Don’t confuse politics with economics

In this blog you will find me vigorously defending the use of taxpayer dollars to support economic development. For example, you will find me passionately supporting government spending tens of millions of dollars to support a billion dollar auto plant investment that creates sustainable, good paying jobs and economic activity for a generation. You will find me arguing vehemently for more investment in jobs and economic growth over income support programs such as EI.

But you won’t read in this blog support for uneconomic projects on political or other grounds. I think it is crazy for government to dump money into uneconomic projects (that is, those that don’t have a solid business plan and can’t be sustained without ongoing government incentives) just to alleviate a current crisis or political challenge. I think terms like ‘lender of last resort’ and other labels put on government funding make no sense at all. If government is to support projects, they should be economically viable for a generation and provide a significant economic payback to the taxpayer.

That is why I am so disturbed by all this talk of subsidization of the Lepreau nuclear plant. If the government believes that Lepreau is not an economically viable way to produce the energy that we need, then that should be it. Premier Lord said last week that if the plant is refurbished, electricity rates will go up by 6%. Why should the taxpayers subsidize, for a generation, an uneconomic plant just because the business lobby in Saint John says so?

I am all for Saint John becoming an ‘energy city’ as long as the residents support the effort and the power can be produced in a clean and environmentally friendly fashion. In fact, I think this is an excellent niche for the city given the Irvings interest in growing their energy business. However, I think that the Cape Breton experience should be looked at very carefully by Saint Johners before they lobby so hard for government to fund the refurbishment of Lepreau. The coal industry in Cape Breton had lost money since the early 1970s and was continually subsidized by government in order to postpone the inevitable. By the closure in the late 1990s, something like $4 billion in government subsidies had gone into the coal industry and they shut it down anyway leaving devastation and economic peril in its wake. In hindsight, most economic development specialists believe that if the $4 billion had been spent in more growth-oriented ways, Cape Breton could have been a thriving and successful economy rather than the basket case it has become. Now, governments are spending inordinate amounts of money in Cape Breton to support the establishment of other industries and we will see if this will be successful.

The real issue, then, is sustainable, inter-generational economic development. If the government is to spend $800 million to refurbish an uneconomic energy plant just to appease political concerns, in my opinion, that money would be better spent to support long-term, sustainable economic development projects.

On the broader issue of energy in New Brunswick, what we need from the government is a real, sustainable plan for the energy sector in the province. Like Ontario, we need to have a 10-20 year plan for the building of new, viable electricity plants and a clear path for the vital energy sector. As I have written before in this blog, energy used to be a major strength for New Brunswick (both in terms of cost and availability) but after a decade of mismanagement and political intertia, it is rapidly becoming a major impediment to economic growth.

Instead of threatening the Feds, the Premier would be better served coming up with a long term strategy for energy supply.

But don’t hold your breathe.