The Newfoundland Nightmare

Newfoundland's economic problems are all structural, and now those problems are all coming home to roost. The structural part is not new. In fact, they trace back to the "merchant" days here - which in many ways have not changed. A small group of select families have controlled everything from insurance to resources, and everything in between for centuries here. Looking through that prism it is easy to see "modern" Newfoundland and Labrador's key structural problems.

Everything that is worth anything is controlled privately. Now, pure economists or extreme capitalists will argue that isn't a structural problem, but rather the way it ought to be. However, a province with such a small population must have a revenue stream greater than more populated provinces in order to adequately support its operations. In Newfoundland's case, successive governments have sold that revenue generating capacity away. The province is at the point where its major streams of Crown corporation revenue, other than oil royalties, rests really in liquor and gaming, and to some extent Nalcor Energy/NL Hydro.

It is quite easy to see why NL Hydro and Nalcor are still in government hands. Firstly, NL Hydro is not a money maker. Its primary function is to generate power - not retail it (where the money is). In other words, taxpayers pay for the generation of power, and NL Power (Fortis Corp) sell the power at retail prices while avoiding the costly problem of infrastructure to produce it. It's a win-win for NL Power, and a lose-lose for the average citizen.

Another industry which should be nationalized, or never privatized as it was, includes the insurance industry. The provincial government sees almost nothing of the car insurance, house insurance industry revenues that regenerate annually.

Telecommunications is another example. There is no provincial phone/cable company that could generate annualized revenue for provincial coffers.

Now all this may sound a little socialist in its undertones, but the bottom line is all the worth while wealth of the province has been transferred from the public's hands. That means there is not sufficient cash flow returning to the provincial coffers to adequately fund a modern quality of life. This becomes glaringly obvious when the one gravy train,oil, falls on its face. That is exactly where we are at today, and where we keep finding ourselves in the future. Structurally there can be no other result.

However, it isn't just the "little" people that get hurt in this cannibalistic economy. Small and medium sized businesses, municipal governments, non-governmental actors, and even the provincial government suffer as well. Eventually the loss of revenue from the local economy results in: less consumption of goods and services; higher government taxes; and uneven business cycles. That makes economic activity and necessary governmental wealth unstable and inadequate. And all that combined puts Newfoundland and Labrador's economic and social existence on thin ice - which in turn results in out migration, which in turn makes the core problems even worse.

Eventually all this must come to a head and fail. I believe we are almost at this point now. With an accumulated deficit now reaching almost 9 billion dollars, and structural budget deficits of at least a billion dollars a year for the foreseeable future, there is no answer for this province's nightmare. Raising taxes further will kill whatever consumption economy is left here, while failing to do so will kill governmental activity. Cutting civil service jobs may make governmental activity somewhat more efficient, but it will also severely damage the one "stable" economic driver for consumption. In short, the economic elites in the province have managed to paint all of us into the proverbial corner. There are no immediate solutions left. Nationalization of key industries like power, cable and insurance would provide some long term stability, but would require putting out money now that the province doesn't have. All in all it's a nightmare - a Newfoundland nightmare to be sure.