Cheer up, western prosperity will return

As everyone from the Manitoba-Ontario border to Tofino knows, the local and provincial economies, which depend on resource extraction, have slowed.

So this is a critical time to get some perspective on the past. If governments panic and enact poor policy (higher taxes, the wrong type of taxes, forced “diversification” efforts, rescuing companies about to go under, or other ill-advised schemes) provincial governments in the West risk hollowing out the advantages, which if left alone, will help Western Canada bounce back economically.

Consider the last two decades and one telling indicator—private-sector business investment (excluding housing). This type of investment drives job-creation, which, among other benefits, can help governments balance their books (fewer people needing social programs, more people working and paying taxes).

Between 1994 and 2013, as the three westernmost provinces began to seriously reform spending and tax policies (Alberta in the 1990s, Saskatchewan partly in the 1990s and into the new century, B.C. beginning in 2001) Alberta attracted an average of $37,285 of private-sector investment per worker. That was followed by Saskatchewan ($29,024), British Columbia ($12,116) and Manitoba ($12,080). Ontario ($9,132) and Quebec ($8,836) lagged far behind.

As a result, Alberta and B.C. recorded comparatively low unemployment rates despite substantial migration to both provinces from other parts of the country.

For example, between mid-1993 and mid-2013, among the 15-64 age group, Alberta’s net interprovincial migration number (340,111 people) was tops in Canada, followed by B.C. (93,392). Every other province lost people in the interprovincial migration game. That included Ontario (-56,391), Quebec (-121,428), all of Atlantic Canada (-128,273), Manitoba (-68,153) and Saskatchewan (-52,900).

Of note, however, after Saskatchewan began to reform (lowering business taxes, for example) and strengthened its economy, interprovincial migration numbers reflected that shift. Since 2007, when the migration numbers turned positive, Saskatchewan gained 8,974 people 15 to 64 years old from other provinces.

That 15-64 age group can serve as an approximate proxy for Canadians in search of a job (let’s assume that teenagers and young adults in post-secondary education are a small slice of that group). Their movement thus can potentially impact subsequent unemployment numbers. Ergo, it’s fair to assume most people moved to Alberta, B.C. and more recently, Saskatchewan, for jobs.

Need proof? Check out the unemployment lines.

Between 1994 and 2013, Alberta and Saskatchewan’s annual unemployment rates (for those aged 15 to 64) averaged 5.4 per cent and 5.5 per cent respectively with B.C. (at 7.4 per cent) lower than Ontario (7.5 per cent) and Quebec (9.1 per cent).

The West’s relatively low unemployment occurred despite an influx of workers from other provinces to Alberta and B.C. Manitoba’s unemployment rate (5.6 per cent) was also low, but the province was bleeding people.

So why is all of this happening? Luck? High resource prices?

Healthy prices for goods or services (oil and gas, for example) obviously help regional economies. However, they alone don’t explain why Alberta and B.C. (and Saskatchewan, more recently) outperform central Canada in good times and bad, despite high levels of migration from other parts of Canada.

Government policy matters. Otherwise, resource-rich Venezuela would be wealthy and resource-poor Hong Kong would be destitute—which is the exact opposite of reality.

Here, as my colleagues have discovered, Alberta, Saskatchewan and B.C. have done relatively well on policies that matters to healthy economies: taxes, regulation, labour laws, property rights, et al. Such relative smarts are why these three provinces remain among the most economically free jurisdictions in North America.

So, however western provincial governments respond to low resource prices, if they care about jobs, they should ensure the attractiveness of their jurisdiction is not artificially hampered by eroding western advantages.

Those advantages have helped the West weather serious downturns before. That also benefited the rest of Canada by attracting investment, creating jobs and tax revenues. If the advantages are left intact, history will repeat itself.