Canada West Foundation Blog

As reflected by the results of the 2011 census, the creation of new House of Commons Seats and the ongoing news about the westward titling of the economy, it is clear that the nature of the Federation is shifting. The latest research from the Canada West Foundation looks at the consequences for the region and the country, now that the West is truly “in”.

Taking Stock of the Federation by Dr. Roger Gibbins, President & CEO and Robert Roach, VP, Research, is the synthesis report from a roundtable held on February 9, 2012 in Calgary. This roundtable gathered sixteen participants who provided their insights on the contemporary political landscape, the likely direction of future change, and the potential for strains within the federation across the four western provinces.

“Each region in Canada is vitally important,” notes Dr. Gibbins. “While differences between the regions have evolved, they are still key variables in both Canada’s political environment and the economy. For the federation to work well, we must ensure that all regions— including the West—are heard, understood, and integrated into the whole.”

While participants expressed a general sense of optimism about the region’s future, they also highlighted some significant challenges western Canadians will face in securing a new position within Canada and the global economy. By addressing issues like market access, sustainable environmental management, labour shortages and a fiscally unbalanced federal state, we can ensure that the future remains bright.

Taking Stock of the Federation is part of Foundation’s The West in Canada initiative, which examines public policy innovation in the West, discusses and recommends ways to improve the Canadian federation, and analyzes regional economic, demographic and public opinion trends. Click here for your copy of the report.

By: Robert Roach, VP, Research

In an article in today’s Globe and Mail, John Ibbitson argues that "One question will define national politics in our time: Are Western Canadians prepared to sacrifice for the sake of the nation, now that Ontario is less able to help?"

In addition to incorrectly implying that western Canadians chipping in to help the rest of the country is a new phenomenon, the question is the wrong one to ask.

The question Canadians should be focused on is how to ensure that the nation successfully adjusts to the evolving global economy. It is a mistake to start with a negative question that assumes the need for "sacrifice"—whatever that means—or puts pressure on the nation’s fault lines by immediately assuming that regional wealth redistribution is the solution to central Canada’s problems. This is the old way of thinking and this is not the time to bring it back.

The West knows what it is like to have its interests and economic prospects ignored and how damaging this is to the country and its potential. It will not, therefore, make the same mistake that central Canada has made in the past and be blithe to the blight of the other regions.

The West gets it—all regions benefit when all regions are heard and respected. The West will do its part, as it always has.

Ensuring Canada’s prosperity will happen naturally as the western economy continues to provide jobs and returns on investment. It will also happen at the political level through the equalization program, a strong tax base in the West that helps fill the national treasury, and by ongoing efforts by Canadians to ensure strong regional representation within the national government.

Ultimately, however, the economic recovery of Canada's industrial heartland will depend on the efforts of individual Canadians and their ability to harness the changes happening at a global level.

by Robert Roach, Senior Researcher and
Director of The West in Canada Project

Like Canadians in general, western Canadians tend to be uncomfortable when it comes to tooting their own horn. It is worthwhile, therefore, to take a moment and celebrate some of the incredible strengths possessed by the West as outlined in the latest edition of the Canada West Foundation’s “State of the West” report.

Western Canada is often described as a small economy. The way we talk, you would think the region’s economic output was on par with Estonia or some other tiny place (no offence to our Estonian friends, of course). In fact, if western Canada is placed on the list of the world’s largest national economies, it would be eighteenth (Canada is eleventh).

Western Canada’s economy is much smaller than, for example, the US or German economies, but it is hardly a bit player on the world stage. At well over half a trillion US dollars in 2008, western Canada’s economic output is nothing to snuff at.

Western Canada is also a major player when it comes to international trade. The West exported just over $180 billion US dollars worth of goods in 2008. This would place it twenty-sixth on the list of the world’s leading export countries (Canada is once again just out of the top ten in eleventh spot). We may not be the Sidney Crosbie of international trade, but we are still playing in the big league.

When it comes to the natural resources the global economy is hungry for, western Canada is home to some of the largest reserves and industries in the world. Alberta’s oil sands place it second only to Saudi Arabia’s oil reserves and Saskatchewan is one of the world’s largest suppliers of uranium and has the world’s largest reserve of potash (a key ingredient in the fertilizer that helps feed the world).

The region’s stock of human capital is also very impressive with over 1 in 5 western Canadians holding a university degree. When university and college education is combined, the western provinces have higher education levels than places like Germany, France, the UK, and Australia. BC’s education level is second only to Ontario’s and is higher than in both the US and Japan.

Western Canada is a magnet for international and domestic migrants. BC’s net international migration rate is more than double the average for the European Union. Between 1971 and 2008, 671,543 more people moved to the West from another part of Canada than left. Vancouver and Calgary appear on the Mercer ranking of the cities with the best quality of life and the urban West is growing at a nice pace.

Western Canada is a cosmopolitan, dynamic, growing, economically powerful and highly educated place. It is ideally situated as Canada’s gateway to the growing economies of Asia, it is blessed with abundant natural resources and it is a major driver of the Canadian economy and, increasingly, of the Canadian identity.

None of this is meant to gloss over the many challenges faced by the region. If the West is to take full advantage of its current assets, it has a lot of work to do. The global economy is getting more competitive, not less. Social challenges such as the high unemployment and low education levels that dog the West’s Aboriginal population and the constant need to innovate and step up our economic game remain critical concerns.

Nonetheless, it is worth stepping back from both the day-to-day and long-term challenges and celebrate our strengths. Too much modesty can result in missed opportunities. Western Canadians need to see that their region has the skills to compete in the big league and recognize the importance of honing those skills so they can continue to do so.

Download State of the West 2010.

Robert Roach is Senior Researcher and the Director of the Canada West Foundation’s The West in Canada Project. Canada West Foundation is the only think tank dedicated to being the objective, nonpartisan voice for issues of vital concern to Western Canadians.

by Robert Roach
Director of the West in Canada Project

A new Canada West Foundation report shows that regional discontent with the federal government continues to be a key feature of Canadian politics. It also shows that discontent exists in every part of the country, not just its traditional home base in the West.

Many lament this and pray for a day when everyone comes to their senses and toes the line put down by the government in Ottawa. This, of course, only works if you agree with the line Ottawa puts down.

For many years, Ontario residents saw a rough congruence with what Ottawa wanted and what they wanted. Ontario was Canada and Canada was Ontario (plus Quebec, but that’s a different story). This makes sense for Ontario was, and is, the province with the most voters, Canada’s largest city, the biggest economy and the ear of the federal government. Federal governments ignore Ontario at their peril.

Meanwhile, the West was seen by the centre as a series of provincial outposts that should report to head office and definitely not the other way around. When we got cranky, we were either ignored or, on occasion, punished. As a result, discontent with the federal government was a natural element of western Canadian political culture.

The recent Canada West Foundation study shows that western discontent has not gone away, but the election of a Prime Minister from the West has seen it go from a rolling boil to a nice calm simmer. A lot of this is perception rather than the result of a consistent pro-western program on the part of the federal Tories, but perception counts in politics.

Indeed, the perception that a gap has formed between Ottawa’s interests and Ontario’s interests has caused discontent to rise in Ontario in recent years. Because provincial premiers have cast themselves as the defenders of the provincial faith, Ontario’s Premier Dalton McGuinty has picked up on the perceived gap and used it to his advantage. After all, someone has to take the blame for Ontario’s newly minted “have-not” status.

While the swing in the regional discontent pendulum is interesting to note and helps explain the current woof and warp of federal-provincial relations in Canada, it points to a more important stone in the Canadian shoe. Namely, given that Canada is a land of diverse regions (and the better for it), shouldn’t there be a more effective means of addressing regional discontent than waiting for the Prime Minister to be from your region or for your Premier to huff and puff to the media about how unfair everything is?

Maybe, just maybe, we need a mechanism within the federal government that is a permanent and powerful means of expressing the full range of regional interests.

So what is that mechanism? Wait for it … the Senate! Please don’t stop reading and let me explain.

The lack of success at reforming the Canadian Senate has left the topic with the political equivalent of horrendous body odor. Everyone just wants to get away from it and hopes that it doesn’t show up again. This is extremely unfortunate because the much-maligned Senate can be given an overhaul and, once this is accomplished, it can make sure that regional interests are better represented within the national government.

This does not mean that regional discontent and regional winners and losers will go away. In a big country like Canada, you cannot please every region all of the time. Senate reform is not a panacea for all that ails Canadian democracy. But, surely, we can do a lot better than the goofy system and broken Senate that we rely on now?

So the next time the topic of Senate reform comes by, consider plugging your nose and calling for change. Canada’s regional diversity deserves it.

I recently received a notification from the Queen’s University Centre for the Study of Democracy that it is holding a Debate on Senate Reform. Overall, this is great. We need more debate on this issue—especially now that the Harper government has put Senate reform on the national agenda in a meaningful way for the first time since the Charlottetown Accord.

Nonetheless, and without being mean spirited, I can’t help but wonder about the representativeness of a debate between two Senators appointed by Paul Martin (one from Ontario and one from Nova Scotia), a Bloc MP (Quebec), and a NDP MP (Ontario). The four debaters, and especially Senator Hugh Segal, will no doubt have very interesting—and likely intensely partisan—perspectives on Senate reform. What’s missing is a voice from the West. Senate reform is NOT an exclusively western Canadian concern—it is vitally important to all parts of the country. But given the need for a reformed Senate to better represent the diversity of Canada and Canadians, a representative from the West would have been appropriate.

To avoid preaching to the choir (on either side), the Canada West Foundation and York University’s Centre for Public Policy and Law held a forum on Senate reform that brought together a wider range of perspectives on the Senate and Senate reform.

I commend the Centre for the Study of Democracy for dipping its toe into this issue, but perhaps their next debate could include a western perspective on an issue that has been near and dear to western Canada for decades (not to mention kept alive by it while it was largely ignored by the rest of the country).

***

CENTRE FOR THE STUDY OF DEMOCRACY, Queen’s University

DEBATE ON SENATE REFORM

May 25, 2010, noon to 1:30 PM, Wallace Hall, Queen’s University

Among Canadian democratic institutions, the Senate is arguably the most controversial and, for many Canadians, the least understood. With legislation to reform the Senate once again before Parliament, the Centre will be holding a debate to discuss what, if anything, is wrong with the Senate of Canada, whether it should be reformed and, if so, by what means.

Debaters: Senator Hugh Segal; Senator James S. Cowan; MP David Christopherson; MP Richard Nadeau.

Moderator: Journalist Jane Taber of CTVGlobeMedia.

The debate will be open to the public, will be broadcasted by CPAC and will be available online.

Get involved! Submit a question on Facebook.

Posted By: Robert Roach

A large, regional capital venture fund would provide bold investment, rich rewards - Edmonton Journal

Long before anyone associated the cities of Kyoto and Copenhagen with carbon emissions, Albertans were wrestling with the idea of how to diversify our economy beyond oil and gas. The price volatility and nonrenewable nature of our hydrocarbon resources has concerned us for decades. The current preoccupation with reducing greenhouse gas emissions only adds (no pun intended) fuel to this fire.

The problem is threefold: First, the oil and gas sector has been very, very good to the Alberta economy and provincial government coffers. Fortunes have been made, jobs and economic growth have been generated and an uneven, but very substantial flow of non-renewable natural resource revenue has kept provincial taxes low. Whether you like it or not, if you live in Alberta, you have benefited from the oil and gas sector (as have many Canadians who do not live in the province). It is hard to ignore the goose that lays the golden eggs.

Second, we are (and rightly so) hesitant to artificially inseminate economic diversification via government intervention in the economy. Several classic government boondoggles haunt our past and a general bent toward letting the market decide these issues mean that government-led diversification has real limits in the province. Hence, we have tended to focus on things like education and low taxes as catalysts of economic activity. This approach makes sense, but it does not appear to be enough when it comes to true economic diversification.

Third, it is not particularly easy to design and implement effective economic diversification initiatives. The diversification puzzle is a tough one to solve.

So what do we do? Two key things spring to mind — one involves a change of mindset and the other requires putting some money where our mouth is.

With regard to the change of mindset, we have to break the headlock that the oil and gas economy has on our thinking. This does not mean that we abandon the oil and gas sector! But we have to pretend, as a thought experiment, that it doesn’t exist.

This will force us to think through the advantages and assets that remain in play in Alberta and how they could be harnessed to alternative economic activity.

If we keep saying things like “oil and gas are our bread and butter so let’s stick with what we know best,” new thinking will never get the attention it deserves.

In terms of a practical policy initiative, the government of Alberta should team up with the other western provinces and create a large pan-western venture capital fund managed by an arm’s-length private-sector firm dedicated to inexpensive financing for startups and commercialization ventures. The existing Alberta Ingenuity Fund, Alberta Heritage Foundation for Medical Research and Alberta Enterprise Corporation are a good start, but it is time to inject steroids into these sorts of initiatives and to work together with our neighbours in the region.

This is not, by the way, about picking winners or subsidizing businesses, but about backstopping lots of cheap venture capital for use by entrepreneurs based in the region. As such, governments and taxpayers must be willing to accept significant losses due to the inherently risky nature of startups and new product development.

Taxpayers do not much like it when a government-backed business venture goes bust or a research project that used public funds concludes by saying, “Well, that didn’t work.”

But this is exactly what we need to get used to if greater diversification is to take root.

If we are too timid, diversification will not happen.

Why a regional approach rather than one confined to just Alberta? A regional approach significantly expands the size of the field of play without introducing the complexities of a pan-Canadian approach and it increases the variety of ideas that will come seeking capital.

Just as we need to accept that failure is part of encouraging diversification, we need to get comfortable with the idea that focusing solely on Alberta is too narrow to get the job done.

It is important to keep in mind here that providing the foundation for economic activity is the primary economic role of government, not the direct promotion of economic diversification.

A highly educated, mobile and creative workforce, an efficient tax regime, superb management of our natural capital assets and a large stock of modern infrastructure should top the list of government’s priorities.

Nonetheless, there is a major role for government here, and a large regional venture capital fund could go a long way to cracking the economic diversification nut.

Posted By: Robert Roach

Joint Cabinet Meetings: A Brief History

Western Canada started a trend back in 2003 when BC and Alberta held the first joint Cabinet meeting in Canadian history. Since that time, there have been 10 more joint Cabinet meetings in the West including ones between Alberta and Saskatchewan and the first tri-lateral joint Cabinet meeting in Canadian history between BC, Alberta and Saskatchewan in March 2009 (the three provinces met again on March 13, 2010). Manitoba joined the club when its Cabinet met with Saskatchewan’s in Yorkton on February 2 of this year. Ontario and Quebec had their first joint meeting back in June 2008.

So what?

You may be asking yourself, “so what?” The answer is two-fold: the meetings are important on a symbolic level and they lead to better public policy through cooperation.

Canadians Want Cooperation

When the Canada West Foundation is out talking with Canadians, it is clear that people expect their governments to be working together as much as possible. In a survey conducted by the Canada West Foundation a few years ago, 73% of western Canadians said that cooperation leads to better program delivery. Citizens don’t get bogged down in jurisdictional turf; they expect interprovincial cooperation to be the norm. What they often don’t realize is that cooperation among provincial governments—is not quite as easy as it may seem.

Cooperation Flows Down, Not Up

Cooperation requires time, personal connections, agreement on priorities, shared ideology and many other concrete and abstract factors. Getting these ducks in a row does not happen automatically or quickly. Perhaps most importantly, it requires a clear mandate from the top.  Hence the importance of the bigwigs in Cabinet meeting with each other and promoting more cooperation. This is the signal needed by the worker bees who are charged with implementing cooperative policies.

From Symbolism to Action

The joint meetings are also notable because they have been more than just “expensive photo ops” as former Saskatchewan Premier Lorne Calvert called them. For example, the meetings between BC and Alberta set the stage for the groundbreaking Trade, Investment and Labour Mobility Agreement between BC and Alberta and the recent joint Cabinet meeting between Saskatchewan and Manitoba resulted in an agreement to examine how to add 150 megawatts of electrical transmission capacity.

Interprovincial cooperation is not the answer to everything, but anytime the western provinces can capitalize on their shared history, geography, needs and interests by cooperating, there are bound to be benefits in terms of the cost and quality of public policy.

As governments become more familiar with cooperation and learn how to best use these opportunities to collaborate, we are likely to see momentum created that will result in better policy development in the future.

Posted By: Robert Roach

This is the third installment of a series of posts on reinvigorating western Canada’s drive toward increased international economic competitiveness. The recession distracted us from this task but it is time to return to sharpening our competitive edge.

While it is naïve to think that opportunities in the green economy will magically transform western Canada into a land of elves making hacky sacks out of hemp for the international market, it is equally naïve to ignore the advantages of getting greener. The green economy is not a panacea. We should not, for example, expect green jobs to automatically fill the void that would be created if climate policy hammers the oil and gas sector.

It is also important to note that getting greener is not just about reducing greenhouse gases.  There are many other environmental opportunities and challenges out there other than climate change.

The West is home to one of the greatest stores of natural capital in the world. From the northern lights and diamonds to the boreal forest, from vast stores of oil and gas to the eastern slopes of the Rockies and the lakes of Manitoba, western Canada overflows with natural beauty, natural resources, and is home to an array of ecological “goods and services.” Harvesting this bounty as well as maintaining it are at the core of the region’s comparative advantage and its quality of life.

There is growing awareness that economic competitiveness and environmental issues are becoming linked in three key ways: 1) jurisdictions that do not take action on environmental issues, such as reducing greenhouse gas emissions, may be penalized by a global marketplace and policy space that are increasingly demanding greener processes and products; 2) there are significant direct and indirect economic costs created by degrading a jurisdiction’s natural capital (e.g., if the water supply becomes contaminated); and 3) there are opportunities to participate in new markets for green products and services, and to save money through less wasteful production systems (“eco-efficiency”). In addition, there are quality of life factors that argue in favour of greener practices that, while of value on their own, also play a role in attracting and retaining skilled labour and investment.

Conversely, it is sometimes argued that jurisdictions that do not adhere to greener practices have the advantage over those that adopt the new approaches. For example, if country X requires a reduction of greenhouse gases that adds to the price of a particular product and country Y does not, country Y has the upper hand in terms of price. While this may be true in the short-term, it is imperative that decision-makers consider the long-term and hidden costs of various policy alternatives, and that businesses adapt now to a higher standard of environmental performance rather than wait and play catch-up down the road.

Managing forest and water resources, reducing greenhouse gases, maintaining agricultural land, addressing conflicting land uses, and improving urban natural capital assets are just a sample of policy areas that have ramifications on competitiveness. An even tighter linkage between “the environment” and “the economy” than is currently in place is essential to the long-term economic success of the region.

Two policy recommendations come to mind:

1. Increase investment in the development of alternative energy production technology and generation.  The West can be a global leader in energy of all types.
2. Develop and implement a comprehensive regional ecological goods and services inventory and introduce pilot projects for paying land owners to provide those services with the goal of increasing the region’s stock of natural capital. There is much that the West can learn here from experiments with market-based incentives for environmental outcomes from Australia.

Posted By: Robert Roach

Deficits are the new normal
With a new federal budget due March 4, one wonders how we got into this pickle: a federal deficit of over $50 billion and deficits for at least the next five years? How did deficits become the new normal when the last one was in 1997?

A structural deficit
The Finance Minister says he can balance the books without raising taxes by the 2015/16 fiscal year, but Parliament’s Budget Officer Kevin Page warns that we are facing a structural deficit of close to $20 billion by 2013/14 that will not go away without tax increases. When the optimistic scenario is a string of five more deficits, something has gone terribly wrong.

What happened?
Obviously, the recession is a big factor, but this does not fully explain the lingering nature of the deficit problem. Several other factors are at work. First, the post-recession economy is expected (though no one really knows for sure) to be less robust than it was before we knew what a subprime mortgage was. Second, Page argues that past tax cuts (e.g., the two points shaved off the GST) and an aging population will suppress future federal revenue flows. The implication is that taxes need to go up or spending needs to go down.

Flaherty and Harper disagree
Flaherty disagrees and says that we don’t have a structural deficit. He is confident that economic growth combined with a little belt tightening will get rid of the deficit in due time. The Prime Minister recently promised to eliminate the deficit without raising taxes. This is going to be tricky.

What do you cut?
If the economy does not grow as fast as Flaherty hopes, something will have to give or the large structural deficits the Budget Office is worried about will come to pass. If deep cuts become necessary, the political crap will really hit the fan. Who is going to tell the provinces that their transfers will be going down instead of up, or seniors on fixed incomes that their Old Age Security cheques are going to shrink or the homeless to keep hanging for a few more years? If it comes to big cuts, there will be big repercussions.

At the same time, raising taxes is about as popular as the seal hunt. You can do it, but there will be a lot of outrage.

A tight political spot
This puts the federal government in a very tight spot. The current plan seems to be to cross our fingers and wish for strong economic growth. If the recent recession teaches us nothing else, it should be that wishful thinking about economic growth is a bad strategy. Let’s hope that Flaherty has a plan B and is not caught off guard if the feared structural deficit does indeed surface.

Parliament’s Budget Office Report can be found here.

Posted By: Robert Roach

The most recent figures from Statistics Canada (2007) show that Albertans sent $19.6 billion more to Ottawa in taxes than they received back in federal spending in the province. Ontarians sent $21.4 billion more than they got back and British Columbians contributed $5.8 billion.

On a per capita basis, this translates into $5,573 per Albertan, $1,672 per Ontarian and $1,355 per British Columbian.

The rest of the provinces were net recipients of federal dollars. In the West, Manitoba netted $4.1 billion ($3,449 per capita) and Saskatchewan came out $1.4 billion ahead ($1,427 per capita).

Some agree with this transfer of wealth and others do not. Some see it as an unfair price for a province like Alberta to pay to be in Confederation while others see it a legitimate redistribution of wealth that helps knit the country together. Either way, the basic message stands: Canada relies on regions that are doing relatively well to help out those that are not doing as well.

This highlights the interconnectedness of the country. For example, if the economies of Ontario, Alberta or BC suffer, all Canadians suffer. It is not as simple as saying “that’s Alberta’s problem” or “too bad for Ontario, but it doesn’t affect me.” This doesn’t mean that we shouldn’t address climate change, but it should cause pause for thought if climate change policy will hamstring the Alberta economy as this would eliminate a lot of the federal dollars that get spread around the country.

An in-depth discussion of the importance of the western Canadian economy to the national economy and the region’s fiscal contribution to Confederation is currently being prepared by the Canada West Foundation and will be published by the end of January. Watch this space for more information.

Posted By: Rob Roach