Revitalizing Atlantic Canada

Writing for Free Exchange allowed me to examine a multiplicity of issues facing Atlantic Canada and the following are some that I have found to be of paramount importance.

The most prominent issue in Atlantic Canada is slow economic growth, which has resulted in an enormous outflow of skill labourers, young professionals, and families who have left for British Columbia, Alberta, and Saskatchewan to find work. Economic growth rates in New Brunswick, Nova Scotia, and Prince Edward Island, for instance, have fallen below the national average of 2 per cent in 2013. Newfoundland and Labrador, which is currently booming due to oil production, is somewhat of an exception, however, declining revenues threaten to derail the province’s path to prosperity. In addition, the three Maritime Provinces experienced declining populations in 2013.

NL’s growth is largely attributable to strong oil and gas production, which has been growing in the province since the mid-2000s. The rest of Atlantic Canada could benefit from NL’s model and the region may need to look toward the oil and gas sector. New Brunswick currently boasts an opportunity to host the Energy East Pipeline and has a prospective shale gas industry. Other opportunities include increased cooperation or shared services between the three Maritime Provinces and exploring trade prospects with emerging markets.

Another problem facing the region, and the entire country, is unfunded liabilities. In other words, public sector pensions are a significant issue that plagues both federal and provincial government. This is where Atlantic Canada can lead: New Brunswick and Nova Scotia both made changes to their pension programs and the rest of Canada could learn from their progress.

In addition, Canada’s healthcare system requires additional consideration and policymakers must look into issues plaguing it. Through the Canada Health Transfer, the federal government allocates funds to the provinces to assist them with growing wait lists, quality assurance, and a number of other issues. However, progress has been futile. The federal government has given $41 billion in additional healthcare funding since 2004, yet, in 2010, Canada ranked last out of 11 countries in terms of wait times. This is why policymakers should consider alternatives to the status quo.

There are also serious democratic issues facing the country. The Senate remains unelected and unaccountable, and the Supreme Court’s recent ruling inscribed the current structure in stone. Its ruling does not need necessarily indicate defeat, though, and the Prime Minister, in addition to supporting premiers, must take the lead and ensure reform to the Upper Chamber.

While many Canadians may agree that these issues are of great importance, there must be action. We often criticize the political sphere for not dealing with these issues adequately, however, the truth is that we, as electors, must show that they are a priority or politicians will not give them due consideration. It is our duty to ensure that ideas, such as natural resource development, prudent fiscal management, and adequate healthcare, receive fair scrutiny, rather than arbitrarily dismissing them from the outset; it is our duty as citizens to place them on the political agenda.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Against farm subsidies

Many countries, especially those in the West, support their farmers with generous agricultural subsidies. In 2011, for example, Canada spent $6.9 billion on them. These programmes, however, create inefficiency and lead to morally questionable outcomes.

Farm subsidies artificially reduce the cost of farming. In other words, farmers produce more in jurisdictions with subsidies than those without, i.e. subsidized farmers produce more than what would otherwise be profitable under purely competitive market conditions.

For instance, consider a developed country without farm subsidies. Farmers would use land that allows them to earn as much, or more, money than they could by renting it to the highest bidder. If this country introduced agricultural subsidies, farmers would purchase or rent additional land, since it would increase their revenue from the additional land above its market price (which, all things equal, was uneconomical before subsidization). Under competitive conditions, farmers would not utilize the additional land, whereas providing subsidies encourages them to do so.

Now, imagine a farmer who plans to purchase land in one of two countries. He must choose between Country A, which has extremely fertile land, and Country B, which has only passable land. If the cost of doing business and renting land were equal in both countries, he would likely choose Country A. However, if Country B offered subsidies that compensate him for utilizing less productive land, then he may opt to operate there, instead. In other words, agricultural subsidies are inefficient, in that they encourage farming on land that could be useful for building shopping malls, restaurants, or movie theatres. Moreover, subsidies create inefficiencies between countries with different agricultural policies.

These subsidies are more pervasive in the developed world than in its developing counterpart. Farmers in poorer countries are unable to compete with farmers in richer countries that offer artificially low factor prices resulting from lavish subsidies. As a result, these subsidies encouraging production in areas that are not especially suitable for agriculture, while discouraging production in areas that are suitable for farming. It is in the interest of developing countries to end agricultural subsidies, as it would allow them to expand their agricultural industries, which currently underperform due to subsidies in rich countries, and would alleviate rural poverty by boosting production and prices. Currently, however, richer countries “dump” their subsidized products in poorer countries, not only deteriorating their ability to generate economic activity, but also creating a dependency trap. From the perspective of richer countries that provide billions in annual subsidies, it is more efficient to stop transferring wealth to their agricultural industry and, instead, purchase foodstuffs from abroad.

Agricultural subsidies additionally affect wealth distribution at the domestic level. Policymakers fund the subsidies using tax revenue, which they transfer to farmers and landowners that tend to be wealthier than most; in 2011, the average income of a farm family was $93,426. That is, they redistribute wealth from the general population to a small group of wealthy individuals and firms. Indeed, contemporary “farming” is much different from its predecessor: most “farmers” are wealthier individuals and many farm operations involve large firms that use factories.

Farm subsidies also have a tendency to remain politically relevant–the special interest group behind farm subsidies is very powerful. It is politically expedient for governments to stay these benefits, as they require little funding per capita, yet, provide massive benefits to a small group. In other words, the cost of fighting these subsidies exceeds to cost of providing them in the first place. Moreover, when subsidies increase, this group begins to sense that they can generate more profit by lobbying the government than by actually producing foodstuffs or agricultural commodities.

Lastly, the farming lobby provides a massive obstacle to potential trade deals. In 2007, for instance, American and European governments’ objected to limiting their agricultural subsidies, which threatened the World Trade Organization’s Doha talks. India and Brazil, the countries proposing that western farm subsidies recede, in turn, refused to open their markets.

Proponents of agricultural subsidies typically defend their position by arguing that they benefit farmers and increase food security. However, in world of institutionalized trade relationships, there is little reason why any country should strive for food autarky at the expense of efficiency. Additionally, the age of rural poverty in rich countries is essentially over: farmers whom subsidies support tend to be quite wealthy. For these reasons, and those mentioned above, all states would be wise to stop subsidizing agriculture.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

The economic and moral benefits of ending Canada’s postal monopoly

Currently, Canada Post holds a monopoly on the delivery of first-class mail in Canada. The Canada Post Corporation Act affords it the “sole and exclusive privilege of collecting, transmitting, and delivering letters” within the country. Exceptions to this rule are limited.

There are several economic reasons for liberalizing postage in Canada by ending the Crown corporation’s monopoly. Since they are sheltered from market competition, for instance, monopolists can raise prices higher than firms in a competitive market could. The firm’s additional revenue stemming from its unique ability to participate in its market is termed monopoly rents. These rents reflect the difference between the firm’s prices and opportunity costs, which tend to converge in competitive markets as companies undercut each other until the process becomes unprofitable.

Sensing this advantage–that is, the ability to extract additional rents via monopoly status–unions typically bargain for some portion of these rents in the form of higher wages, favourable working conditions, and so forth. Nevertheless, this increases the firm’s costs.

Canada Post faces a difficult financial position because it allowed unions to absorb these rents. However, the emergence of newer, more efficient technologies eroded its ability to sustain higher levels of worker compensation. It manages these hardships by reducing costs by diminishing services, which has the counterproductive effect of exacerbating declining demand for its product. For instance, it announced plans to end mail delivery to urban homeowners and it has increased its stamp prices to offset its financial difficulties.

Importantly, though, Canada Post has the ability to impose these reforms only because consumers do not have a viable alternative for first-class mail delivery and other essential postal services.

By opening the postage market to competition, firms would need either to offer services closer to cost or offer better service than their competitors. Theory suggests, and empirics confirm, that liberal reforms in would reduce prices and increase the amount of options available to consumers, which, in the case of Austria, the Netherlands, and Germany–countries that liberalized their postal markets–is true.

Proponents of Canada Post’s monopoly suggest that it provides equal rates across the country, which allows the outfit to provide “affordable mail service” to rural Canadians. Yet, it is not entirely certain that competing firms could not offer cheaper rates in these areas than Canada Post. Furthermore, it is not necessarily clear why the postage industry has an obligation to equalize rural and urban Canada in the first place.

The monopoly on mail service in Canada also adversely affects free speech. In early March 2014, Canada Post apologized for delivering offensive pamphlets prepared by the People’s Gospel Hour to thousands of Labradorians. The mail-outs quoted the Bible in an attack against homosexuality. These situations raise an ethical dilemma about Canada Post’s ability to act as both a conduit of Canadian values and a service-provider.

Canada Post is a crown corporation chartered by the Canadian government, which promotes certain values and, therefore, it cannot sensibly deliver mail that is questionable in content. Conversely, it is the only firm permitted to deliver certain documents and packages and it cannot refuse certain mailing orders without violating freedom of speech (at least theoretically).

Ending the mail monopoly, and thereby allowing private individuals and firms to deliver letters, would solve this quandary – neither Ottawa, nor Canada Post, would have to implicitly support the dispersion of bigoted materials in order to safeguard freedom of speech and censored groups could seek alternative options for delivering said material. In other words, Canada Post employees would not be the ultimate arbiters of what is “acceptable” for delivery.

In any case, Canada Post’s monopoly is both uneconomical and ethically challenged, and allowing competitive forces to govern the Canadian postal market is a viable alternative. Unlike the current structure, for instance, private competition could allow for better quality and more affordable service, not to mention that, most importantly, it would quash concerns about the government’s role in deciding between decency and free speech.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute