Does Canada need its own “Monterrey Consensus” for what might be called inter-provincial aid?

The Monterrey Consensus represents a new understanding about foreign aid among the big donor nations. These nations have grown tired of throwing their money at international development, with little apparent result. At conference last month in Monterrey, Mexico, they agreed to increase aid to nations where it will do good. These are nations that have gotten their own economic houses in order.

This consensus arises out of an impressive amount of new research. This research shows that nations are masters of their own fate. Nations that have created good policy environments – limited government, trade openness, and market-oriented reforms – produce better lives for their people, with or without foreign aid.

But, the research also shows that foreign aid to these nations produces startling positive results, a double your money situation. Each foreign aid dollar to a “good” nation can produce another dollar of economic activity.

That’s the mirror image of aid given to “bad” policy nations – those with centrally-planned, government-dominated economies. Foreign aid actually harms people in these nations. The research shows that aid to such nations is captured by the ruling clique and used to put off reform, suppress political activity, and reward Swiss-bank-account cronies.

Canada has world’s most generous “internal” aid system. The only thing comparable that I have been able to find is the relationship between France and Corsica. France makes huge fiscal transfers to Corsica, though not to other regions.

Unfortunately, the Atlantic Provinces – the biggest recipients on a per capital basis of “inter-provincial” aid – have typically used federal money to put off reform, reward government cronies and politicize the economy. That’s why Atlantic Canada has fallen behind other once lagging regions in the United States, Europe and Japan, which do not receive such a generous package of “internal” aid.

If good policies were rewarded in Canada, New Brunswick would be a big beneficiary. New Brunswick was the first Atlantic Province to get its fiscal house in order, a now established tradition, one reflected in last month’s provincial budget – albeit with some unexpected federal help.

New Brunswick was also the first to professionalize and depoliticize its civil service, something that dates back to Louis Robichaud’s premiership in the 1960s.

The province also has the strongest emphasis on worthy infrastructure investment. Premier Frank McKenna focused on twinning New Brunswick’s major highways – something with large economic payoffs – rather than on highway projects for politically important areas, something with big political payoffs but negative economic results.

A regional aid program that emphasized good policy makes good national sense. As the New Brunswick economy improves, the province requires smaller transfers from the rest of the nation. Good policy helps New Brunswick and saves Ottawa money.

Newfoundland would be the big loser. Its political interference in the economy is huge, disturbing, and frightens off potential investors. Striking examples are the province’s veto of a nickel mine in Labrador unless a smelting plant is built which would simply steal jobs from Ontario. Newfoundland also blocked investment from Fishery Products International, which would have converted part-time jobs into full-time jobs, and reduced Employment Insurance payments to Newfoundland.

Such activities destroy jobs, lower economic activity, reduce tax revenue, and discourage new investment. This costs the rest of Canada money by boosting federal payouts to Newfoundland. When politicians are more concerned about their own revenues than the welfare of their people, the current system actually sustains bad policy.

The idea of a Monterrey Consensus in Canada would not be to penalize bad policy provinces but rather to encourage them to adopt good policies that will improve the lives of their citizens.

This won’t happen anytime soon. Ottawa is one of the worst “bad” policy offenders. Who would police “good” policy in Canada.

In any event, it’s easy to imagine a premier – who wants Ottawa’s money regardless – echoing Castro’s words at the Monterrey conference. “The masters of the world … intend that we accept humiliating, conditioned and interfering alms.”