"They are out there begging for power"

The title of this post is a categorical statement made by Sue Kelland Dyer in conversation with Randy Simms on VOCM Open Line in the context of a discussion on why we couldn't sell electrical power at market rates to Ontario. Instead, she says, industries are so desperate for power that we should use power as bait for the local situating of industry.

No evidence was offered; no case studies presented; no details were provided.

In fact, she demanded evidence for the contrary position.

The only suggestion she offered was this sweeping generalised unsubstantiated assertion that because "they" are begging for power then we must rope in these unspecified "they" to finance the lower Churchill projects within some indefinite timeline on the condition that they locate their industry here.

This is preferable, she says, to moving forward financing the project through power sales.

After all, she says, Quebec has three smelters. Why not us?

To be fair she is not the only person making this argument. More than a few local economic nationalists, most notably at this snake's nest of foolish circular and ill-considered positions of all kinds, parrot this position.

In the interest of clarifying the issue, may I suggest a quick review of this information proffered by the Montreal Economic Institute. A respected economic analysis think tank, the MEI points out that subsidies for Alcan aluminum smelters recently announced by the Quebec government are a loss to Quebec society.

They go on to outline in a report authored by Gérard Bélanger and Jean-Thomas Bernard, professors of economics at Laval University, that:

... recent agreements in the aluminum sector and others under preparation fail to take account of basic economic logic and will harm Quebec’s economic development for decades to come unless the government follows a different path.

That sounds bad and sounds like something to be avoided. What are they talking about? Well, in February, two orders in council from the Quebec government gave official stature to a hefty subsidy to Alcan as part of an aluminum smelter project in the Saguenay-Lac-Saint-Jean region.

To create 740 jobs, the government is giving up $2.7 billion in revenues in exchange for a $2-billion investment by Alcan, the two researchers estimate. The total cost to the government of the subsidy to Alcan equals nearly $274,338 per job each year for 35 years.

That's worth repeating: $274,338 per job. Per year. For each of every of the next 35 years. For each of the 740 jobs "created".

So that's the answer to how and why Quebec gets all those smelters - they pay for them!

The rejoinder from the local economic nationalists will be a vague "economic spin-off" point. Let's put that one to bed right now. The report goes on to note that:

The true cost of the electricity provided under this deal can be measured by its opportunity cost to the Quebec government. Opportunity cost is a term used by economists to denote the most advantageous alternative solution. What it means in this instance is the export price that could be obtained by selling our electricity on the market to our U.S. neighbours.

The reason used most often to justify government assistance is economic spin-offs. The justifications provided in this case by ministers Raymond Bachand and Pierre Corbeil come from calculations filled with double counting and neglectful of alternatives. An analysis of other solutions that could be considered shows that the government is giving up at least $2.7 billion.

This amount could have been used, for instance, to improve Quebec’s highway network, an investment that would generate far more in direct and indirect economic spin-offs than the $2 billion pledged by Alcan.

So no more giveaways - let's pay industry to take the power away.

Finally, if you follow this debate long enough, you will hear somebody say, with all possible conviction, that exported electricity only creates jobs elsewhere but never here. This study addresses that argument too noting that:

It should be understood that all spending generates economic spinoffs, whether conducted by government (in health, education, income security or other areas) or by the private sector (assuming individuals and businesses end up with greater disposable income due to lower taxes).

It is thus false to state that “exported electricity does not create jobs in Quebec” as argued by the Aluminum Association of Canada in an advertisement that ran in several newspapers.

That pretty well covers it.

So if you don't pour the money into subsidizing jobs, how could you effectively use that money instead? Again, this report has that covered noting that, to start:

The same amount could go, for example, toward improving Quebec’s highway network, generating far more direct and indirect economic spinoffs than Alcan’s $2 billion. A similar analysis could be applied to other public or private spending.

So you have to ask: Why are we better off to hold up the development of the Lower Churchill project on the condition of attracting massive industry a la Quebec rather than simply selling the power at market rates?

Clearly it's not better.

Criticism from away . . . Or calling it like it is

VOCM has already framed this story through their headline National Paper Aims at Premier and their lede that a mainland paper has "taken another swipe at Danny Williams." But numbers like employment rate are hard, cold and indisputable although their interpretation might be called into question.

Still, not all numbers are politics; some are just numbers whether you like them or not.

Judge for yourself.

And if you want to see the raw numbers on which this article is based, check StatsCan here and scroll down to the tables.

---------------------------------------------------------------
Danny Chavez makes life harder on the Rock
Derek DeCloet
Globe and Mail, June 9, 2007

Nothing can stop Canada's sizzling job market, and it's not just an Alberta story any more. In every province but two, unemployment is lower today than in 2000, and in absolute terms, no province has enjoyed a bigger decline in the jobless rate than Newfoundland and Labrador.

Yes, this week's employment data prove it: As Premier of the Rock, Danny Williams is an economic disaster. No, really. He is. The drop in Newfoundland's unemployment rate to 12.9 per cent sounds good - it was nearly 17 per cent at the start of the decade - but the statistic hides as much as it tells. It flatters Mr. Williams.

A more meaningful figure is the employment rate, which tells you what percentage of the labour pool is actually working (as opposed to the number who are looking for work but can't find it). The hard facts are these: barely half - 51.5 per cent - of working-age Newfoundlanders have a job, trailing everywhere else by a country mile. Forget Alberta. If only Newfoundland had the same employment rate as tiny Prince Edward Island (61 per cent), it would have 40,000 more inhabitants drawing a paycheque.

How can this be, in a province blessed with abundant oil reserves, during the greatest energy boom in a generation? I doubt that Newfoundlanders are that much lazier than other Canadians. It's about opportunity, or lack of it. Newfoundland's jobs boom is a mirage: Roughly the same number of jobs exist there today as in October, 2003, when Mr. Williams was elected. It's the size of the labour force that has shrunk, because residents are moving to Fort McMurray and other points west.

"If [companies] want to deal with South American dictators, they can go to South America," says Charles Cirtwill, acting president of the Atlantic Institute for Market Studies in Halifax. He's referring, of course, to Mr. Williams' latest gambit - to demand a 5-per-cent stake in all future oil and gas projects, at no cost to the province. A similar demand has put the brakes on Hebron, a massive offshore oil development led by Exxon Mobil and Chevron.

If that smells vaguely like expropriation, or perhaps extortion, we assure you that it's merely Mr. Williams trying to get a "fair share," to use the phrase that often accompanies Newfoundlanders' grievances. Fairness is in the eye of the beholder, though. Wade Locke, an economist at Memorial University, found that government's take of offshore oil projects is 51 to 55 per cent of pretax cash flow - "similar to the shares found in Alaska, Alberta and Australia." The province gets a larger piece than Ottawa.

So lush are the royalties from energy that they could turn Newfoundland into a "have" province by about 2012, ending decades of equalization payments from the feds, Mr. Locke writes. Inconveniently, that would also bring an end to Mr. Williams' popular stunts to protest that multibillion-dollar gifts of equalization are not enough. Politically, that's magic. Mr. Williams' Conservatives enjoy more than 70 per cent approval in recent polls.

But if extreme confrontation works for squeezing more dough out of Ottawa, it doesn't work for business. When it comes to the Premier's tiresome Danny Chavez routine, oil companies don't know where the demands will stop. In Hebron, the government first demanded a 4.9-per-cent stake. Mr. Williams' Natural Resources Minister is already warning that it will ask for more, once negotiations resume. "If you're an investor, you're not interested in finding a resource that may be nationalized four or five years from now," says Mr. Cirtwill of AIMS.

Don't laugh. That's essentially what happened to Fishery Products International. The province didn't reclaim ownership of FPI, but successive Liberal and Tory governments neutered the company. Twice since 2001, the province amended the FPI Act, obstructing a merger attempt and meddling in restructuring plans. John Risley, who was part of the investor group that took control of the company in 2001, remembers getting a phone call from FPI's lead banker. "He said, 'You guys don't run this business any more. The government does.' "

FPI is being sold now in pieces - only after the province imposed conditions that will force the buyers to prop up rural towns in Newfoundland. Mr. Risley says breaking up the company was the only way to get it out from under the government's thumb. The quickest way to fix the poisoned business environment would be for voters to kick Mr. Williams out this fall, but Mr. Cirtwill just laughs at the idea. "The only real question is, is he going to win every seat?"

Premier Williams tackles the big questions

It's not often these day that Premier Williams calls talk radio so when he does, you can count on something interesting, if not significant.

Today, his contribution to the public conversation of democracy was neither interesting nor significant.

Look at the context: the province is up in arms over a second radiologist suspension, Hydro has a brand new structure through a new government-owned holding company, the budget has just passed and there's a judicial inquiry in the wings looking at how our health system kept vital health information to itself instead of notifying patients.

All or some of these things, one would think, would be worthy of comment from the highest politician and most senior public sector executive in the land. After all, these are all items of vital public interest.

But you would be wrong.

Instead, he took his time on the public airwaves whinging and moaning about a topic important to him about which nobody outside the House cares a whit: Irish limousines.

And the host, standing in for the interests of the people of the province and in his role in promoting debate on the vital issues facing this province, let him do so without challenge.

The lesson of the day is why talk about the hard stuff when you can distract with the easy stuff. Never forget: Talk radio is entertainment.