What Tom Mulcair — and the Conservatives — miss when it comes to economic policy.
Tom Mulcair’s article ”Building a Balanced, Sustainable Energy Future” in the May 2013 issue of Policy Options, where he identifies “science-based” environmental policies as key to NDP priorities is, overall, a thoughtful piece. But he neglects the importance of science-based policies generally, and economic policy in particular. Since science can speak to more than just environmental policy, shouldn’t all policy be science-based?
To be clear, this neglect is not specific to Thomas Mulcair and the NDP but is found among all politicians, policy-makers and many members of the media who report on these issues. Speeches, official statements and news articles are rampant with buzzwords and misconceptions about economic concepts and consensus policy prescriptions. But Mulcair’s article is an example of specific policy claims that are inconsistent with evidence-based economic policy.
The first issue he raises in the article is how we can best achieve environmental objectives. It is unclear what specific policy Mulcair supports in this regard; he specifies only that the principle of “polluter pay” should reign. The evidence on how to achieve environmental objectives with the least economic cost is clear: put a price on carbon. More specifically, governments should favour carbon taxes or cap-and-trade systems. It is disappointing that Mulcair also fails to acknowledge the strides already made in reducing greenhouse gas emissions. He states: “Projects that fail to uphold basic principles like polluter pay are being met with increasing hostility.” Referring to oil sands projects in this way ignores the fact that Alberta has a carbon tax on those large emitters and is considering raising the price tag on carbon.
When discussing energy issues, politicians seem unable to resist making another dangerous claim: that “value-added jobs” (read: oil upgraders, refineries or manufacturing) should be given special consideration. Mulcair argues the export of raw resources is not a path to prosperity, and the Conservatives were short-sighted in “letting” Shell’s Voyageur project be cancelled. He states, “An $11-billion project to process raw bitumen was cancelled with seemingly no concern for the loss of tens of thousands of value-added jobs.”
But why should the government fund a project that a company has deemed unprofitable? If our sole focus is creating jobs, we can just start generating electricity using bicycles, or start transporting crude oil using a bucket brigade instead of pipelines. Pushing for government subsidies for “value-added” projects violates the laws of economics (thus jeopardizing our prosperity), just as surely as denying climate change is contrary to evidence from climate science.
To get to the heart of the matter, what exactly is a “value-added” job? Value-added is the difference between total sales revenue and the total cost of components, materials and services purchased from other firms. It is an industry’s contribution to GDP. Jobs in extractive resource industries are value-added jobs. Let’s look at the evidence: Statistics Canada reports that in 2008 the value-added per hour of work in mining and oil and gas extraction equalled $305, while the corresponding value-added per hour in manufacturing was barely over $50 (CANSIM table 383-0022). It is hardly an evidence-based claim to say that primary sector employment is not ”value-added.” In fact, almost every job is a value-added job, and the free market will eliminate those that are not (except when the government interferes).
In his article Mulcair also continues to promote the Dutch disease view, stating, “The Conservatives’ single-minded focus on the export of raw resources…has contributed to an artificial rise in the value of the Canadian dollar that is hollowing out our other export industries.” There is no clear evidence for this claim (as is borne out by the studies from the University of Calgary School of Public Policy by Matt Krzepkowski and Jack Mintz, and by Wardah Naim and Trevor Tombe).
Consider, for example, the fact that the Canadian manufacturing sector has been declining at a similar rate to the US manufacturing sector. Canada’s manufacturers also purchase a huge amount of intermediate inputs from abroad, and a rising dollar means cheaper access to inputs, to the benefit of domestic manufacturing. Oil sands firms also purchase many inputs from manufacturers in central Canada. We do not wish to claim the case is closed one way or the other, but a science-based view of economic policy means admitting when the evidence is unclear. We simply do not have enough evidence to definitively say whether oil exports harm Canadian manufacturing.
There are also some minor slip-ups. First, Mulcair claims “Canada [is] the only country in the world to withdraw from the Kyoto Protocol.” In fact, Japan and Russia elected not to sign on to the Kyoto extension (essentially a withdrawal). Second, he seems to be wary of foreign investment, calling for “full and public consultations” instead of the Conservatives’ within-government reviews. They are both wrong. Foreign investment in Canada should be unhindered. Barriers to foreign direct investment will lower investment, lower capital accumulation, decrease wages and lower productivity. In short, internationally mobile capital promotes prosperity, not the reverse.
The failure to use a science-based approach to policy-making (in all areas) is a feature of politics, not parties. The Conservatives’ recent federal budget contains a large number of import tax increases on thousands of items that will increase prices and lower Canada’s international trade flows. The magnitude is striking, with nearly $1.1 billion in increased import tax revenue projected over the next five years. Evidence from economic science couldn’t be clearer: free trade increases prosperity. There is almost no other issue where the consensus view of economists is clearer. On environmental policy, the Conservatives’ approach is equally inconsistent with evidence. Their regulatory, command-and-control approach is among the least efficient methods to achieve environmental goals. The evidence in this regard is nearly as strong as the case for free trade: carbon taxes or a cap-and-trade system will achieve environmental goals with the least economic damage.
“Science-based” means looking at evidence and objectively evaluating that evidence free of normative value judgments. It means making claims about the world only when evidence warrants. We hope that politicians of all stripes learn to accept evidence in all aspects of policy-making. Canadians would surely see tremendous benefits.