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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Forgotten Maritimes must drive our own growth

Herb Emery

When I talk to New Brunswickers about the need for economic growth, I often hear comments that suggest a complacency about what we actually produce and export. Who cares if our exports aren’t growing?

I believe that attitude comes from the security provided by federal cash transfers through what New Brunswickers see as the family ties and the obligations of Confederation. I don’t share that confidence in federal support for our province and region because the Canadian economy, and the interests of Central Canada in our region, ain’t what they used to be. We need to recognize that coming out of the COVID-19 recession in a few years’ time, we will need to be more self-sufficient with the loss of federal transfers. How much that hurts will depend on how well we are able to generate our own economy through exports.

Tommy Douglas offered a vivid description of Canada’s old transcontinental economy: “Canada is like an old cow. The West feeds it. Ontario and Quebec milk it. And you can well imagine what it’s doing in the Maritimes.” With our old cow economy, a prosperous diversified national economy was driven by specialization in natural resource exports in the periphery provinces, both west and east. Resource exports increased the incomes and populations of the resource-based regions which created a domestic market for central Canadian manufactured goods and services. The east-west axis of the economy was created with protectionist barriers, transportation investments and policies directing trade through Canadian corridors, and theoretically free trade in goods and mobility of people across provinces. The national interest was served by growing natural resource exports to stimulate interprovincial trade.

If the Canadian economy were simply the collection of several regional economic engines, then the national interest would be served by setting policy to maximize regional growth along with policies and institutions that ensure that the benefits are shared across Canada. That was certainly a focus of past federal governments who worked at addressing regional growth disparities.

The old cow Canadian economy started its decline with the adoption of free trade with the United States in the late 1980s. Ontario and Quebec shifted from benefiting from resource exports in the periphery regions to becoming their own economic engines, which were not seen as compatible with resource exports in the east and west. While New Brunswick fared reasonably well as late as 2014 with international exports, the province is now as dependent on interprovincial trade as Nova Scotia and Prince Edward Island, and is even more dependent on federal cash transfers.

Tom Courchene showed that as late as 1981, interprovincial trade was about equal to the value of Canada’s international trade, demonstrating the importance of the domestic Canadian market for the provinces. Free trade agreements with the United States and Mexico were turning points for the Canadian economy as growing trade values with the United States diminished the relative importance of the domestic market for Canadian producers through the 1990s.

The value of interprovincial trade for all provinces has been relatively flat since 1990. On the other hand, the value of international trade grew substantially throughout this period. By 2001, Canada’s international exports were 2.1 times the value of total interprovincial exports.

After 2001, the international to interprovincial export ratio for Canada fell and stabilized at around 1.5. New Brunswick was the strongest exporting province in the Maritime region after 2001, but has since fallen back to an international export performance only slightly ahead of P.E.I. and Nova Scotia by 2017.

Who cares if we have a dismembered “old cow” national economy? Well we should in New Brunswick, because the post-1993 period has seen provinces less linked and less dependent on each other for income growth. Economist Tom Courchene observed that “British Columbia is oriented towards the Pacific Rim and the U.S. Northwest; the energy-based Alberta economy competes with the oil and gas producing regions of the Texas Gulf; the breadbaskets of Saskatchewan and Manitoba keep a competitive watch on the US midwest; the Great Lakes economies of Ontario and Quebec are integrated with each other and with their counterparts south of the border; and the fortunes of Atlantic Canada likely will increasingly be linked to the Atlantic Rim and Boston/New York”.

As the economic prosperity of Canada’s provinces became relatively less dependent on each other, the extent to which the economic benefits from a region’s growth are shared by other regions has changed. In the past, income generated through resource exports in the periphery regions supported trade with Central Canada’s industrial heartland. In addition, federal transfers from “have” to “have not” provinces would have resulted in “‘second round’ spending impacts that tended to end up somewhere in Ontario. With the growth of north-south trade, however, these second-round spending impacts may now end up in North Carolina or Minnesota rather than in Ontario.

While Canada’s regions have always been economically distinct, the rising importance of north-south trade creates a new challenge of competing interests for the federal government and provincial governments other than in Ontario and Quebec. Where regional interests in the Maritimes or the West are in conflict, there will be challenges for the federal government in determining what is in the “national interest.”

The size of the Ontario economy, its population and electoral representation in Ottawa and the perceived and largely self-declared “dynamism” of its economy makes it increasingly likely that the interests of Ontario define the national interest insofar as federal policy is concerned. For example, Alberta’s energy boom after 2000 was interpreted as a situation where Alberta’s “regional interest” was not necessarily aligned with Canada’s “national interest,” because energy exports have been associated with declining Ontario manufacturing exports.

Ontario’s economic base has been largely in manufacturing and services, and unlike the resource-rich provinces of New Brunswick, Alberta, Saskatchewan, British Columbia and Newfoundland, its industrial base is inherently footloose. Given the large size of the Ontario economy in relation to Canada overall, Tom Courchene believes that the “national interest” is in “preserving and promoting Ontario as a preferred location within the NAFTA umbrella” and requires “a greater sensitivity to issues relating to North American comparative advantage.”

This perspective justifies “policies and processes designed to enhance the ability of Ontarians and Ontario to compete within the North American and global marketplace.” Courchene argues that if Ontario could not be the location of the next North America auto assembly plant, then the province would obviously prefer a Michigan location to a Canadian location in another Canadian province.

There are several warnings to take from this economic history lesson. First, the federal government really isn’t that interested in the industrial growth of the Maritimes, particularly if it is based on natural resource exports or carbon emissions intensive industry.

Second, the pressure will increasingly be, according to Courchene, to not allocate federal resources and effort to resource exporting “backward regions” like New Brunswick, when national competitiveness to attract “transnational-enterprise capital” will require government favouring “their most dynamic sectors and locations”: Ontario and Quebec.

Finally, we need to think about the sustainability of federal cash transfers to our province and region, should we become seen as a drag on central Canadian growth. The trade ties that used to bind the provinces together aren’t what they used to be.

Herb Emery is a Brunswick News columnist and Vaughan Chair of Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – July 29, 2020

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.