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How We Really Grow Our Economy

A steelworkers’ perspective: Let’s make B.C. attractive to investors without making it unattractive to British Columbians.

Kim Pollock 15 Mar 2005TheTyee.ca

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Steelworkers work throughout the B.C. economy. We're miners, smelter-workers, we work on the railroads and in the wood industries, in health care and the service sector. We are extremely interested in Prof. Thomas Powers' recent article on The Tyee titled: "How We Grow our Economy".

We take a different perspective on the B.C. economy than either Prof. Powers or the Urban Futures Institute, whose study of resources and exports he criticizes, however. The questions that matter to us are these: what is the true nature of the situation; is it a good or a bad situation for British Columbians and what do we do about it?

The situation resembles the analysis drawn by Urban Futures. Our economy is export driven. Most exports consist of forest and mineral products. With increasing demand in China, we will depend more on exports of those products, not less.

Forest and mineral products, including oil and gas, generate about 30 percent of GNP and about 25 percent of employment. They do not directly produce as large a share of employment because the forest, mining, hydro-electric and petroleum sectors are highly capital intensive. But they generate a disproportionately-high share of our incomes.

That income is transferred from the resource industries in various ways: in the form of spending by workers, managers and resource companies; as taxes paid to local, provincial and federal governments; as royalties paid to the Crown in exchange for the rights to harvest timber, mine or pump oil and gas. Those flows are huge, partly because of the high value of B.C.'s resources and partly because most resource-sector workers are unionized and therefore can pay high taxes and have significant spending power. Finally, it is transferred in the form of investment.

Focus on investment

Both Dr. Powers and Urban Futures neglect investment. It's the complicated, messy part. Much of the income companies get when they sell commodities becomes money, as Prof. Powers indicates, transformed into monetary reserves as finance capital, which represents investment. In a capitalist economy like ours, these reserves are largely privately held, to be invested by profit-driven organizations. This is one way that our wealth escapes our notoriously "leaky" provincial economy.

Corporations, banks and shareholders enjoy virtually unrestricted rights to invest. They search for the highest rate of return. Increasingly they choose to do this outside British Columbia. In spite of our wishes or desires, the work British Columbians do and the wealth we own wind up generating economic returns elsewhere - often in places that compete with us for markets or where workers' rights, human rights or the environment are disrespected.

This is the disconnect behind the problems raised by both the Urban Futures Institute and Prof. Powers - and somehow neither of them raises it. Wealth produced in one part of the province, reinvested in another. This is one of the ways - probably the major way - income generated in North Island, the Coast or the Interior winds up going to South Island or the Lower Mainland. It's how past wealth our province generated wound up in the UK and Eastern Canada. Today a lot of it winds up in the US, Japan or China.

Prof. Powers is right: "It is possible to have a totally self-sufficient economy with extensive specialization and division of labour and facilitated by an internal money supply." But - and here Urban Futures are right - we do not currently have one. About 10 percent of employment is in resource industries, about a quarter is generated by them -- and they account for about 30 percent of economic activity, about a quarter of government revenue, about 60 percent of export earnings. Like it or not, a lot of our economy still depends on what happens when we export resource-based products.

Wealth from ‘the hinterland’

Prof. Powers is also right when he says a city is not just an "avaricious parasite living off the wealth generated by the hardworking folks in the hinterland." But Urban Futures is correct, too: one reason cities exist and are prosperous is that wealth generated in "the hinterland" is transferred there - because that's where investors find opportunities for profit. Urban Futures, however, paints it as an inter-regional dynamic and leaves it at that.

In fact, it is primarily a class-based process which involves ownership of industry and financial capital. Private corporations, banks and investors decide where investments are and are not made. Some of those investors live in the cities, some outside BC. Very few live in Port Hardy, Prince George, Fort St. John, Cranbrook - where the resources are actually extracted and processed. It's not the location of the investors but the location of the investments that matters. And that's not always a good thing for B.C.

So what can we do? Obviously neither Liberals nor New Democrats are about to expropriate or nationalize the means of production. Indeed, in today's world, that would likely be a bad strategy (although not so long ago, a purportedly right-wing B.C. government nationalized the ferries and the railroad and actually expropriated B.C. Electric!) since owners of capital can simply move it or stop investing it here.

In our view, we need to to make B.C. attractive to investors without making it unattractive for British Columbians. We agree that we must diversify our resource sectors. We need to replace jobs and opportunities lost due to productivity and enhanced competitiveness, for instance, by creating new, value-added products. That means investment in research, market development, innovation and training, as well as building new sectors based on resources currently not used or under-utilized. It means investment or generating pools of investment capital ourselves to ensure the development of new sectors. We succeeded in doing this in high tech or film production during the 1990s, for example.

The China challenge

Unlike the U.S. in the 19th century, Prof. Powers' model, provincial governments don't control the money supply, monetary policy, exchange rates or their entire fiscal policy. Assuming investment decisions largely remain in private hands, we're left with the option of creating fields for profitable investment in politically-acceptable domestic industries and regions.

China reveals the depth of our challenge. Today China is largely responsible for high resource prices. It presents huge short-term marketing opportunities. But its people get excruciatingly low wages, an average industrial wage of 67 cents US an hour, plus lax environmental standards and a police-state for working people. Over 300 of the Fortune 500 companies already operate in Shanghai alone. B.C. governments have to find ways to encourage investment here rather than watch it seek huge profits there. China will be soon be our competitor in many markets where today it offers hot opportunities. And it will likely still be a police state.

So we need to do more than sell to China in the short term. Long-term economic security demands that we build the sectors that provide, steady good-paying jobs. We should concentrate on products that the Chinese, Americans, Japanese and others do not or cannot produce themselves. Many of those, of course, will be based on resources we have here and are not found elsewhere.

Bye, bye BUY BC?

And yes, Prof. Powers, we can solidify our domestic economy by producing things we currently import. But remember - one of the dead economists you flog said that you can't build an economy by taking in one another's laundry. There has to be a market and we must produce at prices that buyers will pay. There are ways a more publicly-minded provincial government could help, such as the BUY BC program abolished by Gordon Campbell. But it also means continuing to sell resource-based products internationally. This remains the largest driver of the economy and will long so remain. The B.C. government can do more to help here, too.

And in both respects, we must deal with the reality that we do the work and the resources belong to us - people who don't usually get to decide what happens to things once we finish working on them. That's our biggest challenge today - to gain greater control over what happens next! But the first step is to identify the problem, something neither Prof. Powers or Urban Futures have done.

Kim Pollock is a member of the Canadian national research staff, United Steelworkers.  He has worked for unions in B.C.'s resource sector since 1993.  [Tyee]

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