Fraser Forum January/February 2013 by Fraser Institute

Fraser Forum Canadian Publication Mail Sales Product Agreement Number 40069269.

A Fraser Institute review of public policy in Canada

Income mobility in Canada ALSO IN THIS ISSUE: The 2012 Premiersâ&#x20AC;&#x2122; report card Property rights under siege Plastic bag bans

January/February 2013 $3.95

ealth Con fi

scation

governm te propertents regulate, free z y—witho ut compee, and devalue nsation

he Alberta governmen t told an farmer his pri a park and vate land was to be offered him on; it was only in co a pittance for urt years la e was forc ter that ed to have trigge admit it actually w an red much higher com ted his land for a hig the Canad h pensation ia . In Vanco way— —and that n Pacific R ailway th uve at CPR la no nd was hen r in 2000, rt of Canad compensation wou ceforth to ld ever be a endorsed be a paid the de fact o confiscat ; six years later, the two cases— io n . o corporatio ne from a private la ndowner n with mu wit ch deeper pockets— h limited resources es of how have in co governmen mmon? t regulatio an extent n that such restriction can and does restri nments use ct the use s are akin regu of to exp ases, non-e lation to seize pro perty, com ropriation. Except xistent. pensation is often t is precise ly w ensation th hy governments use at re how it wo would other wise be gulation: it allows th rks: the re due if exp em to gulation is ropriation evaluation imp stat results; litt le or no co osed; the freeze or utes p mpensatio n is offered artial om Europ .

Stealth C o n fi s c ation

oblem

Special discount for Forum subscribers!

$19.95 NOW

he way ou t of public inte such undesirable p olici rest ty. Internat element for govern es while ment to ion for what’s al examples are incl known as uded “r egulatory as Sweden takings” , Finland, Germany, more fairly Holl trea ensation fo t private property and, r regulatio ns that This book offer historic att s examples of such achment to p initiatives for both le roperty gislative

Stealth Confiscat ion How gove regulate, f rnments devalue p reeze, and rivate property— compensa without tion

$14.50 Milke

Printed an

d bound in

Canada

Mark Mi

lke

Purchase a copy of Fraser Institute author Mark Milke’s 2012 book, Stealth Confiscation: How governments regulate, freeze, and devalue private property—without compensation, by February 15th and save over 25% off the cover price! To take advantage of this limited time offer, please order online using this web address: www.fraserinstitute.org/stealth You may also order by phone at 604-688-0221, ext. 580,

or 1-800-665-3558, ext. 580.

Fraser Forum Publisher Chief Editor Managing Editor Editorial Advisor Contributing Editors Art Direction and Cover Design Cover Illustration Production and Layout Media Relations Advertising Sales

The Fraser Institute’s vision is a free and prosperous world where individuals benefit from greater choice, competitive markets, and personal responsibility. Our mission is to measure, study, and communicate the impact of competitive markets and government interventions on the welfare of individuals. Founded in 1974, we are an independent Canadian research and educational organization. Our work is financed by tax-deductible contributions from thousands of individuals, organizations, and foundations. In order to protect its independence, the Institute does not accept grants from government or contracts for research. For additional copies, or to become a supporter and receive Fraser Forum, write or call the Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, BC V6J 3G7 Telephone: (604) 688-0221; Fax: (604) 688-8539; Toll-free: 1-800-665-3558 (ext. 580–book orders; ext. 586–development)

Fraser Institute, 4th Floor, 1770 Burrard St., Vancouver, BC V6J 3G7

The contributors to this publication have worked independently and opinions expressed by them are, therefore, their own and do not necessarily reflect the opinions of the supporters, trustees, or other staff of the Fraser Institute. This publication in no way implies that the Fraser Institute, its trustees, or staff are in favour of, or oppose the passage of, any bill; or that they support or oppose any particular political party or candidate. Fraser Institute Board of Trustees Peter Brown (Chairman), Brad Bennett (Vice Chairman), Mark W. Mitchell (Vice Chairman), Salem Ben Nasser Al Ismaily, Gordon Arnell, Kathy Assayag, Ryan Beedie, Ed Belzberg, Joseph Canavan, Alex Chafuen, Derwood Chase, Jr., Tracie Crook, James Davidson, Stuart Elman, David Filmon, Greg Fleck, Shaun Francis, Ned Goodman, John Hagg, Paul Hill, Stephen Hynes, Charles Jeannes, C. Kent Jespersen, Andrew Judson, Hassan Khosrowshahi, Robert Lee, Brandt Louie, David MacKenzie, James McGovern, George Melville, Gwyn Morgan, Eleanor Nicholls, Roger Phillips, Herb Pinder, Kevin Reed, H. Sanford Riley, Rod Senft, Bill Siebens, Anna Stylianides, Arni Thorsteinson, Michael Walker, Jonathan Wener, Niels Veldhuis (President), Jason Clemens (Executive Vice President), Peter Cowley (Senior Vice President, Operations), Fred McMahon (Resident Fellow, Dr. Michael A. Walker Research Chair in Economic Freedom), Sherry Stein (Vice-President, Development), Stuart MacInnis (Secretary-Treasurer) Founder & Honorary Chairman for Life T. Patrick Boyle Fraser Institute Lifetime Patrons Sonja Bata, Charles Barlow, Ev

Berg, Jim Chaplin, Serge Darkazanli, John Dobson, Art Grunder, Raymond Heung, Bill Korol, Bill Mackness, Fred Mannix, Con Riley, Jack Pirie, Catherine Windels

Purpose, Funding, and Independence

The Fraser Institute provides a useful public service. We report objective information about the economic and social effects of current public policies, and we offer evidence-based research and education about policy options that can improve the quality of life. The Institute is a non-profit organization. Our activities are funded by charitable donations, unrestricted grants, ticket sales and sponsorships from events, the licensing of products for public distribution, and the sale of publications. All research is subject to rigorous review by external experts, and is conducted and published separately from the Institute’s Board of Trustees and its donors. The opinions expressed by staff or author(s) are those of the individuals themselves, and should not be interpreted to reflect those of the Institute, its Board of Trustees, or its donors and supporters. As a healthy part of public discussion among fellow citizens who desire to improve the lives of people through better public policy, the Institute welcomes evidence-focused scrutiny of the research we publish, including verification of data sources, replication of analytical methods, and intelligent debate about the practical effects of policy recommendations.

From the editor

Fraser Institute Niels Veldhuis Emma Tarswell Kristin McCahon Peter Cowley Amela Karabegović Joel Wood Bill C. Ray Bigstock and Depositphoto Emma Tarswell Dean Pelkey Advertising In Print Tel: (604) 681-1811 E-mail: info@advertising inprint.com

www.fraserinstitute.org

he Occupy protests of 2011 brought the issue of income inequality to the attention of the entire world and remained in the media well into 2012. This fuelled people’s perception that the rich are getting richer while the poor stay poor forever. Contrary to this old cliché, the gap between the top 20% of earners and the bottom 20% is, in fact, closing and not as dramatic as some would have you believe. In The “poor” are getting richer (p.24), Institute researchers dispel the myth that the bottom 20% of earners stay that way. Their research shows that over nearly two decades, there is much movement between income groups and that those in the bottom do not stay there for long. The January/February issue also reports the results from a 2012 study where Institute researchers rated each Canadian premier based on their fiscal policies during their time in office (p.18). Charles Lammam and Milagros Palacios have supplemented the overall results with a more detailed examination of Ontario Premier Dalton McGuinty’s record (p.22). They argue that his policies have left Ontarians with a lasting economic burden. You will also find two articles on Canada’s westernmost provinces. In Alberta, the government has approved a plan to build new transmission lines to ease electricity congestion. The Institute’s Gerry Angevine explains how this plan will add costs to the average Albertan’s power bill (p.28). In BC, private property owners can face unknown costs when they begin to build on their land only to discover archaeologically significant objects. Mark Milke’s article, Aboriginal activism & hidden archaeological claims: The newest threat to private property in BC (p.13), looks at the sometimes devastating financial costs such a designation can have on property owners. Plastic bag bans, the federal budget, President Obama’s re-election, and much more are also discussed in this issue of Fraser Forum.

Fraser Forum January/February 2013

—Emma Tarswell

Fraser Forum

Contents 13

Threats to private property in BC

From the editor

Forum Authors

Mr. Flaherty, time to balance the budget

Niels Veldhuis and Milagros Palacios The federal budget’s balance date has been moved again. How will this affect Canada’s economic stability?

8 2012 Premier report card

What’s in store for Canada under Obama’s second term as president

Alexander Moens and Nicolas Fleet The recent US election results will have an impact on Canada.

31 2

Aboriginal activism & hidden archaeological claims: The newest threat to private property in BC Mark Milke Private property owners in BC may face extra financial costs when rebuilding plans lead to archaeological discoveries.

Plastic bag bans

Fraser Forum January/February 2013

www.fraserinstitute.org

Feature story Income mobility in Canada —page 24 17

Disaster ignorance

Walter Williams How does post disaster pricing help the economy?

Fiscal performance of Canada’s premiers: 2012 edition

Milagros Palacios, Charles Lammam, and Amela Karabegović The current and former provincial premiers are ranked according to their fiscal policies.

Dalton McGuinty’s legacy of poor fiscal management Charles Lammam and Milagros Palacios Ontario’s premier has left the province with debt and poor economic growth.

The “poor” are getting richer

Niels Veldhuis, Charles Lammam, and Amela Karabegović Researchers find that income mobility does occur for the bottom 20% of earners.

A transmission proposal that will cost Albertans dearly

Gerry Angevine Alberta’s decision to build more transmission lines between Calgary and Edmonton will add additional costs to electricity bills.

Regulation Review: The crusade against plastic bags

Kenneth P. Green and Elizabeth DeMeo Are plastic bags as damaging to the environment as many insist? Are the alternatives any better?

Corporate headquarters in Canada

Hugh MacIntyre, Jason Clemens, and Nadeem Esmail An updated look at which cities attract the most corporate headquarters in Canada.

www.fraserinstitute.org

Fraser Forum January/February 2013

Forum Authors

Gerry Angevine (gerry.angevine@fraserinstitute.org) is senior economist in the Fraser Institute’s Centre for Energy Studies. He has M.A. and Ph.D. degrees in economics from the University of Michigan, an M.A. economics degree from Dalhousie University, and a B.Comm. from Mount Allison University.

Charles Lammam (charles.lammam@ fraserinstitute.org) is the Associate Director of the Centre for Tax and Budget Policy and the Centre for Studies in Economic Prosperity at the Fraser Institute. He holds an M.A. in public policy from Simon Fraser University.

Jason Clemens (jason.clemens@fraserinstitute.org) is the Fraser Institute’s executive vice-president. He holds an Honours Bachelors Degree of Commerce and a Masters’ in Business Administration. Clemens also has a post Baccalaureate Degree in Economics from Simon Fraser University.

Hugh MacIntyre (Hugh.MacIntyre@fraserinstitute.org) holds an M.Sc. in Multi-level and Regional Politics from the University of Edinburgh. His opinions have been published by a range of media outlets including National Post Full Comment, Western Standard, and The Volunteer.

Elizabeth DeMeo is the Research Assistant to Kenneth P. Green at the American Enterprise Institute. She holds a degree from Johns Hopkins University in international studies and political science. DeMeo also does research for scholars Michael Greve, Roger Scruton, and Sally Satel of AEI.

Mark Milke (mark.milke@fraserinstitute. org) is director of the Fraser Institute’s Alberta office and of the Alberta Prosperity Project. He has a Ph.D. in international relations and political philosophy from the University of Calgary.

Nadeem Esmail (nadeem.esmail@ fraserinstitute.org) is the director of Health Policy Studies at the Fraser Institute. He holds an M.A. in economics from the University of British Columbia.

Alexander Moens (alex.moens@fraserinstitute.org ) is a professor of political science at Simon Fraser University in Vancouver and a senior fellow in American Policy at the Fraser Institute.

Nicolas Fleet is an intern at the Fraser Institute for Canada–US trade. He has an honours degree in economics from the University of Ottawa.

Milagros Palacios (milagros.palacios@ fraserinstitute.org) is a senior economist with the Fraser Institute’s fiscal studies department. She holds an M.Sc. in economics from the University of Concepcion in Chile.

Kenneth Green (ken.green@fraserinstitute.org) is the senior director, energy and natural resource policy studies at the Fraser Institute. He has studied energy and energy-related environmental policy for nearly 20 years, with recent studies in the efficacy of green-jobs programs, drivers of oil and gas prices, the Deepwater Horizon oil spill, and resilient policies to address the risks of climate change.

Niels Veldhuis (niels.veldhuis@fraserinstitute.org) is president of the Fraser Institute. He has an M.A. in economics from Simon Fraser University.

Amela Karabegović (amela.karabegovic@ fraserinstitute.org) is a senior economist in the fiscal studies department at the Fraser Institute. She has an M.A. in economics from Simon Fraser University.

Walter Williams is a professor of economics at George Mason University. He is the author of over 150 publications, including several books, and he writes a regular syndicated column for Creators Syndicate.

Fraser Forum January/February 2013

www.fraserinstitute.org

Mr. Flaherty, time to balance the budget

iStock

Niels Veldhuis and Milagros Palacios

hile some economists take great satisfaction when their forecasts come true, we are not in that camp. Fraser Institute economists have, for the past several years, warned that the federal government’s plan to balance the budget has been based on risky projections, optimistic forecasts of revenue growth (averaging 5.6% per year), and unrealistic plans for spending restraint (average increases of just 2.0% per year) (Veldhuis and Lammam, 2011a). Balancing the budget over time by slowing the growth in spending while hoping for significantly higher revenues failed miserably in the 1980s and early 1990s and indeed contributed to a debt crisis in Canada. 1 While we noted last year, “we hope Mr. Flaherty’s plan works,” it unfortunately has not (Veldhuis and Lammam, 2011b). In 2009, when the federal government engaged in deficit-financed spending in the name of stimulus, it assured Canadians the budget would be balanced by 2013-14 (Canada, Department of Finance, 2009). During the 2011 election, the Conservatives promised that the budget would be balanced in 201415 (Curry, 2011). By the fall of 2011, the date was pushed back to 2015-16 (Canada, Department of Finance, 2011b).

www.fraserinstitute.org

Now we’re told that the budget will not be balanced until 2016-17 (Canada, Department of Finance, 2012a). In each of those years, revenue forecasts were revised downward and/or spending growth came in above forecast. That is why the projected deficit continues to increase with each successive budget and the balanced budget date continues to get pushed back (see figure 1). So, what have Mr. Flaherty and the federal government learned? In his remarks when presenting the Update of Economic and Fiscal Projections on November 13, the Minister noted that, “we are not immune to the economic uncertainty beyond our borders and the economic challenges faced by some of our largest trading partners” (Canada, Department of Finance, 2012b). Indeed, a week before Flaherty’s economic fall update was announced, he noted that if the US President and Republican-controlled House of Representatives in Congress cannot strike a deal before January 1st to avoid the so-called “fiscal cliff ” (automatic tax increases and spending cuts), it would push the US economy and therefore Canada’s economy back into a recession (Beltrame, 2012). Yet, November’s update noted that private sector economists upon whom the federal government relies “are generally assuming that the full implementation of all budgeted

Fraser Forum January/February 2013

Figure 1: Flaherty’s Plan Larger Deficits and Delayed Balanced Budgets 10 5 0

Billions $

-5

2012/13

2013/14

2014/15

2015/16

2016/17

-10 Budget 2011 -15

Budget 2012 Economic and Fiscal Update 2012

-20 -25 -30

Source: Canada, Department of Finance (2011a, 2012a and 2012c).

tax and spending measures [in the United States] will be avoided through some form of political compromise” (Canada, Department of Finance, 2012a: 20). While that may eventually be true, the coming “lame duck” session of the US Congress (when one Congress meets after its successor is already elected) will likely kick the can into 2013 adding to the uncertainty that has crippled investment, business expansion, and economic growth in the United States. Additionally, the Update of Economic and Fiscal Projections, emphasized that “the global economic environment remains highly uncertain” with slower growth expected in China, a recession and continued uncertainty in Europe, and lower than expected commodity prices over the next several years (Canada, Department of Finance, 2012a). But not to worry: Mr. Flaherty noted that Canada has a contingency plan should the United States go off the fiscal cliff and/or the Eurozone’s debt crisis worsens (Reuters, 2012). While he provided no details, let’s hope that plan does not involve more deficit spending.2 Perhaps most concerning is that despite all this uncertainty and the experience of the last few years, the

federal government is still forecasting revenue growth of 5.0% next year and 4.7% on average for the next five years (Canada, Department of Finance, 2012a: 49; calculations by authors). The plan to get back to a balanced budget continues to rely on optimistic revenue projections rather than spending reductions. The government is forecasting program spending (total spending minus interest payments) growth at 1.2% in 2013-14 and then holding future increases to 2.5% (Canada, Department of Finance, 2012a: 49; calculations by authors). What is the likelihood of this actually happening? In its 2012 budget, the Conservatives proposed to hold program spending growth to 1.4% this year (2012-13) (Canada, Department of Finance, 2012c). Now just five months later, they are projecting that this year’s spending will increase by 2.8% (Canada, Department of Finance, 2012a: 49; calculations by authors). So the federal government has doubled its projection for spending growth in less than a half a year. Given the trend of successive budgets increasing in the expectation for spending, it’s unlikely the government will actually hold the line on spending increases.

Fraser Forum January/February 2013

www.fraserinstitute.org

The bottom line is that the Conservative government is simply not budgeting in a conservative manner. Not only is it failing to conservatively forecast GDP growth and revenues, or putting forth realistic spending projections, it is not dealing with the root cause of the deficit: excessive increases in spending. Program spending (total spending minus interest costs) today remains $19 billion higher than spending prior to the recession (adjusted for population growth and inflation) (Canada, Department of Finance, 2012a and 2012d; calculations by authors). A conservative plan to balance the budget would return spending to prestimulus levels and balance the budget in two years—just as the Liberals did in their reform budget of 1995.3 Unfortunately, the Conservative government is sticking to its plan, and therefore increasing the risk that we will see deficits beyond 2016-17. Again, we’ll take no pleasure if we are right since we’ll be saddled with significantly more government debt and much higher interest costs—all of which are a drag on the economy and place an unfair burden on young Canadians.

Notes 1 Veldhuis et al. (2011) highlight how the federal government, as well as various provincial governments in the 1980s, failed to balance their budgets when they attempted to slow the growth in program spending and wait for revenues to rebound strongly enough to close the gap between spending and resources. It wasn’t until the spending reductions of the 1990s that both the federal government and the provinces returned to fiscal balance and achieved declining debt and interest costs. 2 Karabegović et al. (2010) analyzed the fiscal stimulus packages enacted by the Canadian government in response to the 2008 recession. Using Statistics

www.fraserinstitute.org

Canada data, the authors show that stimulus initiatives that primarily rely on government spending fail to increase economic growth. For further details see Karabegović et al. (2010). 3 For an in-depth analysis of the 1995 Federal Budget, see Veldhuis et al. (2011c).

References Canada, Department of Finance (2009). Canada’s Economic Action Plan—Budget 2009. Government of Canada. <http:// www.budget.gc.ca/2009/pdf/budgetplanbugetaire-eng.pdf>, as of November 14, 2012. Canada, Department of Finance (2011a). A Low-Tax Plan for Jobs and Growth (June). Government of Canada. <http:// www.budget.gc.ca/2011/plan/Budget2011-eng.pdf>, as of November 14, 2012. Canada, Department of Finance (2011b). Update of Economic and Fiscal Projections (November). Government of Canada. <http://www.fin.gc.ca/efp-pef/2011/pdf/ efp-pef-eng.pdf>, as of November 14, 2012. Canada, Department of Finance (2012a). Update of Economic and Fiscal Projections (November). Government of Canada. <http://www.fin.gc.ca/efp-pef/2012/pdf/ efp-pef-eng.pdf>, as of November 14, 2012. Canada, Department of Finance (2012b). Update Highlights Canada’s Economic Resilience Amidst Global Uncertainty. Government of Canada. <http://www. fin.gc.ca/n12/12-143-eng.asp>, as of November 14, 2012. Canada, Department of Finance (2012c). Jobs Growth and Long-Term Prosperity —Economic Action Plan 2012. Government of Canada. <http://www.budget. gc.ca/2012/plan/toc-tdm-eng.html>, as of November 14, 2012. Canada, Department of Finance (2012d). Fiscal Reference Tables (October). Government of Canada. <http://www.fin.gc.ca/ frt-trf/2012/frt-trf-12-eng.pdf>, as of November 14, 2012. Karabegović, Amela, Charles Lammam, and Niels Veldhuis (2010). Did Govern-

ment Stimulus Fuel Economic Growth in Canada? An Analysis of Statistics Canada Data. Fraser Institute. <http://www. fraserinstitute.org/research-news/display.aspx?id=15912>, as of November 14, 2012. Reuters (2012, November 13). Canada has contingency for fiscal cliff, Europe crisis: Flaherty. Reuters. <http://ca.reuters. com/article/businessNews/idCABRE8AC0YH20121113>, as of November 14, 2012. Beltrame, Julian (2012, November 7). Flaherty says U.S. budget crisis could push Canada into a recession. Canadian Press. <http://ca.finance.yahoo.com/news/ flaherty-says-u-fiscal-cliff-likely-pushcanada-183500258.html>, as of November 14, 2012. Curry, Bill (2011). Tories back off campaign pledge to show a surplus by 2014-15. Globe and Mail. <http://www.theglobeandmail.com/news/politics/tories-backoff-campaign-pledge-to-show-a-surplus-by-2014-15/article579561/>, as of November 14, 2012. Veldhuis, Niels and Charles Lammam (2011a, November 8). Flaherty’s deficit delay no surprise. Financial Post. <http:// opinion.financialpost.com/2011/11/08/ flaherty%E2%80%99s-deficit-delay-nosurprise/>, as of November 14, 2012. Veldhuis, Niels and Charles Lammam (2011b, August 12). FP Letters: Flaherty vs. Veldhuis on budget cuts. Financial Post. <http://opinion. financialpost.com/2011/08/12/fpletters-flaherty-vs-veldhuis-on-budget-cuts/>, as of November 14, 2012. Veldhuis, Niels, Jason Clemens, and Milagros Palacios (2011c). Budget Blueprint How Lessons from Canada’s 1995 Budget Can Be Applied Today. Studies in Budget & Tax Policy. Fraser Institute. <http:// www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/ research/publications/BudgetBlueprint.pdf>, as of November 14, 2012. Veldhuis, Niels, Jason Clemens, and Milagros Palacios (2011). Learning from the Past: How Canadian Fiscal Policies of the 1990s Can Be Applied Today. Fraser Institute. <http://www.fraserinstitute.org/uploadedFiles/fraserca/Content/research-news/research/ publications/learning-from-the-past. pdf>, as of November 14, 2012.

Fraser Forum January/February 2013

What’s in store for Canada under Obama’s second term as president macrn

Alexander Moens and Nicolas Fleet

Divided government with a democratic edge November 6, 2012 ushered in Barack Obama’s second term as president of the United States. As America’s biggest trading partner, Canada has a large stake in how both the overall US economy will fare in the next four years and how specific bilateral problems will be addressed. Regarding the former, there is a good deal of legitimate concern that Washington will not be able to make swift progress. In terms of the latter, the main areas of interest to Canada will be how much attention the second Obama administration will give to the Beyond the Border Vision agreed to in 2011 and to what extent trade obstacles in the energy sector such as the Keystone XL pipeline expansion will be addressed. While Obama was re-elected with a majority of the popular vote, a reduced Republican majority was sustained in the House of Representatives (Republicans:

234, Democrats: 201). At the same time, the Democrats slightly improved their majority in the Senate from 53 to 55 seats (including two independents who caucus with the Democrats). Given that in the US political system all three feel they have earned a clear mandate, the complexity of reaching political agreement on most major issues will be highly problematic.

Canada’s stake in resolving US debt and tax policy uncertainty The agreement reached on January 2, 2013 does not offer a solution to the growing gap between government revenues and expenditures and will lead to a rerun in March of this year. Given Canada’s close trading relationship with the United States, the ensuing policy uncertainty will also impact the Canadian economy negatively. The US economy has been damaged by the large amount of policy uncertainty over the last two years

Fraser Forum January/February 2013

www.fraserinstitute.org

Figure 1: Canadaâ&#x20AC;&#x2122;s trade with the world 180,000 160,000 140,000

CA$ (millions)

120,000 100,000 80,000 60,000 40,000 20,000 0

2000

2001

2002

2003

Non-US exports

2004

2005

2006

2007

2008

2009

2010

2011

Non-US imports

Source: Statistics Canada

Figure 2: Canadaâ&#x20AC;&#x2122;s trade with the USA 400,000

350,000

CA$ (millions)

300,000

250,000

200,000

150,000

100,000

50,000

2000

2001

2002

Exports to US Source: Statistics Canada

www.fraserinstitute.org

2003

2004

2005

2006

2007

2008

2009

2010

2011

Imports from US

Fraser Forum January/February 2013

Figure 3: Comparison of economic freedom 8.8

Fraser Institue Economic Freedom Index

8.6 8.4 8.2 8.0 7.8

United States Canada

7.6 7.4 7.2 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sources: Fraser Institute; Office of Trade and Industry Information (OTII); Manufacturing and Services; International Trade Administration; US Department of Commerce.

(Baker et al., 2012).1 “Policy uncertainty” has emerged as a central issue because Congress and President Obama have been unable to resolve key decisions on tax policy and spending cuts. As a result, the private sector is left guessing on the eventual outcome. American firms, uncertain about tax rates (including those arising from ObamaCare), are seemingly reluctant to hire new workers. Firms are also reluctant to invest in new equipment; in the latest year measured (2010) there was no statistically significant growth in such investment over the previous year (United States Census Bureau, 2012). With discussions towards a solution between President Obama and Congress resulting in postponements in lieu of action, 2013 may not bring back fiscal and budgetary policy stability. While Canada largely escaped the financial troubles that arose in the United States in late 2007, Canada’s trade dependence on the US has meant that its GDP growth has been miniscule in the last four years. Since 2008, the contraction in GDP of Canada’s biggest trading partner has had notable effects. The slowdown in Canadian exports to the US reflects the weak-

ening US economy. Canada’s export-to-import ratio with the US from 2000 to 2008 was an average of 1.36 (authors’ calculations). However, from 2009 to 2011, this ratio fell by 15% to an average of 1.15 as a result of very slow growth in US demand for Canadian goods. As figures 1 and 2 show, Canada’s trade is diversifying, but not enough to offset the losses incurred from lower exports to the US. A robust US recovery would increase Canada’s US-bound exports and easily exceed all other export gains in total numbers, given that more than 70% of Canadian exports in 2011 were destined for the US. It is noteworthy that US financial and economic troubles in recent years parallel an overall drop in US economic freedom, according to the 2012 Fraser Institute Economic Freedom of the World report (Gwartney et al., 2012). This report develops an overall score for a country based on five key metrics: the size of government, the legal system and private property rights, the soundness of money, the freedom to trade internationally, and overall regulation. In the majority of these key areas, the US is performing poorly, and the decline under Obama’s first term was especially rapid. In those

Fraser Forum January/February 2013

www.fraserinstitute.org

Figure 4: Composition of exports to US 100 90 80

CA$ (millions)

70 60 50 40 30 20 10 0

2000

2001

2002

2003

2004

2005

2006

Manufactured goods (% of all imports)

2007

2008

2009

2010

2011

Oil and Gas (% of all imports)

Sources: Fraser Institute; Office of Trade and Industry Information (OTII); Manufacturing and Services; International Trade Administration; US Department of Commerce.

years, the US’s economic freedom rating fell 32% faster than its decline between 2000 through 2007, making it ever more difficult for the US to recover to Canadian levels—which are significantly higher (Figure 3). Fiscal uncertainty, government debt, and a growing range of government regulations are chipping away at American competitiveness (Gwartney et al., 2012). For instance, among US firms that produce manufactured goods, total factor productivity fell 4.8% following the imposition of industry-specific environmental regulations (Greenstone et al., 2012). This contributed to the decreased competitiveness of the US manufacturing sector. As with US fiscal and spending troubles, Canada stands to lose when the US manufacturing sector becomes less competitive globally because many intermediate goods used in the production chain derive from Canada. Thus Canadians have a significant interest in seeing US regulatory burdens rationalized.

www.fraserinstitute.org

A bilateral glass half full Besides the policy uncertainty and economic competitiveness issues, Canada is facing challenges in two areas of bilateral relations, notably ongoing concerns regarding the management of the joint border and the development of oil pipelines. On the first of these issues, President Obama’s reelection may be a plus for Canadian interests. During President Obama’s first-term, he and Prime Minister Stephen Harper developed the Beyond the Border Vision (BBV) Declaration in 2011. The BBV focuses on creating a perimeter border around the United States and Canada in order to streamline the current shared border. When the land border becomes less costly to cross, the costs of trading and travelling should go down, which would reverse the trend of rising border costs since 2001. As the Harper-Obama relationship will continue for at least three more years, Obama’s reelection brings a measure of hope that the BBV’s benefits will continue to be implemented.

Fraser Forum January/February 2013

The perimeter model for a future border regime is badly needed. According to a recent study, the estimated combined costs for commercial, travel, and new government programs associated with the border amounted to $19.1 billion (1.47 percent of Canada’s GDP) (Moens and Gabler, 2012). The BBV includes savings from harmonizing programs and automating processes at the land border. It will require constant attention by the Obama Administration (and, by implication, attentive diplomacy on the part of the Canadian government) as many members of Congress on both sides of the aisle remain skeptical of the idea of a shared perimeter. Another key bilateral issue has been profoundly negative to Canadian interests: during his first term, President Obama postponed approval of the Keystone XL pipeline which is poised to take crude oil from Canada to a refinery hub in the Gulf of Mexico region. Perhaps the glass is half full at this point rather than half-empty; given that Obama’s decision in his first term was thought to be political rather than regulatory in nature. It is hoped that he will approve this additional pipeline capacity in his last term. As bilateral Canadian-American trade in manufactured products has seen very little growth in the last decade, nearly all of Canada’s export growth has been in the sale of energy products (see figure 4). Given that the Keystone XL pipeline approval has been delayed twice, further uncertainty about the long-term access of Canadian crude oil products to the American market risks affecting long-term investment in the Alberta oil sands. The Canadian government would do well to use all its persuasive powers to induce the Obama White House to speed up the approval process.

Conclusion Last year’s 11th-hour agreement between Democrats and Republicans to

postpone all decisions on budget cuts and tax policy for a year in order to agree on raising the US government’s debt ceiling to $16.4 trillion created consternation in international markets. The new debt ceiling will again be reached in early 2013. Should America’s politicians again fail to resolve key policy matters it is possible that credit agencies such as Standard and Poor’s will further lower the US credit rating. This would sooner or later increase pressure on interest rates and the value of the US dollar. The 2012 US election outcome spells more divided government in Washington. While Canadians have no ability to influence this political struggle, Canadian interests will benefit if Republicans and Democrats can find a clear compromise on tax and spending policy that would signal to both American and foreign businesses and consumers a certain amount of stability and predictability for the next two years.

Note 1 The US policy uncertainty index is at an all-time high—over three times the level in 2000.

References Baker, Scott R., Nicholas Bloom, and Steven J. Davis (2011). Measuring Economic Policy Uncertainty. Unpublished paper. Centre for Economic Performance, Stanford University. Burleton, Derek (2012). Data Release: The U.S. Fiscal Cliff and What It Means For Canada’s Economy. TD Economics Paper. <http://www.td.com/document/PDF/ economics/special/dp110712_US_election.pdf>, as of November 18, 2012. Chen, Duanjie and Mintz, Jack (2011). New Estimates of effective Corporate Tax Rates on Business Investment. CATO Institute Tax & Budget Bulletin 64. Congressional Budget Office (2012). Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013. CBO. <http://www.cbo.gov/sites/default/files/ cbofiles/attachments/FiscalRestraint_0. pdf>, as of November 18, 2012. Crain, W. Mark (2005). The Impact of Regulatory Costs on Small Firms. Small Busi-

Fraser Forum January/February 2013

ness Administration, Office of Advocacy. <http://www.sba.gov/sites/default/files/ files/rs264.pdf>, as of November 1, 2012. Department of Homeland Security (2012). DHS Budget FY 2012. DHS. <http://www. dhs.gov/dhs-budget>, as of November 1, 2012. Financial Post (2012). Canada has contingency plan for fiscal cliff, eurozone crisis: Flaherty. Financial Post. <http://business. financialpost.com/2012/11/13/canada-hascontingency-plan-for-fiscal-cliff-eurozonecrisis-flaherty/>, as of November 18, 2012. Greenstone, Michael, John A. List, and Chad Syverson (2012). The effects of environmental regulation on the competitiveness of U.S. Manufacturing. Department of Economics, University of Chicago. <http://home.uchicago. edu/syverson/enviroregsandproductivity. pdf>, as of December 12, 2012. Gwartney, James, Robert Lawson and Joshua Hall (2012). Economic Freedom of the World: 2012 Annual Report. Fraser Institute. Mulligan, Casey (2011). Rising Labor Productivity During the 2008-9 Recession. NBER Working Paper Series. <www.nber.org/papers/w17584>, as of October 14, 2012. Statistics Canada (2012). Canadian Trade Balances. <http://www.ic.gc.ca/sc_mrkti/ tdst/tdo/tdo.php?/sc_mrkti/tdst/tdo/tdo. php?hfFileNm=&naArea=9999&lang=30 &searchType=All&toFromCountry=CD N&currency=CDN&hSelectedCodes=& period=&timePeriod=%7CCustom+Year s&periodString=2000%7C2001%7C2002 %7C2003%7C2004%7C2005%7C2006% 7C2007%7C2008%7C2009%7C2010%7C 2011&productBreakDown=Custom+Yea rs&reportType=TB&productType=HS6 &areaCodeStrg=9999%7C9&runReport_ x=35&javaChart_x=&runGraph_x=&out putType=RPT&chartType=columnApp& grouped=#tag>, as of December 12, 2012. United States Census Bureau, US Department of Commerce (2012a). Annual Capital Expenditures Survey. United States Government. <http://www.census.gov/ econ/aces/report/2012/csr_summary_ of_findings.html>, as of November 18, 2012. United States Department of Commerce, (2012). Product Profiles of U.S. Merchandise Trade with a Selected Market. Department of Commerce. <http:// tse.export.gov/TSE/TSEOptions.aspx ?ReportID=2&Referrer=TSEReports. aspx&DataSource=NTD>, as of December 12, 2012.

www.fraserinstitute.org

Aboriginal activism & hidden archaeological claims:

The newest threat to private property in BC Bigstock

Mark Milke

How regulation—and land claims— can threaten private property In Canada, the principle of compensation for expropriation of property is well-established. Tradition, common law principles, laws (including much provincial legislation), and court rulings reinforce the remedy that property owners are entitled to compensation when they face the threat or the reality of unusable (and therefore devalued) property (Milke, 2012: 51-64). However, unlike expropriation, regulatory changes that restrict the use of property (which can, and does, affect its value) rarely result in compensation in Canada. That is in contrast to other developed countries; a problem detailed in Stealth Confiscation: How governments regulate, freeze and devalue private property—without compensation (See Milke, 2012: 34-36).

www.fraserinstitute.org

A variant and troubling example of this regulatory action against private property has developed in British Columbia: the designation of property as archaeologically significant and/or culturally significant to some First Nations, which has in some cases combined with Aboriginal activism as regards specific property. The development is causing trouble for private property owners in BC.

Private property in British Columbia Very little private property exists in British Columbia. The provincial government owns 94% of all BC land and the federal government possesses 1%. That leaves just 5% of BC’s massive land base in the possession of individual private property owners (British Columbia, undated). Problematically, even that small portion of land is now under attack, and the precedent is threatening other private property in the province.

Fraser Forum January/February 2013

The threat originates in Aboriginal claims to private property combined with the listing of 38,573 property sites as archaeologically significant on the provincial registry (British Columbia, 2012a). Not all of those sites are located on private property (no number was available from the province), but enough have been to already be troublesome for private property owners, as will be detailed below. On Aboriginal claims, the federal and BC governments have consistently claimed that private property was not to be subject to native land claims unless the seller was willing. For example, the BC Treaty Commission stated that private land was off the table unless a private landowner was a willing partner (BC Treaty Commission, undated). Similarly, the federal government’s position has been clear: When private land might be included as part of a treaty settlement, compensation would be due to private property owners and only if “privately owned land” originated with “a willing seller so that these parcels could be included in a treaty” (Canada, undated).

Private property and Aboriginal interests collide: an example Claims about private property as “off the table” now turn out to be invalid, at least when selected Aboriginal interests are in play and the use of the archaeological designation is used to halt property development. That combination played out recently in a high-profile example that was front-page news throughout 2012, a retired British Columbia couple, Gary and Fran Hackett, have had their private property in the City of Vancouver effectively frozen. The details are as follows: The Hacketts own a one acre piece of property along the southern part of the city in an area known as Marpole; it has belonged to their family for almost five decades and has had a variety of buildings on it. The Hacketts decided to raze the existing buildings to build condominiums. The couple and their developer partners obtained the necessary development permits from the City of Vancouver and the province (Korstrom, 2012), the latter of which requires an archaeological assessment (a “dig”) before redevelopment can take place (British Columbia, 1996: Part 2, Sec. 13). Such digs must be paid for entirely by the property owners and, in the case of the Marpole property, the initial estimate for the archaeological dig was $130,000 but archaeological costs to date exceed $400,000 (British Columbia, 1996: Sec. 35 1; author interview with Hacketts, October 5, 2012).

Both governments knew that the land contained potential cultural deposits or human remains. The provincial permit to recover and record any culturally significant finds, including human remains, stated as much, noting that “as it is not expected that any encountered remains will be avoidable by development or be able to be kept for reinternment elsewhere on the property, the remains will be reinterred or relocated according to the wishes and protocols of local First Nations” (British Columbia, 2011) (emphasis added). In January 2012, the archaeologist found articulated human remains in one corner of the property that represents one-tenth of one percent of the land (British Columbia, 2012 and author interview with Hacketts, October 2012). The Musqueam First Nation and others protested and blocked continued archaeological work (Vancouver Sun, 2012 and author interview with Hacketts, December 23, 2012). In late September 2012, the City of Vancouver refused to issue a building permit based on public interest, which effectively froze the land (Vancouver Province, 2012). Similarly, the province denied the extension of its own earlier permits after the Musqueam protests, citing a “burial complex” (British Columbia, 2012b), which was an exaggeration of the find—intact partial skeletal remains of one adult, two infants and a disarticulated adult (in essence, unattached bones). All these regulatory twists and turns have had the effect of freezing the land. The Hackett case is another example in addition to the ones contained in Stealth Confiscation of how governments are using regulation to devalue and then freeze private property, a growing problem in Canada (see Milke, 2012).

Human remains have often been moved to accommodate the living The Hackett case was widely covered in the media; in part because at least some people (i.e., protesters) thought it beyond the pale to move human remains. However, moving remains is not a new practice: Paris is built over crypts that contain six million skeletons. Most were reinterred from above-ground graveyards in the late 18th century for health reasons and to make way for a growing city (Catacombs of Paris, undated). Closer to home, in British Columbia, in 2006, human remains suspected of being up to 2,500 years old were found at a Nanaimo building site and were transferred to the Snuneymuxw First Nation who said they would “bring it back to our community and do the proper ceremony” (Marshall, 2006). A 2008 reference in provincial permit archives refers to another relocation of remains, this within Montague Harbour Provin-

Fraser Forum January/February 2013

www.fraserinstitute.org

cial Marine Park on Galiano Island (British Columbia, 2008). In spring 2011, five human remains and fragments were found at Ganges, on Saltspring Island and the remains were subsequently reburied elsewhere on the island (Yardley, 2011). In July 2012, human remains that date back as much as 2,000 years were found at Mill Bay Marina on Vancouver Island and were scheduled to be transferred to the Malahat First Nation for reburial. While the developer and Malahat disagreed over who should pay—the developer argued it had already spent at least $250,000—there was no dispute over the removal and reburial (Lavoie, 2012: A5).

Significant costs to private property from the archaeological designation In recent years, several private property owners have also faced significant archaeological and other costs (related to the requirement to perform an archaeological dig) when they have attempted to redevelop their property. While the provincial government could not inform this author of how many designated archaeological sites are on private land, where such designations occur, they can be costly to private property owners as these examples demonstrate: In 2007, Oak Bay residents Wendi Mackay and her husband Robert Edwards spent $200,000 for an archaeological dig in an attempt to build a new house on a previously developed lot. By the time the new house was built several years later, $700,000 in total had been spent on archaeological costs, legal fees, carrying costs, and redesigns to the house plans (a planned basement was struck from the plans and the house constructed on piles). The expenses were incurred in order to accommodate the discovery of beads, a bowl fragment, an American coin from the 1890s, and some fragments of human teeth (Bond, 2007; McCulloch, 2007; and author interview with Wendi Mackay, 2012). In 2010, a couple from the Parksville area, Tim and Louise Allix, wanted to build a one-story house because the couple were having difficulty with the stairs in their existing two-storey house. When they applied for a development permit, they were informed that they must do an archaeological dig. The initial estimate for their dig was $4,000; they ended up paying $35,000. The archaeologist found a partial human skull, some arrowheads, and a dog skeleton but the couple was eventually allowed to proceed with their build. However, given their limited income, the $35,000 cost was not inconsequential (Tomlinson, 2010).

www.fraserinstitute.org

You won’t know if your land requires an expensive dig An additional problem for property owners in BC is that the province does not add archaeologically significant sites to land title searches. The justification is sound enough: potential looting or destruction of such sites might result if it did. However, the provincial archaeological branch will inform a potential buyer of a property’s archaeological status, if the potential buyer of the property contacts them and requests the information (British Columbia, 2012b and British Columbia, 2012c). However, those who have owned their land for decades may be unaware of changes in provincial law and regulations in the interim (i.e., the introduction of the 1996 Heritage Conservation Act). And would-be buyers may not be aware of such changes either. Moreover, in the case of a potential buyer, one could perform due diligence and search both land titles and investigate matters with the provincial archaeological branch and be told no archaeological designation exists, but months or years later, one could still find oneself with an archaeological site designation and thus have to pay significant costs for an archaeological dig and/or find one’s land frozen. For example, of the 38,573 designated archaeological sites in BC, almost 11,000 were added after 2005 (British Columbia, 2012a). While the desire to protect potentially archaeologically significant sites from damage is understandable, the existing policy has several real-world effects: First, property owners who wish to sell their property but find it has been added to the provincial list of archaeological sites will find such property has been devalued. Second, any owner who wishes to develop a site must incur extra costs due to the regulation and with no compensation forthcoming. Third, existing property owners may be prevented from redeveloping their site without significant costs (the MacKay example). Fourth, some owners may not be able to redevelop their site at all due to First Nations opposition (the Hackett example) and the existence of an archaeological designation on one’s property could be pregnant with possible trouble. Fifth, such land is then effectively frozen and the owner is left with only one potential buyer—the First Nation that opposes moving of artifacts or remains.

Policy options on regulatory takings Given the threat to private property rights in British Columbia, there are two policy options available to remedy the situation.

Fraser Forum January/February 2013

First, the provincial government should abide by the language of its permits “the remains will be reinterred or relocated according to the wishes and protocols of local First Nations.” Second, local municipalities may (regardless of what the province does) still refuse to allow a development to proceed. That can lead to a partial or whole freezing of property which then leads to devaluation. This necessitates a second policy option: the province could change provincial legislation to treat “regulatory takings” as akin to expropriation. (This has happened in the past with the City of Vancouver and the Canadian Pacific Railway in 2000; see Milke, 2012 for more details). The latter practice is already part of the policy framework in Israel and several European countries such as Germany and Sweden. The “devil is in the details” in treating regulatory takings as expropriation actions, including questions of when and how much to compensate from the public purse. I examine just such questions and how this is done elsewhere in the world, in my book (Milke, 2012: 37-50). Importantly, a clause could be added to the provincial Heritage Conservation Act that treats such significant regulatory actions akin to expropriation. That would thus allow for the possibility of compensation and/or allow property owners to demand the province expropriate the property in question as per European and Israeli practice (Milke, 2012: 40-44). That would at least allow such property owners an exit out of these untenable situations.

References BC Treaty Commission (Undated). Land and Resources—Private Property. BC Treaty Commission. <http://www.bctreaty.net/files/issues_landres.php#3>, as of November 20, 2012.

Bond, Shane. (2007). Letter to Archaeology Branch from I.R. Wilson Consultants, dated November 7, 2007. British Columbia (undated). Crown Land Fact Sheet. Ministry of Agriculture and Lands. <http://www.for.gov.bc.ca/ land_tenures/documents/publications/ crownland_factsheet.pdf>, as of November 21, 2012. British Columbia (1996). Heritage Conservation Act. Government of British Columbia. <http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96187_01>, as of November 21, 2102. British Columbia (2008). Permits issued by Archaeological Branch, 2008. See Permit # 2008-0064. Government of British Columbia. <http://asbc.bc.ca/sites/default/files/ ASBCPermits2008.pdf>, as of November 21, 2012. British Columbia (2011). Heritage Conservation Act Site Alteration Permit, 20110210. Government of British Columbia. British Columbia (2012a). Ministry of Forests, Lands, and Natural Resource Operations. Email from interview with Brennan Clarke, December 21, 2012 and December 28, 2012. British Columbia (2012b). Ministry of Forests, Lands, and Natural Resource Operations letter from Doug Konkin to Musqueam Indian band, Shane Bond, and Gary and Fran Hackett (September 27, 2012). British Columbia (2012c). Ministry of Forests, Lands, and Natural Resource Operations. Access to Provincial Archaeological Information. <http:// www.for.gov.bc.ca/ftp/archaeology/ external/!publish/web/Access_to_Information_Policy_May_2012.pdf>, as of December 21, 2012. Canada, undated. Fact Sheet: Treaty related measures. Government of Canada. <http://www.aadnc-aandc.gc.ca/eng/1 100100016437/1100100016438>, as of November 21, 2012. Catacombs of Paris (undated). History of the Catacombs of Paris. Catacombs of Paris. <http://www.catacombes-de-paris. fr/english.htm>, as of November 21, 2012. Korstrom, Glen. (2012, October). Bones discovery threatens to sink couple’s life

Fraser Forum January/February 2013

savings. Business in Vancouver: 23-29. <http://www.biv.com/article/20121023/ BIV0111/310239942/-1/BIV/bones-discovery-threatens-to-sink-couple-8217-slife-savings>, as of November 20, 2012. Lavoie, Judith (2012, July 19). Ancient remains caught up in spat over reburial cost. Victoria Times Colonist. McCulloch, Sandra (2007, December 4). Midden muddles landowner’s plans. Victoria Times Colonist. <http:// www.canada.com/victoriatimescolonist/news/capital_van_isl/story. html?id=7e6d382e-b022-4a8f-86f544fbc2754e07>, as of November 21, 2012. Marshall, Jenn ( 2006, July 1). Bones unearthed at Foundry. Nanaimo News Bulletin. Milke, Mark. (2012). Stealth Confiscation: How governments regulate, freeze, and devalue private property—without confiscation. Fraser Institute. Tomlinson, Kathy (2011). Homeowner charged $35,000 by archeologists. CBC. <http://www.cbc.ca/news/canada/britishcolumbia/story/2010/04/19/bc-diggingbill.html>, as of November 21, 2012. Vancouver Province (2012, September 29). B.C. government cancels Marpole development protested by Musqueam band. Vancouver Province. <http://www. theprovince.com/technology/governme nt+cancels+Marpole+development+pro tested+Musqueam+band/7318206/story. html>, as of November 20, 2012. Vancouver Sun (2012). Musqueam protest slows morning commute on Arthur Laing Bridge. Vancouver Sun. <http://www.vancouversun.com/news/Musqueam+protes t+slows+morning+commute+Arthur+L aing+Bridge/6704680/story.html>, as of May 31, 2012. Williams, Arthur (2011, January 26). Cluculz Lake properties affected by archaeological site designation. Prince George Free Press. <http://www.pgfreepress.com/ news/114656304.html>, as of November 21, 2012. Yardley, Jonathan (2011). Respect for First Nations heritage acknowledged in Ganges building project. Gulf Islands Driftwood. <http://www.gulfislandsdriftwood.com/news/123548764. html>, as of December 24, 2012.

www.fraserinstitute.org

Disaster ignorance Walter Williams

ere’s a which-is-better question for you. Suppose a New Jersey motel room rented for $125 a night prior to Hurricane Sandy’s devastation. When the hurricane hits, a husband, wife, and their two youngsters might seek the comfort of renting two adjoining rooms. However, when they arrive at the motel, they find that rooms now rent for $250. At that price, they might decide to make do with one room. In my book, that would be wonderful. That decision would make a room available for another family who had to evacuate Sandy’s wrath. New Jersey Governor Chris Christie and others condemn this as price gouging, but I ask you: Which is preferable for a family seeking shelter—a room available at $250 or a room unavailable at the pre-hurricane price of $125? It’s not the intention of the motel owner to make a room available for another family. He just sees an opportunity to earn more money. It was not the intention of the family of four who made do with just one room to make a room available for another evacuating family. They are just trying to save money. Even though it was no one’s intention to make that room available, the room was made available as if intended. That’s the unappreciated benefit of freely fluctuating prices. They get people to do voluntarily what’s in the social interest—conserve on goods and services that have become scarce. Governor Christie told merchants that price gouging during a state of emergency is illegal because “during emergencies, New Jerseyans should look out for each other—not seek to take advantage of each other.” Christie warned: “The state Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.” It’s not just Christie who has threatened to prosecute sellers for raising prices. New York Attorney General Eric Schneiderman has launched an investigation into post-storm price increases after receiving consumer complaints about higher prices for everything from gasoline to hotel rooms.

www.fraserinstitute.org

WikiCommons

Christie, Schneiderman, and public officials elsewhere know better or have access to economists who inform them. But they’re playing politics with people’s suffering, emotionalism, and economic ignorance. By the way, politicians would serve us better by focusing their energies on tax gouging. Disasters produce ignorance in another way. Peter Morici is a professor at the University of Maryland and a former chief economist at the US International Trade Commission. He argues that Hurricane Sandy may prove to be an economic boon, writing: “Disasters can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact. Ultimately, Americans, as they always seem to do, will emerge stronger in the wake of disaster and rebuild better—making a brighter future in the face of tragedy.” Professor Morici is not alone in this vision. Nathan Gardels, editor of New Perspectives Quarterly, wrote an article titled “The Silver Lining of Japan’s Quake,” arguing the economic “benefits” of that disaster. Even Nobel laureates are not immune from this vision. After the 2001 terrorist attack, economist Paul Krugman wrote in his New York Times column titled “Reckonings; After the Horror” that as “ghastly as it may seem to say this, the terror attack—like the original day of infamy, which brought an end to the Great Depression—could even do some economic good.” He explained that rebuilding the destruction would stimulate the economy through business investment and job creation. Let’s set one thing straight: Destruction does not create wealth. The billions of dollars that will be earned by people in the building industry and their suppliers will surely create jobs and income for those people. But rebuilding diverts resources from other possible uses. Natural or man-made disasters always destroy wealth. Were that not the case, mankind could achieve unimaginable wealth through wars, arson, riots, and other calamities.

Fraser Forum January/February 2013

Fiscal performance of Canada’s premiers: 2012 edition Milagros Palacios, Charles Lammam, and Amela Karabegović

ith budget deficits and increased government debt expected in nearly all provinces yet again this fiscal year, prudent fiscal management is a pressing economic issue for many Canadians. And rightly so, as sound fiscal policy is a key determinant of a province’s long-term economic success. Sound fiscal policy means provincial premiers should focus on restraining the growth in government spending, ensuring balanced budgets, and keeping tax rates low. But some, according to a recent Fraser Institute study, Measuring the Fiscal Performance of Canada’s Premiers, have performed better than others (Palacios et al., 2012). The study measures the relative performance of 10 Canadian premiers1 on three key components of fiscal policy: government spending, taxes, and debt and deficits.2 Specifically, the study measures whether the premiers managed government spending in a relatively prudent manner; whether they maintained low and competitive corporate and personal income tax rates; and whether they balanced the books and paid down government debt. The performance of the premiers is evaluated for the duration of their time in office up until the 2011/12 fiscal

year. Each premier received an overall score (out of 100) and rank (out of 10) based on how they performed on each of the three components.3 Their overall and component scores are displayed in figure 1. Below is a brief summary of the results for each premier, starting with first ranked Kathy Dunderdale of Newfoundland & Labrador, and ending with last placed Greg Selinger of Manitoba.

Kathy Dunderdale, Newfoundland & Labrador Period evaluated: 2011/12 Government Spending: 2 | Taxes: 7 | Debt and Deficits: 1

In the one year evaluated, Kathy Dunderdale increased program spending by 4.7%. While the growth in spending outpaced the combined rate of inflation and population growth (3.3%), it was well below Newfoundland & Labrador’s nominal GDP growth (17.5%). Premier Dunderdale’s strong

Figure 1: The fiscal performance of Canada’s premiers Each premier received an overall score out of 100 based on his performance on three core components * indicates former premier.

Government spending

Taxes

Debt and deficits

Kathy Dunderland

David Alward

Brad Wall

Christy Clark

Ed Stelmach

Newfoundland & Labrador

New Brunswick

Saskatchewan

British Columbia

Alberta*

71.4

(overall score) 100.0

70.4

(overall score)

61.6

(overall score)

60.8

(overall score)

49.1

(overall score)

100.0 88.5 87.6

70.8 57.4 43.3

35.1

54.5

48.6 28.6

27.5

Fraser Forum January/February 2013

70.0

62.8 65.0

www.fraserinstitute.org

performance on government spending was thus partly driven by Newfoundland & Labrador’s significant economic growth, not her ability to restrain spending. Dunderdale performed poorly on taxation because she did not improve the competitiveness of her province’s corporate and personal income tax rates. This is unfortunate since Newfoundland & Labrador’s corporate income tax rate (14.0%) is second highest among the provinces. On a more positive note, she was one of only two premiers to record a surplus (2.31% of GDP)—the larger of the two—and reduce provincial net debt as a share of GDP (an 18.7% reduction in just one year).

2 Image Credits: Wikicommons, Government of New Brunswick, and Daniel Paquet

David Alward, New Brunswick

corporate tax rate (4.5%). He also allowed a previously announced marginal tax rate reduction to go through on incomes of $50,000 and $75,000. But New Brunswick’s tax rates on middle and high income earners are still generally higher than the flat tax rate of 10.0% levied in Alberta—the province with the most competitive personal income tax system. In addition, New Brunswick’s personal income tax system has four separate tax brackets compared to Alberta’s single bracket. Alward’s performance on debt and deficits lagged that of many of his counterparts; he recorded a deficit (0.81% of GDP) and increased net debt as a share of GDP by 0.5%.

Brad Wall, Saskatchewan

Period evaluated: 2011/12 Government Spending: 1 | Taxes: 1 | Debt and Deficits: 7

Period evaluated: 2008/09 to 2011/12 Government Spending: 7 | Taxes: 4 | Debt and Deficits: 1

Premier Alward was the only premier who reduced nominal program spending over his tenure. The 2.0% decline in spending occurred while the provincial economy grew 4.0% and the combined rate of inflation and population growth equalled 3.9%. On business taxes, New Brunswick tied with Alberta and British Columbia for having the lowest provincial corporate income tax rate in the country. Alward was in power when the rate decreased from 11.0% in 2010 to 10.0% in 2011, giving him the largest annual percentage reduction in the

Under Brad Wall’s leadership, Saskatchewan’s program spending increased by 7.7%, on average, each year. Spending growth was over twice the combined rate of inflation and population growth (3.5%) in the province, but stayed under Saskatchewan’s unusually high rate of economic growth (10.4%). Premier Wall did not reduce Saskatchewan’s relatively uncompetitive personal income tax rates, though he did allow a previously planned corporate income tax rate cut to go through from 13% in 2007 to 12% in 2008. Premier Wall maintained the second largest

Government spending

Taxes

Debt and deficits

Darrell Dexter

Jean Charest

Dalton McGuinty

Robert Ghiz

Greg Selinger

Nova Scotia

Quebec*

Ontario

Prince Edward Island

Manitoba

37.9

(overall score)

35.9

(overall score)

28.9

(overall score)

23.5

(overall score)

19.2

(overall score)

68.4 54.8 31.3

29.9

44.8

38.0 39.9

14.1

32.0 12.3

19.7

24.8

13.9

12.7 0.0

www.fraserinstitute.org

Fraser Forum January/February 2013

Christy Clark, British Columbia Period evaluated: 2011/12 Government Spending: 3 | Taxes: 3 | Debt and Deficits: 4

During Premier Christy Clark’s one year tenure, nominal program spending increased 2.7%—less than the rate of economic growth (4.5%) and the combined rate of inflation and population growth (3.3%).4 The Clark government did not change BC’s corporate and personal income tax rates, but did signal in their 2012 budget that BC’s general corporate income tax rate may increase one percentage point to 11.0% in 2014/15. Premier Clark recorded a deficit in 2011/12 (0.11% of GDP) and increased BC’s net debt as a share of GDP by 2.2%.

Ed Stelmach, Alberta Period evaluated: 2007/08 to 2011/12 Government Spending: 6 | Taxes: 2 | Debt and Deficits: 5

Alberta’s former premier Ed Stelmach increased program spending by an average annual rate of 5.9% from 2007/08 to 2011/12. The growth in program spending during his tenure exceeded both economic growth (5.0%) and inflation plus population growth (4.3%). Stelmach did not change Alberta’s personal and corporate income tax rates, which are among the lowest in the country. He recorded a deficit in four of the five years his performance was evaluated (0.03% of GDP on average) and used assets in Alberta’s Sustainability Fund5 to cover the shortfalls. The deficits he incurred were thus partly responsible for the Fund’s eroding balance. As a result, Alberta’s net assets declined as a share of GDP from 12.7% in 2006/07 (the year before he assumed office) to 5.6% in 2011/12.

Darrell Dexter, Nova Scotia Period evaluated: 2009/10 to 2011/12 Government Spending: 4 | Taxes: 10 | Debt and Deficits: 3

During Darrell Dexter’s time in office, Nova Scotia’s program spending growth (3.0%) doubled the rate of nominal economic growth (1.5%)

and outpaced the rate of inflation plus population growth (2.2%). On tax policy, Premier Dexter ranked last among the premiers. He did not make Nova Scotia’s general corporate income tax rate more competitive; instead, the provincial rate tied for being the highest in the country at 16.0%. Dexter presided over a personal tax system that levies some of the highest marginal tax rates in the country. Nova Scotia’s personal income tax system also has five separate tax brackets (tied for second most among the provinces). Premier Dexter fared better on debt and deficits despite averaging a small deficit (0.08% of GDP) and increasing provincial net debt as a share of GDP from 34.8% in 2008/09 to 35.8% in 2011/12.

Jean Charest, Quebec

Period evaluated: 2003/04 to 2011/12 Government Spending: 5 | Taxes: 8 | Debt and Deficits: 6 Jean Charest ranked in the middle of the pack on government spending. While in office, annual program spending growth (4.4%) surpassed both nominal GDP growth (4.1%) and the combined rate of inflation and population growth (2.7%). Charest had the dubious distinction of being the only premier to increase the general corporate income tax rate while in office. He also failed to reduce Quebec’s marginal tax rates on personal income, which are high compared to other provinces. Charest recorded a deficit in seven of the nine years that his performance was evaluated (averaging 0.74% of GDP) and Quebec now has the highest net debt to GDP ratio among the provinces at 49.4%.

Dalton McGuinty, Ontario Period evaluated: 2004/05 to 2011/12 Government Spending: 9 | Taxes: 5| Debt and Deficits: 9

Dalton McGuinty managed government spending using a spendthrift approach. He increased program spending by an average of 6.1% annually—nearly twice the combined rate of inflation and population growth (3.1%) and well over Ontario’s annual economic growth rate (3.6%). Shortly after entering office, Premier McGuinty broke a 2003 election campaign promise not to raise taxes. He increased personal income taxes by introducing the Ontario Health Premium, cancelled

Fraser Forum January/February 2013

www.fraserinstitute.org

Image Credits: Government of British Columbia, Duffy 2032, Keith Lehwald, Joshua Sherurcji, PrLog

average surplus (0.85% of GDP) among the premiers and reduced provincial net debt by more than half from 11.6% of GDP in 2007/08 to 4.8% in 2011/12.

the planned elimination of the personal income surtax, and increased business taxes by raising the general corporate income tax rate from 12.5% to 14.0%. Fortunately, he realized the destructive impact of some of those tax policies and reversed his position in his 2009 budget. A key budget announcement was a phased-in reduction to the general corporate income tax rate from 14.0% in 2009 to 10.0% by 2013. However, he cancelled the planned reductions in his 2012 budget so Ontario’s corporate tax rate stands at 11.5%. To finance the large increases in government spending over his tenure, McGuinty resorted to both tax hikes and deficits, inevitably resulting in increased government debt. During his tenure, Premier McGuinty recorded the second largest average deficit (1.03% of GDP) and increased Ontario’s net debt from 28.2% of GDP in 2003/04 to 36.0% in 2011/12.

Robert Ghiz, Prince Edward Island Period evaluated: 2007/08 to 2011/12 Government Spending: 8 | Taxes: 9 | Debt and Deficits: 8

Prince Edward Island’s program spending has grown 6.3% annually on average while Robert Ghiz has been in power. Such growth is double the rate of inflation plus population growth (3.1%) and well above economic growth (4.4%). Premier Ghiz did not reduce PEI’s general corporate income tax rate (16.0%), which is tied with that of Nova Scotia for highest in the country. He also did not improve the competitiveness of PEI’s personal income tax system. Marginal tax rates at key income levels are relatively high and the system has four separate tax brackets. Making matters worse, Premier Ghiz ran a deficit every year during his tenure (averaging 0.94% of GDP) and increased provincial net debt from 30.4% in 2006/07 to 34.7% of GDP in 2011/12.

Notes 1 At the time of writing, there were eight premiers currently in power and two former premiers. While Ontario premier Dalton McGuinty announced his resignation on October 15, 2012, he is considered a current premier because his party hasn’t yet chosen a successor. The successor will be selected in early 2013. 2 Each component contains multiple measures and there are, in total, 13 measures. For a review of the academic literature highlighting why each fiscal policy component is important for economic performance, see Lammam et al. (2010). 3 The first edition of Measuring the Fiscal Performance of Canada’s Premiers contains details on methodology (Lammam et al., 2010) and the most recent edition, which this article is based on, has references to data sources (Palacios et al., 2012). 4 As a result of returning to the provincial sales tax (PST), British Columbia had to repay $1.6 billion to the federal government that was originally intended as funding for BC to transition to the harmonized sales tax (HST). The $1.6 billion was excluded from BC’s 2011/12 program spending because it is a one-time spending item that the current premier inherited from the previous leader. Moreover, this one-time expense is not included in program spending in official government documents such as budgets and public accounts. It was also deducted in our calculations from BC’s deficit and net debt in 2011/12. 5 Alberta’s Sustainability Fund is made up of accumulated assets intended to offset unexpected drops in government revenue or increases in spending.

References Greg Selinger, Manitoba Period evaluated: 2010/11 to 2011/12 Government Spending: 10 | Taxes:6| Debt and Deficits: 10

Premier Greg Selinger ranked last for his management of government spending. For the two years his performance was assessed, he increased program

spending by an average of 7.8% each year—the highest annual growth in spending among his counterparts. Spending grew nearly two and a half times the combined rate of inflation and population growth (3.2%) and well beyond Manitoba’s annual rate of economic growth (4.9%). Selinger did not change Manitoba’s general corporate income tax rate of 12.0%. He also did not change personal income tax rates in the province. Also troubling, Premier Selinger averaged a deficit totaling 1.06% of GDP (which was the highest deficit among all premiers) and increased Manitoba’s net debt to GDP ratio from 22.8% in 2009/10 to 26.0% in 2011/12.

www.fraserinstitute.org

Fraser Forum January/February 2013

Dalton McGuinty’s legacy of poor fiscal management Charles Lammam and Milagros Palacios Joshua Sherurcij

t a recent political event, outgoing Ontario Premier Dalton McGuinty touted his legacy as leader of Ontario. “Our government hasn’t been perfect,” he said, “but when it comes to the big things that families count on us to get right—schools, health care, the environment, and the economy— we’ve gotten it right every time” (Sibley, 2012). As is often the case, there’s a gap between rhetoric and reality. That’s certainly the case when it comes to McGuinty’s claim about the economy. Since the McGuinty government assumed power in 2003, Ontario’s average annual economic growth rate has underperformed most provinces and the Canadian average—even in the period preceding the 2008 recession (Statistics Canada, 2011, 2012; calculations by the authors).1 But consider one policy area that McGuinty did not touch on in the quote above: fiscal policy. This is one of the “big things” the McGuinty government got terribly wrong. Sound fiscal policy occurs when a premier manages government spending in a prudent manner, balances the books, pays down government debt, and maintains low and competitive corporate and personal income tax rates. Doing so is important because

research shows sound fiscal policy is a key determinant of long-term economic success (Lammam et al., 2010). Unfortunately for Ontarians, when Dalton McGuinty steps down next year, he will be remembered as one the worst managers of fiscal policy in the country. Our recent study, Measuring the Fiscal Performance of Canada’s Premiers, ranked McGuinty eighth overall with a score of 28.9 out of a possible 100 and highlights just how bad his record was in relation to other premiers (Palacios et al., 2012). McGuinty’s poor performance is rooted in his inability to restrain the growth in government spending. During his tenure, the premier increased program spending by an average of 6.1% annually—nearly twice the combined rate of inflation and population growth (3.1%) and well over Ontario’s annual nominal economic growth rate (3.6%).2 Imagine if an Ontario family managed its budget the same way, increasing spending faster than its growth in household income; it would be on a quick path to financial ruin. Since government spending ultimately drives taxation, it’s no surprise that McGuinty relied on a combination of tax increases and deficits to finance his spendthrift ways.

Fraser Forum January/February 2013

www.fraserinstitute.org

McGuinty’s poor performance is rooted in his inability to restrain the growth in government spending.

McGuinty stepping down as premier next year, whoever succeeds him has an opportunity to better manage provincial finances and set the foundation for a stronger Ontario economy. Rather than getting the big things right, Premier McGuinty’s legacy of growing government debt and poor economic growth will be a long-term burden on Ontario’s families.

Notes 1 Specifically, from 2003 to 2011, Ontario’s gross domestic product (GDP) grew 1.4% annually after accounting for inflation. This growth ranked ninth among the 10 provinces and was below the Canadian average of 1.9%. From 2003 to 2007, Ontario’s inflation-adjusted GDP grew 2.2% annually (seventh among the provinces)—again below the Canadian average of 2.6%. 2 Unless otherwise stated, the data cited in this article are from Palacios et al. (2012).

References

While in power, McGuinty’s government recorded deficits totaling $54.2 billion. Partly because of these deficits, Ontario’s net debt has grown from $138.8 billion in 2003/04 (or 28.2% of GDP) to $235.6 billion in 2011/12 (36.0% of GDP). And there doesn’t seem to be an end in sight. A $14.4 billion deficit is planned for 2012/13 with plenty more over the next four years (Ontario, Ministry of Finance, 2012a, 2012b). The growth in government debt is one aspect of McGuinty’s legacy that will be felt for years to come. It will be a drag on future economic growth and add to the burden of repayment for Ontario’s next generation. This increased debt will also require more tax dollars to be spent on interest costs and less on public services and tax relief. To help pay for his government spending excesses, McGuinty implemented highly damaging tax increases. For example, he hiked the corporate income tax rate early in his first term which increased the cost of business investment in Ontario and sent negative signals to investors. Although McGuinty realized his errors and changed course, announcing a phased-in plan to reduce the general corporate income tax rate from 14.0% in 2009 to 10.0% in 2013, he has since changed his mind and will now leave the rate at its current level of 11.5%. Since the Fraser Institute began measuring the fiscal performance of Canada’s premiers, McGuinty has consistently ranked among the bottom three. With

www.fraserinstitute.org

Lammam, Charles, Milagros Palacios, Amela Karabegović, and Niels Veldhuis (2010). Measuring the Fiscal Performance of Canada’s Premiers. Fraser Institute. <http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/ research/publications/measuring-fiscal-performance-of-Canadas-premiers.pdf>, as of January 3, 2013. Ontario, Ministry of Finance (2012a). Budget 2012. Government of Ontario. <http://www.fin.gov.on.ca/en/budget/ontariobudgets/2012/>, as of January 3, 2013. Ontario, Ministry of Finance (2012b). Economic Outlook and Fiscal Review 2012. Government of Ontario. <http://www.fin.gov. on.ca/en/budget/fallstatement/2012/>, as of January 3, 2013. Palacios, Milagros, Charles Lammam, Amela Karabegović, and Niels Veldhuis (2012). Measuring the Fiscal Performance of Canada’s Premiers, 2012. Fraser Institute. <http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/ research/publications/measuring-the-fiscal-performance-ofcanadas-premiers-2012.pdf>, as of January 3, 2013. Sibley, Robert (2012, December 5). McGuinty touts his legacy while making no mention of teachers protesting. Ottawa Citizen. <http://www.ottawacitizen.com/news/McGuinty+touts+legacy +while+making+mention+teachers/7651882/story.html>, as of January 3, 2013. Statistics Canada (2011). Provincial and Territorial Economic Accounts: Data Tables. Statistics Canada. <http://www5.statcan. gc.ca/bsolc/olc-cel/olc-cel?catno=13-018-x&lang=eng>, as of January 3, 2013. Statistics Canada (2012). CANSIM Table 384-0037: Gross domestic product, income-based, provincial and territorial. Statistics Canada. <http://www5.statcan.gc.ca/cansim/a26?lang= eng&retrLang=eng&id=3840037&pattern=384-0037..3840042&tabMode=dataTable&srchLan=-1&p1=-1&p2=31>, as of January 3, 2013.

Fraser Forum January/February 2013

The “poor” are getting

RICHER

Niels Veldhuis, Charles Lammam, and Amela Karabegović

t’s hard to blame Canadians for believing the myth of income stagnation given the continuous stream of reports pointing to the low growth in average incomes over the past several decades. Others have taken the narrative even further. For example, in a recent column, Liberal leadership hopeful Justin Trudeau claimed: “In the past 30 years, the Canadian economy has more than doubled in size. But unlike times before, virtually all of the benefit of that growth has accrued to a small number of wealthy Canadians” (Trudeau, 2012). Or take the Conference Board of Canada’s recent How Canada Performs report that claims: “most gains have gone to a very small group of ‘super-rich,’ ” while “the average income level of the poorest group of people in Canada rose over the time period… but only marginally” (Conference Board of Canada, 2012). Thankfully, the story of stagnating incomes in Canada is just that: a great fictional tale. The reality is that most Canadians, including those initially in the lowest income group, have experienced marked increases in their income over the past two decades. Using Statistics Canada’s Longitudinal Administrative Databank, a recent Fraser Institute study, Measuring Income Mobility in Canada, tracks a cohort of over a million Canadians from 1990 to 2009 to see how their incomes changed.1 The study divides the people in the cohort based on their initial income into five income groups from lowest to highest with each group containing 20 percent of the total. It then examines the extent to which people move to higher and lower income groups over time. The results are telling, particularly for the lowest income group.

Within the span of a decade, 83 percent of Canadians initially in the bottom 20% of income earners in 1990 had moved to a higher income group. By 2009 (the last year for which we have data), 87 percent had moved up. In other words, nearly nine out of 10 Canadians who started in the bottom 20% had moved out of low income 19 years later. And those in the lowest income group weren’t alone in their upward mobility (see figure 1). Of those from the bottom 20% in 1990 that moved up, an almost equal proportion moved into each of the four higher groups (figure 2): 21 percent moved up to the second income group; 24 percent moved to the third income group; 21 percent ended in the second highest income group; and 21 percent of those who began in the bottom income group in 1990 ended up in the top 20% by 2009. Remarkably, more than two of every five Canadians initially in the bottom income group in 1990 ended up in the top 40% of income earners by 2009. What about the income levels of the poorest individuals? Those who began the 19-year period in the bottom 20% started with an average income of $6,000 earned through wages and salaries. But by the end of the period, their incomes had increased to an average of $44,100 (see table 1). Clearly, the “poor” (bottom 20% of earners in 1990) did not get poorer; they got significantly richer. As table 1 shows, the largest gains in income occurred for the lowest earners, not the “rich” (top 20% of earners in 1990). Individuals initially in the top 20% experienced a gain in their average incomes of $17,700 or 23 percent during the 19-year period, which pales in comparison to the $38,100 or 635 per-

Fraser Forum January/February 2013

www.fraserinstitute.org

Figure 1: Proportion of income group in 1990 that moved to a higher group by 2009 100

87% moved up after 19 years

80 70% 60 Percent

52% 36%

20 0% 0

Bottom 20%

Second

Third

Fourth

Top 20%

Source: Lammam et al. (2012).

Table 1: Average income of the same group of people in 1990 and 2009 (the increase shown in dollars and as a percentage) Average Average income in 1990 income in 2009 ($2009) ($2009) Bottom 20%

Income group in 1990

Dollar increase from 1990 to 2009

Percentage increase from 1990 to 2009

6,000

44,100

38,100

635

Second

16,500

44,500

28,000

170

Third

30,100

47,500

17,400

Fourth

45,700

60,100

14,400

Top 20%

77,200

94,900

17,700

Source: Lammam et al. (2012).

www.fraserinstitute.org

Fraser Forum January/February 2013

Figure 2: Proportion of income group in 1990 that moved to a higher group by 2009 21%

moved to the top 20%

21%

moved to the fourth group

24%

moved to the third group

21%

moved to the second group

13%

stayed in the bottom 20%

Note: Income is measured by wages and salaries Source: Lammam et al. (2012).

Fraser Forum January/February 2013

www.fraserinstitute.org

Figure 3: Typical lifecycle of income Exsum figure 1: Typical lifecycle of income

$ $

15yrs

$ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $

65yrs

Source: Lammam et al. (2012).

cent increase in the average income of those initially in the bottom income group. Indeed, the percentage change in income of the top 20% was the smallest among the five groups. Perhaps the most powerful conclusion, however, is with respect to income inequality. Consider that the average income of those initially in the top 20% in 1990 ($77,200) was 13 times that of those initially in the bottom 20% ($6,000). By 2009, those who were initially in the top 20% had an average income ($94,900) that was only twice as high as the income ($44,100) of those who were initially in the bottom 20% in 1990. Put simply, from 1990 to 2009, income inequality for the same people did not increase—it actually decreased. Of course, this differs significantly from the perception of many prominent voices in the income inequality debate. Unfortunately, they wrongly assume that Canadians are permanently stuck in the same income groups year after year. Appropriate measures of income inequality should follow the incomes of specific people rather than compare the average income of different groups of people at different points in time. This is precisely why income mobility is important for a more complete understanding of income inequality. Most Canadians start off with a relatively low income because they are young, new to the workforce, and lack work and life experience. Once they acquire education and job-related skills, their income typically increases until it peaks in middle age and then drops again once they

www.fraserinstitute.org

pass their peak earning years and prepare for retirement (see figure 3). The conclusion that Canadian incomes have stagnated and that inequality is on the rise couldn’t be further from the truth and misses one of the great Canadian virtues: We live in a dynamic society where the majority of us experience significant upward (and downward) income mobility over the course of our lives.

Note 1 Unless otherwise noted, all data referenced in this article are from Lammam et al., 2012.

References Conference Board of Canada (2012). Canadian income inequality—Is Canada becoming more unequal? Conference Board of Canada. <http://www.conferenceboard.ca/hcp/hot-topics/caninequality.aspx>, as of November 24, 2012. Trudeau, Justin (2012, October 30). Canadian middle class left out of the growth equation. Toronto Star. <http://www.thestar. com/opinion/editorialopinion/article/1280029--canadianmiddle-class-left-out-of-the-growth-equation>, as of November 24, 2012. Lammam, Charles, Amela Karabegović, and Niels Veldhuis (2012). Measuring income mobility in Canada. Fraser Institute. <http://www.fraserinstitute.org/uploadedFiles/fraser-ca/ Content/research-news/research/publications/measuring-income-mobility-in-canada.pdf>, as of November 24, 2012.

Fraser Forum January/February 2013

A transmission proposal that will cost Albertans dearly

wikicommons

Gerry Angevine

lectricity transmission on the Edmonton to Calgary corridor has occasionally been constrained or congested in recent years with negligible impact on the average consumer (AESO, 2010 and ENMAX, 2012). Despite this minimal impact, the Alberta Electric System Operator (AESO), the government organization mandated to manage the provincial electric transmission system and operate the wholesale electric market, has proposed a $3 billion project for two, separate high voltage direct current (HVDC) transmission lines between Calgary and Edmonton (AESO, 2012). This high cost project would increase the delivered cost of electricity. This has led consumers such as the Independent Power Consumers Association of Alberta, to strongly oppose the construction of the two lines which they believe to be unnecessary (IPCAA, 2012). However, the Alberta government enacted the Electric Statutes Amendment Act of 2009 proclaiming the proposed lines to be “critical transmission investments” and, when op-

position continued to mount, appointed a Critical Transmission Review Committee (Committee) to investigate whether the AESO’s proposal was “reasonable” (Legislative Assembly of Alberta, 2012). In February 2012, the government accepted the Committee’s recommendation that the lines be built as proposed; AltaLink and ATCO Electric, the two largest transmission facility owners in the province, are now proceeding with construction plans (CTRC, 2012). But given cost of the project, and the uncertainty regarding whether and to what extent transmission line construction is required, it would be wise for the Redford government to consider placing any further work on hold until the issue can be examined more carefully. The process by which the Committee sought to fulfill its mandate was inadequate and incomplete. Corporate and industry association stakeholders were each given only an hour to make often detailed and lengthy presentations to the Committee, including time for discussion.

Fraser Forum January/February 2013

www.fraserinstitute.org

Following a hearing process that was very compressed, given the importance of its task, the Committee simply summarized what it had heard and then provided two pages of “analysis” which regurgitated the AESO’s main arguments before concluding that the proposal was “reasonable.” Unfortunately, the Committee’s report provided no analysis whatsoever of the benefits and costs of the proposed high voltage direct current transmission lines or possible alternative solutions to them.1 Given the very high cost of building the proposed lines and the impact that this would have on electricity consumers, the Committee’s report is little more than a rubber stamp of the AESO’s proposal. AltaLink has estimated that the annual revenue required by the two high voltage direct current lines to cover borrowing and operating expenses and a return on equity as permitted by the regulator will amount to $344 million (AltaLink, 2012). Based on the AESO’s population estimate of 4.375 million in 2020, this implies that every Albertan will pay nearly $79/ year for the lines, and a household of 4 will pay more than $314/year. While the Committee suggests that the cost is only a few dollars a month on the average residential electricity bill, it misses the point that residential consumers will ultimately have to cover the higher transmission costs faced by most other consumers including municipalities, hospitals, schools, and commercial enterprises such as restaurants which, through time, will pass the higher costs on to their customers. For this reason, every effort should be made to determine whether there are feasible alternatives to the AESO’s recommendation. The AESO claims that new transmission lines are required instead of upgrades to the existing lines because of congestion on the north-south transmission path. However, as pointed out in presentations and submissions to the Committee, congestion has occurred infrequently during the past six or seven years and has generally only taken place during the hours from midnight to 6 a.m. when electricity demand is typically very low (ENMAX, 2012). While there is no guarantee that some congestion will not occur if the proposed lines are not built, the cost-benefit analysis provided in the University of Calgary’s submission to the Committee concluded that “the proposed construction of the two HVDC lines appears to be an over build of transmission capacity” that cannot be justified (Church and MacCormack, 2012). Moreover, because the volume of north-south transfers is likely to decline in the future because of retirement of aging coal-fired generators near Edmonton and construction of new gas-fired electric generation capacity in the south (such as the 800

www.fraserinstitute.org

MW Shepherd Energy Centre near Calgary) it was suggested that “a review of the critical designation of some of the transmission lines should be conducted and perhaps deferral of one or both HVDC transmission lines may be warranted” (TransCanada, 2012). Clearly, cost-effective alternatives need to be examined. Despite evidence that direct current (DC) transmission has no technical advantage over distances as short as 350 to 500 kilometres compared with the alternating current (AC) transmission technology currently in place throughout Alberta,, the Committee simply re-iterated the advantages of high voltage DC over AC transmission lines claimed by the AESO (Stantec Consulting et al, 2010).2 This, in spite of the fact that DC lines will cost an estimated $1 billion more than AC lines (AESO, 2012). The Committee made no attempt to justify this added expense by undertaking a benefit-cost analysis. Moreover, the AESO’s argument that the extra cost of DC lines might be largely recovered through reduced energy losses in the electricity transmission process itself is not realistic (Alberta Direct Connect Consumer Association, 2012 and The Forestry Group, 2012). 3 Building the two high voltage direct current lines proposed by the AESO would about double transmission capacity on the Edmonton-Calgary corridor. This appears to be excessive given that annual peak north-south transfers have been declining and are likely to decline further (IPCAA, 2012).

Conclusion The AESO and the Committee each failed to demonstrate that building two north-south HVDC transmission lines is the most cost-effective approach for addressing the transmission congestion challenges that the AESO claims need to be addressed. This important matter should be turned over to the Alberta Utilities Commission a quasijudicial organization, to examine. The government has already acted on the Committee’s recommendation that the Electric Statutes Amendment Act, 2009 be amended to give the Commission responsibility for approving transmission lines that are proposed in the future. The Commission should also be asked to decide whether the benefits and costs of building the two high voltage DC north-south lines indicated as “critical” in the Electric Statutes Amendment Act, 2009 justify their construction when examined alongside possible alternatives.

Notes 1 These include building a single 500 kilovolt AC line as well as solutions that don’t require any new transmission lines, includ-

Fraser Forum January/February 2013

Building these lines will cost an estimated $3 billion and add $75/ year to consumer bills Paul Moss

ing changes in the market rules that would allow more electric generation facilities in the south of the province to be called on when there is congestion on the north-south corridor.

School of Public Policy. <http://www.ctrc-ab.ca/xData/ CTRC/CTRC-%20U%20of%20C%20Presentation.pdf >, as December 28, 2012.

2 With alternating current transmission the direction of the flow of electrons switches back and forth at regular intervals or cycles (60 cycles per second in the US and Canada). Current flowing in most power lines and normal household electricity is alternating current. Direct current (DC) is electrical current which flows consistently in one direction as with batteries.

CTRC (2012). Powering Our Economy: Critical Transmission Review Committee Review. CTRC. <http://www.energy.alberta. ca/Electricity/pdfs/CTRCPoweringOurEconomy.pdf>, as of December 28, 2012.

3 Some electrical energy is lost during transmission from one point to another because the transmission wire provides some resistance to the flow of electrons.

References AESO (2010). AESO response to comment by Alberta Direct Connect Consumers Association. TCM Rule Stakeholder Comment Matrix. AESO. <http://www.aeso.ca/downloads/ TCM_Rule_94_AUC_ReFiling_Proposal_Paper__AESO_ Response_to_Stakeholder_Comment_Matrix.pdf>, as of December 28, 2012. AESO (2012). North-South Transmission Reinforcement 2012 Update. AESO. <http://www.ctrc-ab.ca/SBhattacharya_NS_2012_Update_Jan_24_FINAL.PDF>, as of December 28, 2012. Alberta Direct Connect Consumer Association (2012). Presentation to the CTRC. January 19. ADC. <http://www.ctrc-ab.ca/ xData/CTRC/CTRC-%20ADC%20Presentation.pdf>, as of December 28, 2012. AltaLink (2012). Presentation to the CTRC, January 20, 2012. AltaLink. <http://www.ctrc-ab.ca/xData/CTRC/CTRC-%20 AltaLink%20Presentation.pdf>, as of December 28, 2012. Church, Jeffrey and John MacCormack (2012). Presentation to the CTRC, January 12, 2012. University of Calgary

ENMAX (2012). Critical Transmission Review Committee Request for Information. ENMAX. <http://www.ctrc-ab.ca/xData/ CTRC/CTRC-%20ENMAX%20Submission.pdf>, as of December 28, 2012. Forestry Group (2012). Presentation to the CTRC. Foresry Group. <http://www.ctrc-ab.ca/xData/CTRC/CTRC-%20Forestry%20 Group%20Presentation.pdf>, as of December 28, 2012. Independent Power Consumers Association of Alberta (2012). Presentation to Critical Transmission Review Committee. IPCAA. <http://www.ctrc-ab.ca/xData/CTRC/CTRC-%20IPCAA%20 Presentation.pdf>, as of December 28, 2012. Legislative Assembly of Alberta (2012). Electric Statures Amendment Act (formerly Bill 50). Legislative Assembly of Alberta. <http://www.assembly.ab.ca/ISYS/LADDAR_files/docs/bills/ bill/legislature_27/session_2/20090210_bill-050.pdf>, as of December 28, 2012. Stantec Consulting, Areva, and Power Delivery Consultants (2010). Assessment and Analysis of State-of-the-Art High-Voltage Electric transmission Systems with Specific Focus on HighVoltage Direct Current and (HVDC), Underground or Other New or Developing Technologies. Summary of study commissioned by the Alberta Department of Energy. Alberta Department of Energy. <http://www.energy.alberta.ca/Electricity/ pdfs/TransmissionAssessmentSummaryFinal.pdf>, as of December 28, 2012. TransCanada (2012). Submission to the CTRC. TransCanada. <http://www.ctrc-ab.ca/xData/CTRC/CTRC-%20TransCanada%20Submission.pdf>, as of December 28, 2012.

Fraser Forum January/February 2013

www.fraserinstitute.org

Regulation Review

The crusade against plastic bags Fotolia

Kenneth P. Green and Elizabeth DeMeo

ecently, anti-plastic rhetoric has swept North America, resulting in a variety of public policy efforts to limit the use of plastic grocery bags. In the US, for example, Washington DC, has enacted a 5 cent bag tax (Gowen, 2010) while Washington State’s Bainbridge Island recently enacted an ordinance which outlaws plastic bags and imposes a fee on paper bags (Baurick, 2012). Here in Canada, seven provinces (Alberta, BC, Manitoba, Ontario, Quebec, Nova Scotia, and PEI) have taken a variety of steps to limit plastic bag use ranging from outright bans to negotiated agreements with bag distributors (Retail Council, 2012). Four municipalities (Leaf Rapids, MB; Fort McMurray, AB; Nain, NFLD; and Huntington, QB) have enacted plastic bag bans, and the city of Toronto recently considered, but rejected one (Environmental News Service, 2012). The question is, “does this make good public policy?” At the risk of letting the reader off the hook by stating our conclusions up front, the answer is “No, plastic restrictions offer little benefit (either environmental or with regard to human health), they impose significant costs, and, perversely enough, they may well increase risks to the environment and human health.”

www.fraserinstitute.org

The three central arguments used against plastic grocery bags are that plastic bags pollute the air and water, and pose a significant litter problem, clogging our lakes, rivers, and oceans.

Claim: Plastic bags pollute the air According to most plastic bag critics, it takes roughly 12 million barrels of oil to produce the 100 billion plastic bags used in the US each year (Sierra Club, undated). Environmental activists note the production and decomposition of plastic bags emits greenhouse gases and other pollutants at every stage of a plastic bag’s life (New York Times, 2007). This, however, tells less than half of the story, as most analyses of bag impacts don’t consider the costs and benefits of plastic bags relative to alternatives. A study released in 2011 by the Environmental Agency of England helps put environmental impact claims in perspective. In Evidence: Life Cycle Assessment of Supermarket Carrier Bags, researchers offer a “cradle-to-grave” review of seven different types of grocery store bags: con-

Fraser Forum January/February 2013

Cloth bags are not only less environ mental, but they pose their own risks to human health

ock Bigst

ventional lightweight plastic bags; plastic bags treated with a chemical to speed its degradation; a lightweight bag made from a biodegradable starch-polyester blend; a regular paper bag; a heavy-duty “bag for life” made from low-density polyethylene (LDPE); a heavier duty polypropylene bag; and a cotton bag (Edwards and Meyhoff Fry, 2011). The researchers compared the environmental damage done by the bags using a number of indicators of environmental impact, including global warming potential, acidification, eutrophication, human toxicity, and others. They found that the conventional plastic bag had the lowest environmental impact of the lightweight bags in eight out of nine impact categories and that biodegradable plastic bags had even larger environmental impacts than the regular kind. Paper bags performed poorly on the environmental impact tests, and the study found that they must also be used four or more times to match the global warming potential of the plastic bags. In sum, cotton bags were found to have a greater environmental impact than the conventional bags in seven of nine categories, even when used 173 times—the number of times needed for its global warming potential to be on par with that of a plastic bag.

Claim: Plastic bags pollute the water Another frequently recited argument in favour of banning plastic is that we face a crisis of plastic-encrusted waterways. Environmental groups paint horrific pictures of plas-

tic pollution like the Great Pacific Garbage Patch, which purportedly spans twice the size of Texas (Oceanic Defense, undated). Though it’s certainly true that plastic bags can be harmful to all things aquatic, it’s important, again, to put such claims in perspective. As assistant professor of Oceanography Angelicque White reports, the claims about the size of the Great Pacific Garbage Patch are simply wrong (2011). She explains, “The amount of plastic out there isn’t trivial, but using the highest concentrations ever reported by scientists produces a patch that is a small fraction of the state of Texas, not twice the size.” Moreover, “there is no doubt that the amount of plastics in the world’s oceans is troubling, but this kind of exaggeration undermines the credibility of scientists. We have data that allow us to make reasonable estimates; we don’t need the hyperbole.” And the contribution of plastic grocery bags to ocean plasticpollution is relatively small: environmental group Grow NYC estimates that only “7.5% of our waste stream consists of plastic film such as supermarket bags” (2012).

Dangers of alternatives Alternatives, such as trendy cloth bags, pose a danger. A closer look proves cloth bags are not only less environmentally safe as described above, but they pose their own risks to human health. In June 2010, Charles Gerba and colleagues at the University of Arizona and Loma Linda University released a study on contamination of reusable bags. As they explain in Assessment of the Potential for Cross Contamination of Food Products by Reusable Shopping Bags: Large numbers of bacteria were found in almost all bags and coliform bacteria in half. Escherichia coli were identified in 12% of the bags and a wide range of enteric bacteria, including several opportunistic pathogens. When meat juices were added to bags and stored in the trunks of cars for two hours, the number of bacteria increased 10-fold indicating the potential for bacterial growth in the bags. While some critics dismissed the study due to its partial funding by the American Chemistry Council, real world examples corroborate Gerbera’s results (Huffington Post, 2012). In October 2010, for example, a teenaged soccer player in Oregon fell mysteriously ill, kicking off a nasty strain of norovirus that quickly spread to her teammates and left scientists puzzled. Epidemiologists ultimately uncovered the bizarre yet treacherous culprit: a contaminated cloth grocery bag from the soccer player’s hotel room. An NBC report explains, “The girl had been very ill in the hotel bathroom, spreading an aerosol of norovirus that landed everywhere, including on the reusable grocery bag hanging in the room. When scientists checked the bag, it tested positive for the bug, even two weeks later” (Aleccia, 2012).

Fraser Forum January/February 2013

www.fraserinstitute.org

To avoid such dangers, epidemiologist Kimberly K. Repp (whose report on the mystery above appears in the Journal of Infectious Diseases) rightly advises that, “we wash our clothes when they’re dirty; we should wash our bags too.” Unfortunately, however Gerbera et al found that “reusable bags are seldom if ever washed and often used for multiple purposes” (2012).

Economic Impacts Finally, many proponents of the plastic bag ban spend the majority of their time on environmental benefits, and offer little substantive analysis as to the economic impacts of a plastic bag ban or tax. As it turns out, the economic case for plastic bag bans and /or taxes is less than airtight. A report released in January 2011 by the Suffolk University’s Beacon Hill Institute conjectures that Washington, DC’s bag tax, by making purchases more inconvenient, will lead consumers to reduce how much they buy in the District, which “will eliminate a net of 101 local jobs. The job losses will cause annual wages to fall by $18 per worker and aggregate real disposable income to fall by $5.64 million. The wage and income losses will combine to lower income tax collections.” A recent study from the National Center for Policy Analysis also found that plastic bags cost jobs: The NCPA surveyed store managers in Los Angeles County where a ban of thin-film bags took effect in July 2011, to determine the ban’s impact on revenues and employment. Over a one year period before and after the ban, stores that fell under the bag ban experienced a 10 percent reduction in employment, while employment in stores outside of the ban slightly increased (2012).

Conclusion The panic surrounding plastic grocery bags is largely unfounded. Despite continued demonization of plastic bags, the evidence shows that they’re less likely to be contaminated, typically save more energy than paper or cloth alternatives, and are less hazardous to marine life than is commonly conjectured.

References Aleccia, JoNel (2012, May 9). Reusable Grocery Bag Carried Nasty Notovirus, Scientists Say. NBC News. <http://vitals.nbcnews. com/_news/2012/05/09/11604166-reusable-grocery-bag-carried-nasty-norovirus-scientists-say?lite>, as of December 8, 2012. Baurick, Tristan (2012, April 11). Bainbridge Bans Plastic Bags. Kitsap Sun. <http://www.kitsapsun.com/news/2012/apr/11/ bainbridge-bans-plastic-bags/>, as of December 8, 2012. Beacon Hill Institute (2011, January). The Impact of Bill 18-150 on the Economy of Washington, D.C. Beacon Hill Institute at

www.fraserinstitute.org

Suffolk University. <http://www.atr.org/files/files/DCBagTaxStudy.pdf>, as of December 8, 2012. Edwards, Chris and Jonna Meyhoff Fry (2011, February). Evidence: Life Cycle Assessment of Supermarket Carrier Bags, Report SC030148. Environment Agency. <http://www.biodeg.org/files/uploaded/Carrier_Bags_Report_EA.pdf>, as of December 8, 2012. Environmental News Service (2012, November 29). Toronto Trashes Its Plastic Bag Ban. Environmental News Service. <http:// ens-newswire.com/2012/11/29/toronto-trashes-its-plasticbag-ban/>, as of December 28, 2012. Gerba, Charles P., David Williams, and Ryan G. Sinclair (2010, June 9). Assessment of the Potential for Cross Contamination of Food Products by Reusable Shopping Bags. Loma Linda University School of Public Health. <http://www.llu.edu/assets/publichealth/documents/grocery-bags-bacteria.pdf>, as of December 8, 2012. Gowen, Annie (2010, January 2). D.C. Bags Wasteful Shopping Habit With Tax on Paper and Plastic. New York Times. <http:// www.washingtonpost.com/wp-dyn/content/article/2010/01/01/ AR2010010101673.html>, as of December 8, 2012. GrowNYC (2012). Recycling Facts. GrowNYC. <http://www. grownyc.org/recycling/facts>, as of December 8, 2012. Huffington Post (2012, May 9). Reusable Shopping Bags Can Spread Stomach Flu Bug, Study Suggests. Huffington Post. <http:// www.huffingtonpost.com/2012/05/09/reusable-shopping-bagsstomach-flu_n_1503011.html>, as of December 8, 2012. Massachusetts Sierra Club. Plastic Bags. Sierra Club. <http:// www.sierraclubmass.org/issues/conservation/plasticbags/ plasticbags.html>, as of December 8, 2012. New York Times (2007, December 2). Rethinking Plastic Bags. New York Times. <http://www.nytimes.com/2007/12/02/opinion/nyregionopinions/NJplastic.html>, as of December 8, 2012. Oceanic Defense. Great Pacific Garbage Patch. Oceanic Defense. <http://www.oceanicdefense.org/campaigns/Great-PacificGarbage-Patch.html>, as of December 8, 2012. Repp, Kimberly K. and William E. Keene (2012, May 8). A PointSource Norovirus Outbreak Caused by Exposure to Fomites. Journal of Infectious Diseases. <http://jid.oxfordjournals.org/content/early/2012/04/19/infdis.jis250.full>, December 8, 2012. Retail Council (2012). Alberta Plastic Bag Distribution Annual Report March 2012. Retail Council. <http://www.retailcouncil. org/advocacy/alberta/issues/environment/Alberta_Plastic_ Bags_Annual_Report_2012.pdf>, as of December 28, 2012. Villarreal, Pamela and Baruch Feigenbaum (2012, August 16). A Survey on the Economic Effects of Los Angeles County’s Plastic Bag Ban. National Center for Policy Analysis. <http://www. ncpa.org/pub/st340>, as of December 8, 2012. White, Angelicque (2011, January 4). Oceanic ‘Garbage Patch’ Not Nearly as Big as Portrayed in Media. Oregon State University. <http://oregonstate.edu/urm/ncs/archives/2011/jan/oceanic%E2%80%9Cgarbage-patch%E2%80%9D-not-nearly-bigportrayed-media>, as of December 8, 2012.

Fraser Forum January/February 2013

Corporate headquarters in Canada

Wikicommons

Hugh MacIntyre, Jason Clemens, and Nadeem Esmail

he presence of a corporate headquarter can have numerous direct and indirect effects on a local economy. It can create jobs with higher pay and can attract other businesses to serve the corporation’s needs and those of its well-paid employees. From the corporation’s perspective there are efficiency gains to be had from sharing services and concentration of knowledge. Examining long term trends and changes in the concentration of major corporate headquarters can help to indicate where structural changes in investment and economic activity have happened. Given that establishing a headquarters for a major corporation is a large sunk cost1, changes over time can represent important shifts in the economy.

Which Canadian city is home to the largest number of corporate headquarters for Canada’s top 500 corporations? 2 How has this changed over time? Table 1 contains data from 1990, 2000, and 2011 (latest data available) showing how many corporate headquarters are located in Canada’s five main corporate centres: Montreal, Toronto, Winnipeg, Calgary, and Vancouver.3 Toronto was overwhelmingly the dominant location for corporate headquarters in all three years examined. In 2011, 32.6 percent of corporate headquarters for Canada’s top 500 corporations were located in Toron-

Table 1: Corporate headquarter overview City

1990 # of top % of top 500 HQs 500 HQs

2000 # of top % of top 500 HQs 500 HQs

2011 # of top % of top 500 HQs 500 HQs

Montreal

19.2%

18.4%

15.0%

Toronto

186

37.2%

190

38.0%

163

32.6%

Winnipeg

3.6%

2.8%

Calgary

8.8%

10.0%

16.2%

Vancouver

9.0%

8.2%

10.4%

Sources: FP Magazine, 1991, 2001, and 2012.

Fraser Forum January/February 2013

www.fraserinstitute.org

Table 2: Canadian corporate headquarters per 100,000 population, 1990, 2000, 2011 City Montreal

1990 2.9

2000 2.6

2011 2.0

Toronto

4.7

2.9

Winnipeg

2.7

2.6

1.9

Calgary

5.9

5.3

6.7

Vancouver

2.8

2.2

Sources: FP Magazine, 1991, 2001, 2009; and Statistics Canada (2011) http://www12.statcan.gc.ca/census-recensement/2011/ dp-pd/hlt-fst/pd-pl/Table-Tableau.cfm?LANG=Eng&T=303&CM A=535&S=51&O=A&RPP=25.

to. Calgary ranked second, Montreal third, Vancouver fourth, and Winnipeg last. Although Toronto still ranks first for corporate headquarters in Canada, it has shown a marked decline. It is also clear that this decline has taken place since 2000. On the other side of the country, Calgary has nearly doubled

its number of headquarters since 1990. Again, this change has predominantly taken place since 2000.

Is the absolute number of corporate headquarters an effective measure of corporate headquarter activity? No. A better way to measure corporate headquarter activity is to adjust for population. Simply counting the number of corporate head offices without adjusting for the size of the city ignores the real effect that the concentration of corporate headquarters can have on an economy. This concentration is important because of the associated spinoff effects. Support professionals such as lawyers, consultants, and accountants tend to establish themselves near headquarters and create a larger professional community, a greater concentration of knowledge, and easier access to high-quality services for other companies nearby. Table 2 contains the per capita measures for corporate headquarters for the same five cities for the same three years. By this measure, Calgary is by far the Canadian leader in the concentration of corporate headquarters, with 6.7 corporate head offices per 100,000 people in 2011. Calgaryâ&#x20AC;&#x2122;s concentration was more than double

Figure 1: Canadian corporate headquarters per 100,000 population, 1990, 2000, and 2008 8 7

1990 2000

2011

5 4 3 2 1 0 Montreal

Toronto

Winnipeg

Calgary

Vancouver

Sources: FP Magazine, 1991, 2001, and 2012.

www.fraserinstitute.org

Fraser Forum January/February 2013

Table 3: Private Canadian corporation headquarters by 100,000 population 2011 2011

Percent change in concentratoin of corporate headquarters

Montreal

1.8

-8.0%

Toronto

2.8

-5.5%

Winnipeg

1.2

-35.7%

Calgary

6.5

-2.5%

Vancouver

2.0

-9.6%

City

Sources: FP Magazine, 1991, 2001, 2009; and Statistics Canada (2011) http://www12.statcan.gc.ca/census-recensement/2011/ dp-pd/hlt-fst/pd-pl/Table-Tableau.cfm?LANG=Eng&T=303&CM A=535&S=51&O=A&RPP=25.

that of Toronto, which had 2.9 corporate head offices per 100,000 people (table 2; figure 1). Vancouver had 2.2 corporate head offices per 100,000 people. Montreal was fourth among the cities with 2.0 corporate head offices per 100,000 people, while Winnipeg had 1.9 corporate head offices per 100,000 people. Toronto has seen the greatest decline in corporate headquarters per 100,000 people since 1990. This is consistent with the fact that Toronto has also experienced the largest decline in absolute numbers of headquarters. The decline has been comparatively large. Toronto saw a decrease of 1.8 headquarters per 100,000 people, while the next highest decrease was for Montreal at 0.9 corporate headquarters per 100,000. The decline for Toronto can be explained, at least in part, by the large population growth that the Greater Toronto Area has experienced over the last two decades. Calgary was the only one of the five cities to increase its corporate headquarters per 100,000 people.

How does adjusting for Canada’s governmentheld corporations affect the rankings? There were a total of 52 government corporations among Canada’s top 500 corporations in 2011, representing 10.4 percent of the total. Twenty-three of the 52 (44.2 percent) are among the top 200 Canadian corporations. This means that 11.5 percent of the top 200 Canadian companies in Canada are government owned. Table 3 shows the concentration of private corporate head offices, excluding government-held corporations. If government corporations are removed from the mix, Winnipeg’s concentration is the most affected, dropping 35.7 percent (five headquarters). After Winnipeg, the concentration in Vancouver is the next most affected (9.6 percent, or five headquarters), followed by Montreal (8.0

percent, or six headquarters), and Toronto (5.5 percent, or nine headquarters). Calgary’s count is affected the least with a change of only 2.5 percent (two headquarters). This significant change in the absolute numbers of headquarters in each city does not have an impact on the rankings. Calgary and Toronto are still first and second respectively, and Vancouver comes in at third. Montreal remains fourth and Winnipeg remains last, but the margin of difference between the two increases.

Conclusion We have seen here three snap shots separated by a decade. The differences across each snap shot is revealing. Toronto still remains the pre-eminent heartland of Canada’s top corporations, but its importance has decreased over time. Calgary has long had the highest concentration of corporate headquarters and now has overcome Montreal as the location for the second most top-500 corporate headquarters. The general story that can be extrapolated from these facts is that there has been a general decline in the number of central-Canadian corporate centres at the same time as Calgary has seen an increase in the headquarters located in that city.

Notes 1 A “sunk cost” is a cost that has already been incurred and cannot be recovered. 2 Only corporate headquarters for the top 500 Canadian corporations as reported by the Financial Post are included in this analysis. 3 The five centers are defined as “Census Metropolitan Areas” by Statistics Canada for the 2011 census. This means, for example, that Toronto includes the Greater Toronto Area (Mississauga, Ajax, Aurora, Bradford West Gwillimbury, Brampton, Caledon, East Gwillimbury, Georgina, Halton Hills, King, Markham, Milton, Mono, New Tecumseth, Newmarket, Oakville, Orangeville, Pickering, Richmond Hill, Uxbridge, Vaughan, and Whitchurch-Stouffville). 4 Any corporation where the share of government ownership was less than 50 percent was not counted as a government corporation. Of the government owned corporations, 51 are wholly owned, while Enersource Corp. is 90 percent owned by the city of Mississauga.

References Financial Post Magazine (2012). The FP500. Financial Post Magazine (June): 56-79 Statistics Canada (2012). Population and dwelling counts, for cencus metropolitan areas, 2011 and 2006 censuses. Statistics Canada. <http://www12.statcan.gc.ca/censusrecensement/2011/dp-pd/hlt-fst/pd-pl/Table-Tableau. cfm?LANG=Eng&T=205&S=3&RPP=50>, as of December 28, 2012.

Fraser Forum January/February 2013

www.fraserinstitute.org

Leave a legacy of freedom and prosperity such a hy he had been w d ke as as w d ar hy he was hen Dick Shepp Institute and w er as Fr e th f o me loyal supporter ill, the answer ca W is h in t es u beq ility to also including a e the responsib av h l al e w at th on ng belief mbing of Lond o b vy ea quickly—a lifelo h e th living through ed for aircrew in er te n give back . After lu vo k ic D chewan s of WWII, oose Jaw, Saskat in the early day M to t n se as e, w k and e Royal Air Forc th m o fr order to give bac ed as le lms, Dick g. By 1946, re nal/industrial fi o ti for pilot trainin ca u ed n o g in d workin industrial strife g in go n o now married an en th s ncerned at the . By 1970, Dick’ 50 19 became very co in a ad an d turned to C ising agency fiel rt ve d /a ia England and re ed m ional marketing/ ent work in the nat pany, Independ m co n w o is h g n led to him starti Limited. is Media Analys ished and stitute was establ In r se ra F e th e well r, Four years late , joined. He’d don ip sh n ki te ia ed imm charitable Dick, feeling an and a few other te u it st In e th g , after 62 n ving back. Sadly and, by supporti gi n ai ag ce on to ick was ife Irene in 2008 w ed organizations, D ov el b is h ts were to e, Dick lost simple—all asse n years of marriag ee b ad h l il W eir joint children. Alzheimer’s. Th een their three w et b ly al u eq be shared gift to t of a generous en m ce n ou n an cy of tending the for leaving a lega ed However, after at se e th , n io at d d ute Foun eimer Society an h lz A e the Fraser Instit th of t or ther, Dick nted—in supp y gathered toge il his own was pla m fa is h h it ted w ute—and ious, Dick poin bv o e b ld the Fraser Instit ou w t n and Knowing the firs efited his childre en b explained why. es ti vi ti ac ’s as gone. ser Institute do so when he w out how the Fra to e u n ti n co ld d wou grandchildren an ffet or be a Warren Bu to d ee n ’t on d ou d, back! Y eans—it’s a soun m r “You must give ou to g in rd ch of us acco a Bill Gates—ea rd mple idea.” si —Dick Sheppa

Linda Ashton, Gift Planner

Tel: 604.688.0221 ext. 571 Email: linda.ashton@fraserinstitute.org Visit our new website: www.fraserlegacy.org