Beyond The Ivany Report
some thoughts from Brian Sanderson
Executive SummaryThe Provincial Debt is a difficulty that has been caused by investing for growth when growth was NOT possible. The increasing number of old people relative to young people is an example of population overshoot --- growing population higher than can be sustained by the local economy so that the young were forced to leave.
It is an inescapable fact of differential calculus that maximizing growth will NOT optimize well being. Growth has plateaued and attempts to sustain growth are both futile and corrosive to well being.
Investing in unachievable growth has brought the Province to the brink of disaster. Let us move forward by adjusting towards a steady-state economy which can be sustained, and a goal that human ingenuity should maximize human well being. The focus must shift from increasing quantity (growth) to increasing quality.
Ultimately the Government and People of Nova Scotia must decide whether their calculus will be to optimize GDP (growing illth) or maximize well being.
Artfull RustToday (15 Dec 2014) I was listening to the Main Street show on CBC Radio. They were interviewing a young couple who had done an art-documentary called "What Remains". They talked about the burned out and rusted remains of the long defunct Sydney Steel Plant. I couldn't help but recall taxpayer money spent in a futile effort to prevent the inevitable collapse. "What Remains" is a billions of dollars of Provincial Debt.
As expected, host, Stephanie Domet asked this young couple about how their work related to the Ivany Report. I can't recall their answer, perhaps something about the environmental cost? Certainly the Ivany Report also says:The two levels of government also invested heavily in public enterprises to offset major industrial failures, most notably the Cape Breton Development Corporation (DEVCO), Sydney Steel (SYSCO) and the heavy water plants in Glace Bay and the Strait area.Exactly how much money was wasted? It's not tactful to ask.
Sydney Steel was long ago. What's been happening lately?
Analysis of The Ivany ReportAn interesting table is given on page 30 of the Ivany Report. I'm going to break it into several parts so we can all get a picture of how the value of various exports from Nova Scotia has changed from 2002 to 2012.
First, consider industries that use raw materials from elsewhere or from local farming. Farming is considered to be sustainable and the other industries below use materials for which any unsustainable component of their production will not be a direct liability ot the people of Nova Scotia. Tabulating:
So the big picture is that farming and manufacturing from nonlocal materials has increased by $658,000,000. This corresponds to an annual growth rate of 4.3%, much of which should be discounted as inflation.
Industry 2002 (millions) 2012 (million) Percent change Petroleum Refineries $84 $56 -34% Tire Manufacturing $686 $1,028 50% Rubber and Plastics Industry Machinery Manufacturing $16 $37 129% Other Rubber Product Manufacturing $38 $66 72% Unsupported Plastic Film, Sheet and Bag Manufacturing $69 $88 29% Other Plastic Product Manufacturing $21 $21 -2% Laminated Plastic Plate, Sheet and Shape Manufacturing $23 $42 80% All Other Chemical Product Manufacturing $10 $48 405% Frozen Food Manufacturing $77 $121 57% Spring and Wire Product Manufacturing $22 $43 97% Recyclable Metal Wholesaler-Distributors $24 $76 218% Navigational, Measuring, Medical and Control Instruments $65 $66 2% Material Handling Equipment Manufacturing $14 $54 283% Aerospace Product and Parts Manufacturing $28 $51 79% Radio and TV Communications Equipment $22 $37 73% Broad-Woven Fabric Mills $29 $29 0% Carpet and Rug Mills $12 $20 68% Dairy Cattle and Milk Production $7 $22 206%
Two industries in the above list are particularly noteworthy:
For the moment, things have the appearance of "going well enough". Prudent inspection of the table above shows that the situation should be considered to be perilous because so much depends upon one industry which is large, largely isolated, and subsidized. The best proven way to strengthen an economy is by adding capacity that builds upon existing capacity. The growth of other rubber and plastic industries is a hopeful sign. But is the plastic industry compatible with cultural and intellectual proclivities of the people of Nova Scotia?
- The petroleum refinery has now shutdown.
- Tire manufacturing dwarfs all other industries in this category. The Provincial Government provided the tyre industry with favourable treatment and incentives.
Second, let us consider exports of things derived from local resources that could be considered to be "renewable":
So the big picture is that in the 10 years from 2002 to 2012, these "renewable" industries have gone backwards by $772,000,000.
Industry 2002 (millions) 2012 (million) Percent change Pulp Mills $191 $165 -14% Paper Mills $473 $112 -76% Seafood Preparation and Packaging $634 $489 -23% Fishing $560 $433 -23% Sawmills and Wood Preservation $194 $81 -58%
In good measure, this backwards slide happened because forest and fish were too heavily exploited for short term gain (mostly for the benefit of a privileged few). At the urging of a quick-buck industry, the Federal Government of Canada destroyed what used to be the worlds greatest fishery. History shall speak poorly of them. The Provincial Government has done little better managing Nova Scotia's forests. Canadians have a culture of "mining" their renewable resources, not "renewing" them.
Pulp and paper mills require cheap electricity and quality fiber. Hydroelectric generation cannot be done on a large scale in Nova Scotia. Other types of electric power generation (coal, gas, and wind) are much too expensive for pulp and paper mills to be competitive. As a result we had the unseemly spectacle of the Provincial Government subsidizing electric power for paper mills which, in turn, churned up more fibre than the forests can sustainably produce. The crime of excessive harvesting causes many problems, not least of which is waterway acidification due to the disruption of natural cycling of minerals. A pulp and paper industry that was scaled down to the supply of cheap, local hydroelectric power would be competitive and ecologically sustainable, perhaps it would also be financially viable. (It seems to be "collapsing" down rather than "scaling" down.) Forty years on, when the forests recover, will industrialists and politicians opt for another subsidized, boom-bust cycle?
Thirdly, there are resources that are flat out mined:
So the big picture is that mining these non-renewable resources has gone backwards by $1,228,000,000 --- more than a billion dollars.
Industry 2002 (millions) 2012 (million) Percent change Other Non-Metallic Mineral Mining and Quarrying $76 $19 -75% Oil and Gas Extraction $1,200 $29 -98%
Economists own the error made with non-renewable resources.
Correcting Erroneous EconomicsThe error is that most economists think that you "produce oil" when you drill a hole in the ground and oil gushes out. This is nonsense.
The oil was "produced" by a process that took hundreds of millions of years. The process began hundreds of millions of years ago when thermonuclear reactions in the Sun which caused sunlight to illuminate Earth. A tiny fraction of that sunshine, about 1%, was used to grow organisms. A tiny fraction of those organisms was deeply buried by the slow deposition of sediment. Heat and pressure transformed a fraction of the buried organic matter into oil.
"Oil production" has nothing to do with some oil company that "extracts oil". It seems that most Economists know absolutely nothing about "oil production". In Chapter 8 of his book "Living Within Limits", Garrett Hardin provides a clear introduction to the false accounting used by Economists.
Let me demonstrate the magical nature of accounting according to a Provincial Government that has been befuddled by Economists. In the beginning there was an oil Company and the citizens of Nova Scotia. We'll call them the "Company" and the "Citizens". After the Company had drilled a hole in the ground, the Company was enriched by an amount "A" and the Citizens by an amount "B".
If the Economists are to be believed, the wealth A+B was magically created by drilling a hole in the ground.
before after Company + Citizens (Company + A) + (Citizens + B)
Meanwhile, back in the real world, we know that the wealth had been created by Nature a long time ago. Rational accounting suggests that Natural Equity (Nature) is important and that it should be acknowledged:
Natural Equity sustains us, not false economic theory.
before after (Nature A+B) + Company + Citizens (Nature + 0) + (Company + A) + (Citizens + B)
So why does all that matter to the economy of Nova Scotia? It matters a lot because when you "extract oil" and sell it to someone else you have not created anything, you have merely exchanged wealth (oil) for money. In order to break even, one must invest that money so as to obtain equivalent wealth. That is not what has been done in Nova Scotia. We blow cash worse than an alcoholic on a binge. Some cash services our ever-growing debt. Some money gets blown on "political services", stuff that helps this or that politician to get elected. Some goes towards paying for more education and healthcare than we can afford. Some of these expenses are worthy but it is a dumb idea to pay for them out of Natural Equity --- that is to say by "selling the farm".
In Alberta they had sooo much oil that they simply couldn't blow it all. Some of the money that they obtained by "extracting oil" was deposited in their Heritage Fund. The Heritage Fund earns the people of Alberta a couple of billion dollars each year, whereas our Nova Scotia Debt must cost us something approaching a billion each year --- no one is saying. Nevertheless, we are in "good" company, Alberta also blows most of its oil money. All of it would have been blown on "political services" if the Pappy Trudeau Liberals had had their way.
Nowadays, Alberta is running short of the good oil so it is going after the oil that is locked away in tar sands or tight plays. Extracting oil from tar sands is expensive, so the profit margin per barrel of oil has fallen greatly. This has had two primary effects on Alberta:
The false Economics of the prevailing school of Economists will, eventually, send Alberta down the same shit hole that Nova Scotia is presently in. That is because Canadians are mindless to the "Dutch disease".
- The Alberta population has grown like stink because it takes much more labour to extract much more oil in order to provide the same amount of cash.
- Alberta no longer has cash to burn. What cash it does have is barely sufficient to build (and rebuild) infrastructure for the expanded population... So now the Province of Alberta is running a deficit budget, because of its tar sands boom!
Stumbing Towards EnlightenmentNorwegians are not mindless, we should learn from them. When it was suggested by Thomas Mulcair that Canada suffers from "Dutch disease", the Economists and media pundits fired off a thundering volley. The mindless majority blew Mulcair to smithereens. As the smoke cleared, media morlocks and political vultures moved in to pick at his carcase. Pity.
The situation for Nova Scotia is grim. We are only sustained by the charity of other Provinces. But that charity is not sustainable because the wealth from those other Provinces is also obtained by cashing in Natural Equity. Is it too much to ask in the 21st Century for a people to progress beyond being merely literate, to be also numerate and ecolate?
To improve matters, Nova Scotia must first fess up to the errors that have been made. Nova Scotia could further distinguish itself by becoming the first Province to properly account for Natural Equity. Better late than never!
Regardless of whether you view the world as a sensible economist (a rare breed) or as a thinking journalist (another rare breed) it is clear that "The End of Growth" is upon the world --- as foretold by great scientists like Frederick Soddy and Max Born:Science and technology will then follow their tendency to rapid expansion in an exponential fashion, until saturation sets in.The world has become a zero sum economy. If GDP still grows it is because GDP measures illth as though it were wealth. Or, perhaps, it is just inflation disguised as wealth.
Forward Ho!The best option for Nova Scotia is to look reality in the face. Growing your way out of this mess will not work. Indeed, the mess was caused by trying to grow when growth was impossible. Embrace the methods of the Steady State Economy. This does not require turning the Province upside down, a few changes of attitude would go a long way:
- First, make human well being a clear objective for the economy. This means that in addition to GDP we must also calculate the Genuine Progress Indicator (GPI). It's important to do both. Increases in GPI correspond to increases in well being. Increases in GDP without increasing GPI tells us that there is more illth (BAD stuff).
- Adopt the objective of a steady state economy: grow quality, not quantity.
- A steady state economy is incompatible with continued population growth. Quality of life is not improved by crowding nor by spreading limited resources among more people. The population that optimizes well being is less than the population that maximizes GDP.