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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

What a no-growth N.B. would look like

Herb Emery

Many New Brunswickers are interested in having a larger population and higher incomes. Based on this, I have written several commentaries pointing out that for growth to occur, the economy must be led by the private sector and success could be measured in terms of increased private sector investment. 

I’ve pointed out that the comparative advantage of New Brunswick is its abundance of natural resources in demand on global markets, or at least the United States. Historically, natural resource exports have attracted capital, grown the population and increased GDP. 

But I am learning some New Brunswickers see the way we grow as more important than growth itself. They think growth that results in environmental risks should not be pursued. And that growth resulting in greater income and wealth inequality should not be pursued.

Exploiting the province’s forests and minerals are problematic under this view. Given the capital intensity of mining and the forest sector, these activities are seen as not helping “the people,” while big business profits. Fishing and agriculture seem to get less negative attention, so long as the perception is that benefits accrue to small family farmers and fishing operations.

Consequently, there is an alternative perspective that GDP growth is the wrong policy target. Rather than letting the private sector lead, this view says government should guide how we grow to improve our well-being in a holistic way, which better achieves distributional objective and protects the environment.

GDP and income provide “materialistic’ measures of well-being – “more stuff equals more happy.” Based on our level of GDP and average incomes in New Brunswick, we have less stuff than Canadians in other provinces, but a lot more than many other countries. Globally speaking, New Brunswick is a high-income society, but it has not had the same rise in income inequality as the higher-income provinces over the past 30 years. 

Yet, research has shown New Brunswickers have high self-reported life satisfaction compared to residents of higher-income provinces. In other words, we have less stuff, a more equal distribution of stuff, and we are happier turn. 

So why do we need to grow GDP? Ultimately, we don’t. If we are content with the amount of stuff we have now, then we do not need more. We may even decide we have more than enough stuff and can lower our consumption without sacrificing our happiness.

If higher income does not make you personally happier, then you should not object to government taking a higher share of your income to pursue policy and objectives that make people happier, like reduced income inequality. (I moved here from high-income and low-tax Alberta, so I have some street credibility with this perspective).

But – and it’s a big but – an economy that is not growing (like New Brunswick’s since 2008) needs to accept some realities.

First off, our population will shrink, but that is not necessarily a problem. Greater Moncton and Greater Fredericton are growing in terms of population and GDP. So we know the smaller provincial population will be concentrated in the two cities if current trends continue, while most losses will be in rural New Brunswick. 

Unfortunately, happiness on its own does not pay the bills. With a smaller population and stagnant incomes, the province’s tax base will shrink. With existing levels of debt and no income growth, it will be difficult to borrow to pay for quality-of-life services or investments. To pay off debts, we will need to pay higher taxes.

The impact of the baby boom generation on a province that is not growing will have a higher dependency ratio. This means more transfers from younger, economically-active age groups to economically-inactive seniors.

Expenditures for public services will need to adjust. Our geographic distribution of public assets and services will need to reflect this greater concentration of population in the two cities. Yes, we will need to close or repurpose some hospitals and schools. 

Public sector resources will need to be better allocated. Education spending should contract with enrolment in schools, colleges and universities. Dollars for medical treatment should shift to services that aging New Brunswickers need more, such as non-medical care and suitable places to live. 

Public sector compensation levels should not grow if the tax base does not grow; otherwise, the redistribution from fewer and lower-paid private sector workers to higher-paid public sector employees will drive income inequality. Public sector compensation needs to fall to bring expenditures in line with tax revenues and federal transfers.

In other words, New Brunswick can embark on a social innovation agenda on a scale not seen since the rise of the welfare state after World War II. All we have to do is figure out how to pay for what we need and keep New Brunswickers happy – without damaging the environment, generating income inequality and growing GDP.

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

This article first appeared in Brunswick News publications – Aug. 15, 2018

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.