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Nova Scotia’s Stuck in the Past

by Collette Deschenes

Watch out Nova Scotians. You might be treated like a criminal accused of bootlegging if you happen to operate in-store brewing services. Nova Scotia is completely backwards with their antiquated liquor laws and the recent injunction by the Nova Scotia Liquor Corporation on in-store wine and beer making is a classic example.

In 2011, Nova Scotia’s NDP government granted legislation against in-store brewing. This legislation gives the NSLC the authority to obtain an injunction against any businesses found operating, ‘u-vint’ or in-store brewing services.

Recently, the province’s crown liquor corporation, and monopoly on liquor sales, set out to put an end to the u-vint operations at the Wine Kitz franchise in Halifax. The in-store brewing service at Wine Kitz offers up their space, allowing customers to make their wine in-store. It’s a convenient option for customers who may not have the ability, or space, to make wine at home. Customers can enjoy their own wine, without having to pay the high liquor store prices.  The public has been clear that they support u-vint services. Despite the obvious demand, the provincial government has no plans of stepping in.

The Wine Kitz case was adjourned until January 28th, giving owner Ross Harrington time to prepare his argument against the NSLC. Harrington said in a recent interview that if the injunction goes through, it will inevitably kill his business. He will be forced to make layoffs and cut staff hours. That is the sad reality of this senseless regulation. Wine Kitz is not alone in their fight against the injuction[i]. There are three wine and beer stores currently fighting against the province’s monopoly liquor corporation. These businesses are spending their time and resources to fight against this regulation.

Five other provinces have moved out of the prohibition days and into the present. Prince Edward Island, New Brunswick, Ontario, British Columbia and Saskatchewan all allow retailers to legally operate in-store brewing services. These provinces recognize in-store brewing as a viable service benefiting both businesses and consumers.  The u-vint Nova Scotia website[ii], dedicated to informing Nova Scotians about u-vint operations, states that on-site winemaking stores in Nova Scotia’s neighbouring provinces, New Brunswick and PEI, ‘have increased employment practices, paid increased provincial & federal taxes and increased business support to wholesales distributors and trucking firms’. If u-vint operations contribute to the economy, provide consumers with alternatives and grow businesses, where is the harm? Well the NSLC claims that the regulation protects other wine kit sellers from unfair competition. In reality, the NSLC is self-interested. They want to protect themselves against their perceived competition.

This week just so happens to be dubbed ‘red tape awareness week’ by the Canadian Federation of Independent Business. A week dedicated to creating awareness about the regulatory burden on small businesses. Nova Scotia earned a grade of ‘D’ in the CFIB’s national ‘Red Tape Report Card,[iii]’ showing no improvement since the 2012 report. The report stated that while Nova Scotia was ‘once a leader in regulatory reform, the government’s long-standing commitment to reducing red tape has largely stalled.’ It’s time for the province to stop stalling and move forward in their efforts to reduce the regulatory burden on businesses.

Moving forward, Nova Scotia needs to eliminate excessive regulations and red tape that stifle growth. We need our businesses to prosper. The province claims to support businesses and that ‘jobs start here’ yet legislation like this stops businesses from prospering and creating jobs. It’s time for Nova Scotia to step back into the 21st century.

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Disasters Are Disastrous: Sandy and the Windows she Broke

by Joseph Onorati

Hurricane Sandy will “actually give a boost to the economy” says Frank Holmes, CEO and CIO of money manager U.S. Global Investors. Eric Rosengren, president of the Federal Reserve Bank of Boston says the storm will cause an eventual economic boost. Paul Ashworth, chief US economist at Capital Economics says any losses should be made up as rebuilding boosts sales. Even the Canadian Financial Post published an article exploring the potential economic boost from Sandy.

The storm has killed many (a complete count is not available yet), caused billions of dollars in damage and billions more in lost potential output. Still some are telling us Sandy might be a good thing. Many others are telling us that Sandy will be an economic detriment, but only so after comparing the damages to the potential “gains” from spending in reconstruction. Both analyses are equally absurd. Rebuilding after a disaster is never a gain. It makes no sense to compare value lost to value spent replacing lost value. If Goldilocks breaks baby bear’s chair, and Mama and Papa bear buy a new one, we would not check the market value of the old chair, compare it to the new chair and somehow come away with it being a good thing that Goldilocks broke baby bear’s chair.

Frédéric Bastiat, a French political economist, described in “That Which Is Seen and That Which Is Unseen” what is sometimes called the “broken window fallacy.” Journalist and economist Henry Hazlitt re-wrote the story in his 1946 book, “Economics in One Lesson.” Evidently many modern economists have read neither. The broken window fallacy examines what happens when a shopkeeper’s window breaks. In the story, a crowd forms around a fuming shopkeeper, and they reassure him that because of the broken window, glaziers (those who cut and install glass) will be better off. The shop keeper might have to spend $100 to replace the window which will pay the glazier, who will in turn pay someone else and so on. They conclude that breaking of a window grows the economy. What is unseen, as Bastiat points out, is how the shop keeper would spend the money had the window not broken. In Hazlitt’s version, the shopkeeper planned to buy a suit with the money that very day. Because he had to spend to replace the window, he cannot purchase the suit. Tailors and their suppliers are made worse off in this case. The broken window might result in one part of the economy benefiting while the other is made worse off, but the shopkeeper wanted a suit, not a replacement window, and is absolutely made worse off.

Some economists and politicians do not see this in part because of the way we calculate economic growth namely Gross Domestic Product. It is one of the worst measures of prosperity. It measures all spending in an economy and weighs them equally against each other. When there is a disaster GDP might increase, but we are certainly worse off than we were before.

Sandy killed at least one hundred in the US and Canada alone, grounded aircraft, destroyed homes, buildings, roads, prevented people from going to work or enjoying their normal activities and broke a great many windows. Just as in Bastiat’s story, money will be diverted away from what would have been its highest valued use and channeled into rebuilding after the storm. If the storm had not come, the money that will be spent on lumber, windows and funerals would have instead been spent on things that people actually wanted like good food, iPads, clothes, hiring employees and so forth. Resources will be moved from one sector of the economy to another, but there will be no economic boost caused by Sandy—only destruction and loss. While GDP might rise, New Yorkers will get replacement windows instead of iPads.

The longer we hold onto the idea that macroeconomic indicators like GDP are significant and that replacing broken windows is as good as buying iPads, the more problems we will cause ourselves. A real measure of economic output or growth would look at whether people are actually made better off—not whether they spent money replacing their flooded homes or burying their relatives. We should reject macroeconomic indicators as measures of prosperity, especially ones that claim destruction is good for us.

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What not to do: Lessons from the Americans

What not to do: Lessons from the Americans

By  Charles Cirtwill and Joseph Onorati

The debate over bill C-377, which will essentially force unions to publicly disclose their political and lobbying activity, is fierce, but it misses the point. Similarly, the furor over “big oil’s” phone calls to the Prime Minister’s Chief of Staff is intense but misplaced.

The debate over how to constrain unions and businesses lobbying government is trivial compared to the real issue. The politically powerful are out to stick it to the rest of us. They are using the power of government to do it, and there is only one way to stop them.

The Fraser Institute recently reported that Canada is ranked fifth in the world for economic freedom. That will not last if we continue to allow big spending lobbyists (union or corporate) to purchase legislation that picks winners in the private sector—these same tactics have caused the United States to slide down the Economic Freedom Index, from number two in 2000 to eighteen this year. It is no surprise that 10 of the 16 richest counties in the US are Washington DC suburbs (where the lobbyists live). The more powerful the government, the more spending there will be on lobbying and the more redistribution from Main Street to Bay Street. Maybe we have our geography to thank, but no Ottawa postal code reaches the top 10 in net worth in Canada. That will change quickly if government continues to grow. The Occupy protests began a year ago, and we seem to have already forgotten their message.  Whether we understood everything they said or not, they knew that when powerful interests lobby for special favours everyone else loses. Economists call it rent-seeking; the rest of us call it cronyism.

Economist Gordon Tullock writes that governments do not typically grant favours on their own, “They have to be lobbied…into doing so by the expenditure of resources in political activity.” The concerns that drive C-377 are an example. Unions are spending millions to get what they want at our expense, and it is possible because government is powerful enough to execute massive transfers of wealth on behalf of whatever special interest pays the most. Unions are not alone in this, Charles Koch writes, when government favour “is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.”

The larger the government, the more often politicians will be wined and dined, taken on fishing trips and be the grateful recipients of fat campaign donation checks. The corporations and unions footing those bills will be paid back at our expense. Mancur Olson warned us in his book The Rise and Decline of Nations that as government grows so too does its power to redistribute (and not in the direction that the Occupiers would prefer). The decline Olson describes comes when interests with deep pockets use government to redistribute on their behalf until there is little wealth creation, and most of us are much poorer than we would have been if the lobbyists spent their money productively (investing, hiring, and creating products for us). We are seeing this decline in the United States evidenced by low rates of growth, rapidly growing government debt and their enormous drop in economic freedom.

Canadians should be asking: What role ought the government play in a free society?  Certainly something is wrong with our system when it encourages special interests to spend valuable resources that benefit politicians and government bureaucrats at great cost to the rest of us. At least our system is not as bad as the American one—yet.

There is only one peaceful and lasting way to prevent cronyism and the harm it causes. We must drastically and immediately reduce the size of government and strictly define its role. This would destroy the incentives to lobby. If government can’t dish out favours, no one will waste time and money to curry them.

Government ought to protect property rights, enforce contracts and the rule of law and if necessary, take care of those who can’t do so themselves. Unions and businesses ought to decide how powerful unions and businesses are rather than having both waste billions of YOUR dollars lobbying to rig the game. There is no justifiable reason to have government used to accomplish either side’s goals away from the bargaining table.

For now, however, government is the kingmaker in a contest in Ottawa that should not even be taking place in a free society. We would all benefit if the proper role of unions, businesses and government were re-established. If we do not act now we will follow in the footsteps of the declining United States to ever-growing government controlled by fat cats bankrolling politicians and bent on extracting all they can from a sinking ship.

Joseph Onorati, an American, is an author for the Atlantic Institute for Market Studies, an independent social and economic think tank based in Atlantic Canada. Charles Cirtwill is AIMS President.

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Muskrat Falls risks should be limited

Muskrat Falls risks should be limited

 

by Gordon Weil

The Muskrat Falls project could bring benefit to Newfoundland and Labrador if its risks were reduced. Muskrat Falls is part of a major hydropower resource in northeastern North America, and it can provide reliable power at a predictable price for decades.

This positive conclusion must be tempered by the need for an in-depth review that would protect the province’s electric customers from bearing an overly large burden of risk and also give them the chance to benefit from the project’s success. These are my recommendations in a recently published analysis of the project.

Both proponents and opponents may have misread the meaning of these recommendations. Proponents seem to worry that an in-depth review would be intended to kill the project, while opponents appear to hope that it would do just that. Neither is correct.

A regulatory-type review, either carried out by the province’s Public Utilities Board or a special panel appointed by the government, could provide objective assurance about this large project, whose impact will be felt in Newfoundland and Labrador for decades to come.

It would go beyond the extremely long-range projections of consumer benefit on which the project is now based and set limits on the amount of the customer’s risk of higher rates.

Because all regulation is a delegated legislative function, the ultimate decision on the project will remain with political officials, who would accept or reject conditions set by the panel just as they will accept or reject any conditions put on the federal loan guarantee.

Currently, the focus is on whether Muskrat Falls provides more benefit to the province than the alternative of retaining units now in service and making incremental, local additions to the mix.

Proponents make such a narrow analysis, while opponents want to debate it before a regulatory body. But it misses the potential value of the project to the Atlantic-New England region, which could provide Newfoundland and Labrador with revenue offsets to the costs of the multibillion-dollar project.

One major risk comes from holding 40 per cent of the Muskrat Falls output for short-term sales, which might be more profitable than long-term sales. Nalcor advocates keeping this power available to support future industrial development. These policies may increase potential value, but both also increase risk.

Such policies may make sense for an investor-owned company, where the danger of miscalculation falls on shareholders who chose to buy its stock. Nalcor wants to act in the same fashion, but it’s not in the same position.

Nalcor is part utility, serving as the principal supplier of power in the province. The relationship of any utility to its customers should be regulated. The opinion of one outside expert like Manitoba Hydro International is not a substitute for that oversight and does not offer customers enough protection.

Nalcor has only one shareholder, the provincial government, acting for its taxpayers. While it is true that they have empowered the government to act for them, people in the province could be involuntarily put at risk.

A review can protect ratepayers and reassure taxpayers. It need not mean that the decision on moving forward with the project is given to experts rather than political institutions, though that is frequently the practice elsewhere.

And such a review would not necessarily slow down the project. The Nova Scotia utility regulator will examine ratepayer-related aspects of the project, and its process should take about the same time as one in Newfoundland and Labrador.

To be clear about this approach: by putting a cap on costs that can be imposed on customers and by taking into account sales of Muskrat Falls power outside of the province, a regulatory-type review can improve the chances of the long-run success of the project.

A review could replace projections based on an unrealistic 50-year period with a shorter-term analysis. By using revenues from long-term, off-system sales to replace these projections, Muskrat Falls’ benefits could be both greater and more secure.

The proposals in my paper are mainstream and consistent with the standards and practices applied to utility capital projects across North America. If Newfoundland and Labrador is to be connected to the continental grid by this project, it may want to consider playing by the usual and accepted rules of its new world.

My paper has been criticized on the grounds that its publisher, the Halifax-based Atlantic Institute for Market Studies, is conservative. AIMS has never exercised any control over the substance of my writing, and all my papers are peer-reviewed. I have decades of experience in the electric utility sector in Canada and the United States, and that experience informs my conclusions. Therefore, I believe the paper should be judged only on its merits.

Gordon Weil is an energy market expert and author of the recent paper “The Muskrat Falls Hydro Project: Opportunities and Risks.”

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Economic Freedom in the Maritimes and Stan Rogers

Economic Freedom in the Maritimes and Stan Rogers

By: Joseph Onorati

I love Stan Roger’s music—maybe you do too. I particularly enjoy his songs that comment on social and economic changes, and what one might identify with American Austrian economist Joseph Schumpeter’s popularization of the phrase “creative destruction.” In one of my favourites, “The Idiot”, Rogers recounts the story of an easterner who moved when factories were closing in his province, employment was scarce and he did not want to go on “the dole” because he “takes nothing free.” Instead he moved west to a new city (probably in Alberta). He misses his home town, but he finds “self-respect and a steady cheque” at his new job.

The song was written over two decades ago, but the situation he describes has not changed much. Factories in the east continue to close, and hardworking young people are still moving west. Rogers writes in “Make and Break Harbour” that “the young folk don’t stay with the fisherman’s ways long ago they all moved to the cities.” The reason appears to be a simple one: wages on average are higher and unemployment is lower on average in the west than in the east. Rogers writes in “Free in the harbour” about Newfoundland fishermen going west, “With lop-sided grins, they waggle their chins and they brag of the wage they’ll be earning.” Why are (or were) wages higher in the West?

Canada recently made the top five in global economic freedom ranking, but most of us know that this high score is not because of freedom in the Maritimes. The Fraser Institute in their 2011 data set on economic freedom presented data on each state and province in North America. The numbers are telling for the Maritimes. According to many economists, economic freedom is one of the key components of growth and prosperity. If the economists are right, we would expect Alberta to be relatively free and the Maritimes to be relatively less free.

According to the data set, Alberta is not only free, but it is the freest place in North America. PEI is dead last, Nova Scotia is second to last and New Brunswick is fourth to last. At least we have one province (barely) freer than Quebec (in 2009). Just for reference, Delaware is the second freest state or province in North America, and Texas is third. Ask an American what they know about Delaware, and I bet the most common answer will be “It’s where I send my credit card bill.” Almost every credit card company and many banks are headquartered in Delaware because of their not-so-burdensome tax system and lack of usury laws. Texas is famous in part for friendliness to business, relatively high economic growth and lack of burdensome government.

So, it looks like the economists are right: economic freedom encourages growth and prosperity. Some might argue that Alberta is rich with natural resources and that is why it is wealthy. The Maritime Provinces, too, have abundant natural resources, but government restricts extraction which could be part of the problem. International development economists typically associate a wealth of natural resources with low economic freedom and poor economic growth, however. For example, central Africa is rich with resources but poor otherwise. Russia and most of the Middle Eastern countries are also resource rich but lack economic freedom and suffer from relatively low economic growth rates. The correlation between resource wealth and lack of growth is sometimes called the “resource curse” by economists. Hong Kong has practically no natural resources aside from a harbour, but is one of the freest and most prosperous areas in the world. Only in regions with secure private property rights and less restrictive government is growth possible whether natural resources are present or not.

Maritimers move west because of the greater economic prosperity, growth and resulting employment opportunities available there because the government is not as burdensome as it is in the east. If we could make the Maritimes economically freer like Alberta or Hong Kong, then we would have people moving here looking for work and plenty of jobs for ourselves. We could bring the “Calgary roughnecks from Hermitage Bay” back home.

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Economic Action Plan? Just Watch Him

Economic Action Plan? Just Watch Him

Canadian Premiers have invited the Prime Minister to a summit on the economy this fall. In clips aired on local radio Nova Scotia Premier Darrell Dexter explains that “we need to know what Canada’s action plan is going to be going forward”. When I heard that line, my reaction was immediate, have they not been paying attention?

Love it or hate it, Canada’s economic action plan (not to be confused with “Canada’s Economic Action Plan”, the one of pork barrel election style spending) is well settled and well underway. It involves lower taxes, smaller government, freer trade and more reliance on personal responsibility. It is about playing to our economic strengths and, to the extent judged prudent and possible, getting government out of the way.

This federal government has, among many other efforts, entered free trade talks with India, pursued negotiations to conclude a Comprehensive Economic and Trade Agreement with Europe, and launched a full court press to get Canada into the Trans-Pacific Partnership.  They have made changes to Old Age Security and Employment Insurance to make the programs more sustainable and to send a clear message to individual Canadians that, where they can, they should contribute more to their own long term security.

They have reduced taxes and are beginning to slow the rate of growth in government and may actually shrink it from the all-time high achieved under their watch. Changes are also underway to make it easier, within the bounds of prudent environmental review and safety precautions, to move expeditiously with resource based exploration and development.

These changes have not been undertaken in secret. The Prime Minister has campaigned on this agenda (or something close to it) in four general elections, plus his own original MP by-election. Indeed, before entering elected service he had spent much of his adult life making the philosophical and evidentiary case for just such an agenda.

For that matter I suspect that even before I cited them, anyone reading this piece and likely most of the people they know, could have listed these examples of Canada’s economic action plan in action. Certainly Mr. Mulcair, the Leader of the Opposition, knows them well and has been aggressively attacking each and every one of them.  It strikes me that only the Premiers seem not to know what Canada’s economic action plan is.

I reach that conclusion not only from their most recent words, but from their ongoing deeds. Between Christy Clarke’s “fair share” and David Alward’s “buy New Brunswick” strategies, it becomes clear that free trade is not a provincial option. The size of government in just about every province is growing, not shrinking. On the tax front Darrell Dexter has taken a page from Harper’s handbook, offering to cut the HST/GST by a point or two if re-elected to office next time. But other provincial taxes are and will remain high, and Nova Scotia has yet to live up to a long standing promise to at least index taxes to inflation.

As for taking responsibility, there isn’t a provincial problem that Dalton McGuinty or Jean Charest are not happy to lay at Ottawa’s door. And, with their recent report on guaranteed increases to federal health spending, otherwise known as “cuts” in the language of the Premiers, all of their colleagues continue to demonstrate far too great a willingness to stay on that particular bandwagon.

Rather than grandstanding with public invitations, the Premiers should just take the advice of a previous Prime Minister. If they want to know what Prime Minister Harper plans to do on the economy, they should actually watch him. Better still, if they want a nationally coordinated economic strategy, they might consider emulating him.


Charles Cirtwill is President of the Atlantic Institute for Market Studies, an independent economic and social policy think tank based in Atlantic Canada.

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Marketing Freedom, Market Freedom

Marketing Freedom, Market Freedom

By: Alanna Newman

Today marks the start of something new in Western Canada: the end of a 77 year monopsony on wheat, durum and barley for Manitoba, Saskatchewan, Alberta and part of British Columbia.  As a result of Bill C-18 the Canadian Wheat Board is now voluntary.  It marks the beginning of a new era for Western Canadian agriculture: an era where farmers can opt-out of the board, and market their own grain in hopes of earning a better price.  Previously, farmers east of Manitoba could join optional marketing boards to sell their goods, but unlike the Canadian Wheat Board, were non-compulsory.

This step towards marketing freedom, and indeed, market freedom could not have occurred at a better time.  On July 31st, 2012 people across the world celebrated the 100th anniversary of the birth of Milton Friedman.  Friedman was with out a doubt the most influential economist of the 20th century.  He expressed his free-market views in a manner which the everyday individual could grasp the concept.  He did not merely speak to academic institutions.  If Milton Friedman was alive today, what would he think of the Canadian Wheat Board?  He would celebrate the step towards freedom and participation in the open market.  He would see this as a step forward for the Canadian economy and for Canadian society.

“We’re ready for this new environment” Ian White, Canadian Wheat Board president and CEO told reporters.  He unveiled the new business plan to face the future of Canadian agriculture.  If the Canadian Wheat Board is truly the best way to market wheat, durum and barley it will be successful in its endeavors.  However, now that the market is open it may find that it must become innovative to keep up with the market place.  Agriculture Minister Gerry Ritz explained that the shift away from the Canadian Wheat Board grants the same freedom to farmers to make business decisions that regular businesses take for granted.  This will empower farmers to get the prices they want.

Some caution that this could lead to “competition” among farmers…as if that’s a bad thing!  As a society we do not scold a new business from opening because it could make things harder on other businesses on the area.  Why should farmers be barred from a competitive market place?  Market freedom means farmers can explore opportunities to add value to their wheat and barley, without having to buy back their own crop.  Furthermore, farmers can explore opportunities to improve, market, and sell their products to any buyer- not just the Canadian Wheat Board.

Today, we can celebrate not only marketing freedom for farmers in Western Canada, we can celebrate market freedom.  Now that the Canadian Wheat Board is an optional association, farmers across the country will all enjoy the freedom to add value to their goods and sell the to any willing buyer.  This is a step away from bureaucracy and a step towards a fair, open market.  Let us wish Milton Friedman a happy birthday, and celebrate the Canadian market becoming just a little bit more open, and just a touch more voluntary.

Alanna Newman is the Manning Centre for Building Democracy Summer Policy Intern at the Atlantic Institute for Market Studies, a social and economic policy think tank based in Halifax, Nova Scotia.