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Updates from the Prairie Centre Policy Institute from Regina, Saskatchewan.
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web posted May 26, 2003
Foundations for wealth creation: The climate for enterprise
By Dr. Graham Parsons
The following commentary is one in a series excerpted from a report published by the Prairie Centre Policy Institute, entitled, "This Year Country: Creating Wealth in Saskatchewan". Written by Dr. Graham Parsons, former Chief Economist for Western Canada with the Canada West Foundation, the report examines the potential for economic growth in Saskatchewan.
Historically, Saskatchewan had been a province of great vision and enterprise. A farm sector with thousands of farms, each of which was a small business that innovated, took risk and over time created a large number of new industries in the province. These included farm machinery and the many other farm service and supply companies which regularly applied the latest technologies to farm production and marketing. This remains the case today, but on a much smaller base of farmers. Similar development occurred around Saskatchewan's mining and energy industries.
Entrepreneurs are critical to wealth creation and economic development because they are the agents of change that moves a society or an economy from one state into another. They are the risk takers, the investors in the new technologies and the creators of wealth for the next generation.
Entrepreneurs are often, but not always, the trained and educated sector of
a society - the sector that, as we have already seen, increasingly has to leave
the province to find work in their chosen field. While the lost employment
and weakened family ties are important, it is perhaps the loss of generations
of potential entrepreneurs that most affects the province's
One central element in an entrepreneurial society is the ability to reward entrepreneurs as agents of change in the new economy. That is to allow an entrepreneur to keep the rewards from their creative risk taking. The modern way of determining how much a successful entrepreneur can and should keep is through the personal tax system. The Saskatchewan provincial tax system clearly works against the development of entrepreneurs when compared against other Canadian provinces.
For the most part, based on provincial 2001 personal tax comparisons, other Canadian provinces are more supportive of entrepreneurs than Saskatchewan (see table below).
The provincial income tax data simply shows that Saskatchewan ranks nine out of ten for $25,000 annual taxable income, seventh out of ten for incomes of $50,000 and sixth out of ten for incomes of $75,000. Clearly, for entrepreneurs wishing to take risk, invest in new markets and technologies, and in the long term create jobs, other provinces offer a more favorable tax environment.
Such differences may not be significant if rankings are close. However, this is not the case. On a tax comparison, Saskatchewan is nearly double the lowest Canadian personal income tax rate at incomes of $25,000 and $50,000 and nearly 60 per cent higher than the Ontario rate for incomes of $75,000.
Comparison of Provincial Income Tax
Source: Saskatchewan Department of Finance, 2001 Budget, Regina, pp.68/9
Dr. Parsons sits on the Prairie Centre Policy Institute's Board of Academic Advisors. "Where do we Go From Here? Is a feature service of the Prairie Centre.
web posted May 19, 2003
Government intervention in economy killing province
By Norman Wallace
As a member of the Saskatoon Regional Economic Development Authority board, I attended the mid-April Investment Future Forum on a guest basis. My disappointment in it resulted in my walking out shortly after the meeting began. It was the most disappointing session I have ever attended.
My initial observation revealed that government corporations, government agencies, boards and commissions dominated the meeting. With the government's spiraling losses in its investment portfolio, this is not a group in which we should place much confidence.
Much of the rhetoric and recommendations reminded me of the Soviet Union in the dismal days of Communist intervention and public-sector investment in that sorry economy.
Even Communist China in recent years has embraced a "free market economy" and has accepted more than $30 billion in investment from a nearby country in the past year.
It's time Saskatchewan dismissed its penchant for Soviet-style government economic intervention by Crown corporations and embraced a "free market" economy by encouraging private- sector investment. In addition, every legislative, regulatory and administrative impediment to investment freedom should be immediately eliminated.
The route we are following will leave only Crown corporation and government employees to pay the cost of our infrastructure, health care, education and social services because, as history has already shown, those with an exit plan are observing Saskatchewan's sorry economic mess from the security of their rear view mirrors.
As our brightest and most talented young people leave this province, it is little solace to realize that, when we age and die, our assets will be sold and even our h'4rd-earned money and cherished belongings will follow our children to their new location, further diminishing Saskatchewan's ability to obtain additional investment capital.
On the NDP Web site, in the history department, they still maintain the Regina Manifesto.. It states, "No CCF will rest until it has eradicated capitalism and all of its inherent evils."
Now, that may not seem like much to you and me. But, if you are analyst in another country, looking for a place to produce your products for the North American market, you can be sure that Saskatchewan is unlikely to make the short list.
The favoured alternative are the "right-to-work states" that extend from our southern border all the way through the midwestern U.S. from North Dakota to Texas. Those who continue to cling to the old myth that Alberta is our competition need to discontinue their sleepwalk.
I have little faith, given the history of the world and this province, that government intervention in the economy will "grow this province's population and economy." The NDP has been in power for about 10 years and our population has not grown; according to many, it has declined. If there has been no growth in the past 10 years, why dare to believe that growth will occur in the next 10 years?
The theme "Our Future is Wide Open" is pure propaganda. This is not a Saskatchewan theme; it is a New Democratic Party re-election theme that will be a large Styrofoam plank in its election platform.
Norm Wallace is owner of Wallace Construction Specialties Ltd. in Saskatoon and a founding Director of the Prairie Centre Policy Institute.
web posted May 12, 2003
Foundations for wealth creation: Education and training
By Dr. Graham Parsons
The following commentary is one in a continuing series excerpted from a report published by the Prairie Centre Policy Institute, entitled, "This Year Country: Creating Wealth in Saskatchewan". Written by Dr. Graham Parsons, former Chief Economist for Western Canada with the Canada West Foundation, the report examines the potential for economic growth in Saskatchewan.
Saskatchewan, it would seem, has a good system of public education and training. From elementary through high school, to skilled training to universities the province has always provided a large number of training facilities. Today, these are being further supplemented by Indian education and training through special high schools and a separate university. The infrastructure for education would seem to be well in place.
The central problem is that too much of it is never applied to the province. Within the first two or three years of graduation many of the province's graduates will migrate to other provinces to find work that meets their training. With a few exceptions, our investment in education and training is turned into a subsidy for other provinces. Until there is a higher rate of skilled job creation in the province, graduates will continue to leave in search of work.
In many cases to remain competitive, Saskatchewan's education must change and adapt to the new social and economic realities of the province.
For many years Saskatchewan's education system did not focus on the real needs of the students. Thus while Indians were a growing part of the provincial population there was little focus on their special training needs. In many respects today it is in the northern Indian communities where the link between employment and training is most closely sought.
In northern uranium mines, life skills and on the job training have been linked to create skilled mining jobs previously unavailable to most northern Indians. In creating this new institutional framework, Indian Bands working with the federal and provincial governments and the uranium mining industry were able to create an education and training system suited to the needs of the community. In doing so they had forced the existing educational infrastructure to change.
Often lost in the provincial framework for training in Saskatchewan is the importance of the private sector. Most training in an economy is done on the job. Apprenticeships and hands-on training provide the skills required to undertake most jobs. Labour legislation in Saskatchewan, with its preoccupation with union structures, procedures for union votes and job classification has itself become a constraint on the changes that will be required in the next decades to develop and train people with the skills required for the economy and society.
In particular, union agreements, unless frequently modified, represent a constraint on change in the economy. That is, the introduction of new technology, the development of new types of work and notions of seniority, are all restricted by the agreement and negotiation process. In times of change, it is critical that the most efficient combinations of labour, capital and technology are applied to maximize efficient returns to both labour and industry.
Developments in labour legislation in Saskatchewan, particularly through the 1990s, have increased the cost of labour and systematically reduced its flexibility within a rapidly changing economy and society. An aspect of this is the degree to which labour markets set prices (wages) on the basis of non-market activities, particularly in the public sector.
This is seen, for example, in such areas as the wage rates for simple maintenance work services in the health care system, that, with benefits, are well above rates for similar work in the private sector. Such agreements can build in uncompetitive rates well beyond the public sector, and throughout the economy. They also limit entry by new employees and reduce provincial employment.
Dr. Parsons sits on the Prairie Centre Policy Institute's Board of Academic Advisors. His report can be found on the Institute's web site at: www.prairiecentre.com.
web posted May 5, 2003
Foundations for wealth creation: The institutional framework
The following commentary is one in a continuing series excerpted from a report published by the Prairie Centre Policy Institute, entitled, "This Year Country: Creating Wealth in Saskatchewan". Written by Dr. Graham Parsons, former former Chief Economist for Western Canada with the Canada West Foundation, the report examines the potential for economic growth in Saskatchewan.
In 1991, the World Bank identified a combination of factors that were seen as critical to growth. The Bank described "a market-friendly approach in which governments allow markets to function well, and in which governments concentrate interventions on areas in which markets prove to be inadequate." Allowing markets to operate and allocating resources in response to price signals within a freely trading environment was central to the approach.
Ultimately, the World Bank stressed wealth creation was highly dependent upon the domestic policies and institutions managed by government. Successful development was dependent as much on the actions and approaches of local governments as the natural resources they might be sitting on.
Central to a more effective public policy framework for development was the notion that institutions and policy frameworks would be adjusted to meet the current and emerging practices of the day. In times of structural change, it is important that the policies of government support and not constrain the new technology and economy.
Michael Porter, a recognized international wealth creation expert, suggests that government economic policy should build new economic advantage and not protect the old status quo. Porter notes: "Government policy must be concerned with laying the foundation for upgrading competitive advantage in a nation's industry and producing firms to do so. Too often, however, policies are addressed towards preserving old advantages and actually deter the upgrading process."
Thus, the very slow progress at reforming federal grain handling and transportation legislation since the 1960s increased Saskatchewan's dependence on an inefficient branch line railway system and regulated grain exports. Uncertainty, created by the excessively slow pace of reform, reduced investment, particularly by the private sector, and sustained subsidies. The end results were inefficiency losses in grain handling and transportation that cost Saskatchewan farmers millions of dollars.
In turn, this slowed the introduction of new rural wealth creating activities in rural Saskatchewan in the form of special crops and livestock that are now becoming major factors in the provincial economy. Similarly, the Canadian Wheat Board's slow response to the soft wheat markets led to a late response by Canada to new market opportunities.
Alternatively, when the institutional and policy framework of the day meet and encourage the emerging competitive technologies, economies, and societies, then growth and the related wealth creation can actually be encouraged and increased.
The removal of the Crow's Nest Freight subsidies on export grain, led to major increases in livestock and canola crushing on the Prairies. Ethanol legislation and subsidies, when combined with appropriate infrastructure, have created new sustainable industries in countries and U.S. states that will survive in the longer run as North America inevitably over time moves towards cleaner fuels.
This simple model, restructuring public institutions and policies to meet the emerging needs of the society and the economy, has great application to Saskatchewan. Many of the problems of Saskatchewan's social and economic adjustment can be seen when governments of all political persuasions slow and limit the process of social and structural change. In doing so, Saskatchewan has become less competitive, its ability to create wealth has become limited, and its share of Prairie economic activity has declined.
Dr. Parsons sits on the Prairie Centre Policy Institute's Board of Academic
Advisors. His report can be found on the Institute's web site at: www.prairiecentre.com.
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