial/territorial bubbles, but it’s important to create public policy on a regional basis.

Take the case of the Northwest Territories (NWT) and its recently developed water stewardship strategy, Northern Voices, Northern Waters. Published in 2010, this strategy is lauded due to the fact that the NWT government engaged and collaborated with citizens, introduced an eco-system approach to governance and defined water as a human right.

One of the main obstacles to success of the strategy, however, is what neighbouring jurisdictions, such as British Columbia and Alberta, do or don’t do in terms of water policy.

The NWT is almost entirely enclosed with the Mackenzie River Basin—a massive watershed that contains 20% of Canada’s landmass and also includes parts of Yukon, British Columbia, Alberta and Saskatchewan. While borders separate governance, they do not separate the flow of water. What happens downstream will affect water quality or quantity upstream. And upstream in this case goes all the way north to the Beaufort Sea.

The real test for the NWT will come in implementing the strategy. And that’s where things get tricky.

For instance, take the obvious example of Alberta’s oil sands. Long criticized for affecting both water quality (pollution and altered water temperature) and quantity (altered in-stream flow needs), those in the NWT assert that Alberta needs to continue to work toward sustainable development to ensure that those who rely on a clean and stable water supply upstream aren’t unduly affected.

This isn’t to say that the NWT isn’t dealing with similar issues within its own borders. The point, however, is that activity outside of those borders requires intergovernmental discussion and coordination because governments have different goals, different solutions and different opinions.

Last week, the Canada West Foundation and the Forum for Leadership on Water (FLOW) co-hosted two events held in Edmonton and Calgary which were part of water expert Bob Sandford‘s 15 city cross-country speaking tour titled “Northern Voices, Southern Choices” on this very topic.

One of the key themes that emerged from both discussions was the need for a Canadian water strategy—a strategy that would get provincial and territorial governments on the same page so that strategies like “Northern Voices” would have a greater chance of being successfully implemented.

What do you think? Does Canada need a national water strategy? Should we be thinking about other provinces or territories when developing our water policies, or should we just focus on our own jurisdiction? Can southern choices truly silence northern voices?

These aren’t easy questions to answer. But, in the end, we’re all downstream from someone.

For more on Bob Sandford’s presentation and thought-pieces on this issue, check out FLOW’s website at www.flowcanada.org.

By: Roslyn Kunin

It sounded really good when US President Barack Obama spoke in Hawaii after meeting with Canada’s Prime Minister Stephen Harper: his talk centered on an expanded trans-Pacific trade agreement which would significantly increase trade and, in turn, create jobs and generate economic growth.

Canadians should be delighted at this chance to expand trade. We are twice as dependent on international trade as the US.  But the greatest part of that trade is with the US. In western Canada, we have survived the recent economic uncertainties better than much of the rest of the continent, in part because our trade with the Asia Pacific region has been growing. For the first time ever, BC wood exports to Asia have exceeded those to the US.

So it would appear to be a no-brainer that Canada should be jumping at the chance to sell more to the fast growing markets in Asia and not have our foreign trade sector held hostage to the weak and wavering conditions in the US. But, according to Finance Minister, Jim Flaherty, we have to pay attention to details before we move ahead.

What are those details? They are the Canadian monopolies on things like eggs and dairy products that we call “marketing boards”. These boards were put in place to appease the relatively small number of producers of these products by guaranteeing them protected markets for milk and other basic foods. All other Canadians pay for this program dearly in the form of notably higher prices for these groceries. How much higher? Enough to make it worthwhile for those who live close to the US border to pick up their eggs, milk and other dairy products on the south side of the Canada-US border. In fact, Canadians in US border towns are called “cheeseheads” after one of their common purchases.

Not only do the marketing boards increase the cost of living for Canadians, they are also a serious trade barrier. They have been and remain a major deterrent to expanding Canada’s trade opportunities in Asia and elsewhere. So it should be a big win-win to get rid of them. At a time of rising food costs, we would all see the amount on our grocery bills drop while our markets for goods and services abroad would expand and jobs would increase.

Even the protected producers could benefit in the long-run. Once they have lost their monopoly, they are smart enough to figure out not only how to be sufficiently productive to survive in the Canadian market, but also how to compete in markets abroad. We saw this happen in New Zealand when their previously protected food producers were exposed to the winds of competition. The quantity and quality of the output went up, the prices went down and markets and profits expanded. Canadian producers will do, at least, as well.

By: Dr. Roslyn Kunin

Over the years, I have spoken with many people who were planning on starting their own business. They told me about the great product or service they would offer. They described how they would set up the business. They all told me how much money they hoped to be making once the business got rolling.

What they never mentioned, until they were prompted, were customers. That basic business need, someone willing and able to pay for the good or service provided was, if not totally missing from the mental image of the new business, certainly not in the foreground.

We should not be too hard on these aspiring entrepreneurs for not thinking about who was going to buy their output. For a very long time, governments, policymakers, planners and others interested in economic development did the same thing. Some still do so.

Take western Canada as an example. When we think about advancing our economy, we think about inputs. These include our resources and how we can access and develop them. They include infrastructure; transportation, communication, etc. They definitely include human capital—a workforce with both hard and soft skills and, ideally, some relevant experience.

We think about what we might produce. In the past, the focus has been around the question of how the West can move up the food chain beyond its traditional, resource-based industries and into manufacturing and the newer technologies.

What we have not been thinking about is customers. Who is going to want whatever it is we are or might be producing? For too long, we have had an “if you build it, they will come” attitude. But that only happens in the movies.

Relative to much of the rest of the world, western Canada is blessed with various essential resources, an educated labour force, decent infrastructure and political stability. But we are seriously limited by our lack of customers. We have been, and still are, far too dependent on one customer—the United States.

If you have only one customer, the US is a good one to have. It is close, big, speaks English and has similar laws and customs. But it exposes you to the risk of having all your eggs in one basket. We learned this to our sorrow in the last downturn.

To advance western Canada, we need more customers, and those potential customers are sitting across the Pacific and beginning to creep into our awareness. They want, need and can afford the resources and high level services that we can provide.

So let us adjust our focus to look west as well as south. Let us develop the pipelines and other infrastructure needed to serve new markets. Let us develop and add to our customer base. That is how businesses and economies grow.

By: Larissa Sommerfeld, Policy Analyst 

The Okanagan Valley. For many, these two words can conjure up an image of green orchards filled with fruit, endless vineyards and an idyllic landscape.

When driving through or flying over the Okanagan, the scale of the four major lakes that sit in the middle of the valley are breathtaking. It’s almost unexpected that there would be so much water inland, and in such a dry part of Canada.

But although everything seems to be going well on the surface, there is a growing wave of concern among decision-makers in the Valley.

Increasing population and development are putting new pressures on the Okanagan’s water resources. More people are demanding water, but the supply is fixed—a supply facing its own challenges due to climate change, invasive species such as milfoil (aquatic weeds) and mysis shrimp and increasing amounts of contamination from pesticides and livestock.

Many people in the Valley’s twelve municipalities, three regional districts and four First Nations bands rely on tourism and agriculture for their bread and butter. Ensuring that the water needs of these sectors are met is essential to maintaining a vibrant Okanagan economy. But can all the demands be met? Should some individuals or sectors make sacrifices? And who should make these prickly decisions?

Given these pressures, many are questioning the way water is currently allocated, priced and monitored. For example, there are no permits or regulations protecting groundwater in the province of British Columbia. This is likely to change in the coming year: next fall, the provincial government is expected to put forth new legislation that will amend the province’s one hundred year old Water Act.

One thing is certain: water management in the Okanagan Valley needs to change in order to satisfy the demand of a complicated array of stakeholders and to sustain the local economy. How this will come about is yet to be seen. It’ll be interesting to follow along and see what changes in the next year—BC might set an example for the rest of Canada, or they might not. Only time will tell.

A new publication released by the Canada West Foundation illustrates Canada’s current energy reality and highlights opportunities for a bright energy future.

Catching a Rising Tide: A Western Energy Vision for Canada by Sheila O’Brien and Shawna Ritchie, draws from one-on-one conversations with 50 leading western Canadian experts in energy and the environment who share their vision for energy. Energy has been an important centerpiece in public policy discussions for the last half-century, conversations which are now part of a global debate.

“Western Canada has expertise in the production of various energy resources, but we have also had to address the need for sustainable and responsible development and the reality of unequal resource distribution—making our energy reality a microcosm of global energy production,” notes authors O’Brien and Ritchie. “This gives western Canada’s vision for energy particular importance in national discussions about where energy should and could go in the future.”

Canada has the opportunity to become a supplier of choice for energy products, services and expertise, supported by environmental and social records that define our values as a nation and give us a stronger voice internationally. However, achieving this vision will be a challenge for all Canadians regardless of where they live. As the Foundation’s President and CEO, Dr. Roger Gibbins explains, Catching a Rising Tide, “provides a model for western Canadian thought leadership on the big national policy issues of the day, setting out creative options rather than narrow prescriptions.”

To purchase a copy of Catching a Rising Tide: A Western Energy Vision for Canada, click here.