Fraser Forum

Nova Scotia needs much more private-sector investment

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Nova Scotia needs much more private-sector investment

When looking at the Nova Scotia economy, there are essentially two sectors of activity—government (municipal, provincial and federal) and the private sector. Government funds itself by drawing resources from the private sector. Given this relationship, the state of the private sector should concern all Nova Scotians, even those preferring much larger government.

Atlantic Canadians have long suffered from a prosperity gap with the rest of Canada. In the decade leading up to the pandemic (2010 to 2019), income in the Atlantic provinces (as measured by per-person GDP) was just 86 per cent of the rest of the country. In simple terms, this means we have lower living standards than the rest of the country and improving the private sector is key to closing this gap.

Unfortunately, according to recent research published by the Fraser Institute, across measures of business investment, private-sector employment and small business startups (i.e. entrepreneurship), Nova Scotia underperforms most of the rest of Canada.

Consider private-sector investment, which finances the new factories, machinery and equipment, and research and development that ultimately make workers more productive and improve living standards. Unfortunately, compared to the rest of the country, private-sector businesses are not investing in Nova Scotia. In 2019 (the latest year of non-pandemic influenced data), private-sector investment per worker in Nova Scotia was just $11,300—the lowest level in the country and 47 per cent below the national average.

Other key measures tell a similar story. The province ranked seventh (of 10 provinces) on the rate of new business creation and sixth in the share of employees who work in the private sector rather than the government sector.

In fact, the only category Nova Scotia does not rank in the bottom half of provinces (ranking 5th) is venture capital per person, a measure of private-sector investment in startups and early-stage businesses (although the level of investment was less than half that of the leading provinces British Columbia, Ontario and Quebec).

One consequence of the relatively weak state of the private sector is that Nova Scotia has the largest government sector in Canada. Government spending (federal, provincial and local government) represented 60.2 per cent of the provincial economy in 2019, nearly 20 percentage points above the national average. Simply put, government dominates the Nova Scotia.

Most Nova Scotians want the province to become more prosperous, more independent, with higher incomes and improved living standards. To achieve this, it’s crucial to have a strong private sector creating wealth in contrast to the government sector, which redistributes it.

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