Does Growth Matter GDP and the Wellbeing of Newfoundlanders

1
Does Growth Matter?GDP and the Well-beingof
Newfoundlanders

• Presentation to NLFL Convention
• Gander, Nfld. October 2003
• by Jim Stanford, Economist, CAW

2
What is GDP?

• Gross Domestic Product value of everything
  produced in economy (goods services)
• Can add it up two ways
• who got paid? -- what did they buy?

3
Does GDP Matter?

• Higher GDP means a society could spend more on
  better living standards
• Higher GDP usually translates into better living
  standards
• But it isnt automatic
• distribution who gets the gains?
• sustainability what are the social and
  environmental costs of GDP growth?

4
Laissez-faire versusRegulated growth

• Conservatives Free-market policies are best for
  growth
• Error 1 No evidence they lead to faster growth
• Error 2 No evidence that what growth does occur
  is good for most people
• Alternative vision Explicitly regulate and
  channel growth where how you want it
• stimulate desirable industries activities
• minimize social environmental costs
• maximize benefits for concrete living standards

5
It Aint What You Got......Its How You Use It!

• U.S. Highest GDP/capita in world
• 3rd-world infant mortality
• 3rd-world life expectancy for black males
• middle-class worse-off than middle-class in
  Canada (with 15 less GDP/capita)
• Do U.S. free market policies help GDP?
• maybe, maybe not
• little indication that most Americans benefit
  from the GDP growth that does occur

6
A Helicopter Economy

• Experience of resource-based foreign-financed
  economies not encouraging
• GDP growth can be strong benefits to people are
  often weak
• foreign capital flies in
• pays for imported equipment, skills
• benefits of growth exported to pay owners
• benefits to indigenous economy small

7
NewfoundlandCanadas New Success Story?

• By far the fastest GDP growth in Canada since
  1997
• Driven by resource extraction export
• Open question are Newfoundlanders getting fair
  benefits from the GDP growth based on the
  exploitation of their resources?

8
Data Source

• Statistics Canada, Provincial Economic
  Accounts, Catalogue 13-213, 2002
• Data in this presentation shows 2002 levels and
  growth from 1997-2002, unless otherwise noted

9
Impressive Record
Nfld. has had by far the fastest GDP growth in
Canada, 75 faster than the national average.
10
Who Has Benefited?
Before-tax corporate profits have quintupled in
Nfld. since 1997 labour income is up by 29.
11
Not Too Shabby
Corporate profits have grown far faster in Nfld.
than in any other province, ten times the Cdn.
average.
12
Dividing the Pie
Over half of the new growth in GDP (at basic
prices) since 1997 has been captured in corporate
profits.
13
Shrinking Share
In 1993, workers in Nfld. received a larger share
of GDP than in any other province by 2002 it was
2nd smallest.
14
Whos on the Top?
Corporate profits account for a larger share of
GDP in Nfld. than in any other province, twice
the Cdn. average.
15
Paying Their Way

• The incredible growth in corporate profits has
  not been reflected in growing tax revenues
• mostly due to resource deals
• Of every new dollar in corporate profits
  generated in Nfld. between 1997 and 2002, just
  2.5 was collected in new corporate taxes

16
The Taxman Cometh?
Fcst.
The average effective tax rate paid to all levels
of govt by corporations operating in Nfld. has
fallen by 2/3.
17
Whos on the Bottom?
Labour income accounts for the second-smallest
share of GDP in any province.
18
Breaking the Link

• Recent GDP growth in Newfoundland has been
  incredibly weighted in favour of corporate
  profits (most of which are repatriated
  off-island)
• The flow-through of GDP to personal income in
  Newfoundland is very weak as a result

19
What Trickle-Down?
Personal income has grown less than half as fast
as GDP.
20
The Jobs Spin-off
Employment has grown at a positive, but not
spectacular, rate in Nfld. during the current
boom.
21
Stubborn Unemployment
The growth in new jobs has been perfectly offset
by new labour force entrants unemployment has
not changed.
22
The Price of a New Job
GDP growth has had a far weaker impact on
employment in Nfld. than in any other province.
23
If Times Are So Good,Why Are So Many Leaving?
Population
Outmigration
Nfld. has lost one-tenth of its population in the
last decade the outmigration has slowed, but not
stopped.
24
Irony of Ironies

• Nfld.s GDP growth is translating only weakly
  into incomes for Newfoundlanders
• But it directly reduces net federal transfers to
  Newfoundland
• equalization rules
• more federal tax collected

25
Weaning Off Ottawa
Fcst
The importance of net federal transfers to the
Nfld. economy has declined by over half in the
last decade.
26
Whats Leading the Growth?
Exports are the leading expenditure source of new
GDP.
27
Export-Led Growth
Nfld.s exports are up 120 since 1997,
accounting for almost all provincial GDP growth.
28
Slowdown Coming?
Structures
Machinery
Non-residential business investment is slowing
from peak levels of the late 1990s.
29
Jump-Starting the Domestic Economy?
The mineral-driven expansion has been slower to
spread into the domestic Nfld. economy.
30
Newfoundlands Shifting Trade Relationships
Imports
Exports
Nfld.s exports have grown 3 times as fast as
imports since 1997.
31
Breaking Even
Nfld.s traditional trade deficit has almost
disappeared.
32
Jims Capital Account for Newfoundland
Incoming federal transfers are now probably
mostly offset by outgoing repatriated profits.
33
Have or Have-Not (I)GDP/Capita Rankings
34
Have or Have-Not (II)Personal Income/Capita
Rankings
35
Have or Have-Not (III)Disposable Income/Capita
Rankings
36
Robin Hood in Reverse?
1997
In 1997 inter-provincial and inter-personal
transfers gave Nfld. a higher share of disposable
income than GDP.
37
Robin Hood in Reverse?
2002
1997
By 2002 the reverse was true Nfld.s share of
personal income was smaller than its share of GDP.
38
Have Newfoundland Workers Made Gains?

• Absolutely
• 25,000 new jobs
• 1.5 billion in new income
• visible spin-offs to domestic economy
• Have Newfoundland workers received a healthy
  share of GDP gains?
• absolutely not
• labours share has been eroded dramatically
• Nfld.s relationship to Canada has also changed

39
Who Has Benefited From Newfoundlands Growth?
40
Newfoundland Canadas 3rd World Helicopter
Economy

• Too much growth is resource and export-driven
• Too much of the proceeds of growth flow
  immediately out of the province
• The new Nfld. economy will be highly vulnerable
  to price and supply shocks
• This is not an adequate development model

41
Regulated Growth

• Take conscious measures to maximize the
  provincial spin-offs of GDP growth
• add Newfoundland content to resource projects
• regulate labour markets to ensure better sharing
  of the benefits
• actively foster value-added activity to diversify
  the economy
• invest in the public sector to balance the private