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The B.C. economy: Interview with Doug McArthur

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Doug McArthur is a Distinguished Professor in the Graduate School of Public Policy at SFU.  Previously, he was a Senior Fellow in Public Policy at UBC and served in a number of senior positions in the civil service in B.C.

Q - You prepared a paper in the spring of this year on the B.C. economy that was a diagnostic paper. What were the main structural concerns that you identified with the BC economy?

The sharp decline in the forest industry, the dependence on natural gas and construction over the past five years, stagnation in manufacturing and processing, low private sector investment and stagnant and low exports.

Q - If there were two or three specific areas of economic policy that the provincial government is doing poorly on, what, in your view, are they?

The failure to plan and support stable and sustainable sectors that support high wage jobs in substantial numbers. The failure to improve investment. The failure to develop sustainable export sectors.

Q -  Revenues to government from the forest industry have collapsed over the last ten years.  We've had major impacts on the fisheries in the past 10 or 15 years.  What are the emergent economic sectors in B.C. and how can government policies shift to develop them?

--  export of knowledge based expertise

--  value added wood products

--  bio-fuels

--  transportation innovation

Q - Clearly, there are many challenges to economies happening worldwide. We live in an era of climate change. Some scientists argue that we need something the scale of the Manhattan Project or a complete reinvention of the world economy to turn things around. The pine beetle and increasing budgets for forest fires are just a few of the impacts we've already seen in B.C.  There is an affordability crisis as well, particularly in urban areas, but many rural areas as well.  Median incomes have not kept pace with the increases in costs of living for quite some time.  How can economic policy deal with the urgent challenges brought forward by social and environmental crises?

There must be a new government--private sector alliance that achieves a set of common strategies, shared actions and coordinated public and private sector investments.

Aboriginal land and resources issues must be settled.

A multi-faceted carbon reduction strategy must be implemented based on a workable and politically acceptable mix of regulation, carbon pricing and public subsidy focusing heavily on investments in modernized technology.

Q - Clyde Hertzman and Paul Kershaw at UBC have identified the importance of public investment in early childhood education. Thirty per cent of children are considered vulnerable by the time they start kindergarten in B.C. In some inner-city neighbourhoods, it is well over 40 per cent. Some researchers support extending maternal and parental leave provisions, others argue for $5 a day childcare. How can public policy work better to support young families and improve learning outcomes for children?

A realistic affordable long term staged strategy of investments in children is needed. Considerable priority must be placed on fixing the crisis of aboriginal children.

Q - With so many economic indicators available to assess the health and well-being of society, why is GDP still the prevalent indicator of economic health of an economy? Should we be looking at something else?

GDP tracks closely both jobs and profits, which are the dominant political drivers; it is the simplest best measure of conventional economic value creation.

Other measures are available but will only catch on if they express values which the ordinary voter relates to.

One simple new measure is probably unrealistic, but it would be helpful if government stats agency focused on one broader well-being index, reported it regularly and widely, and invested heavily in promoting it. 

Q - Historian Tony Judt, who recently passed away, wrote an opinion piece called "Ill Fares the Land."  He wrote, "Much of what appears 'natural' today dates from the 1980s: the obsession with wealth creation, the cult of privatization and the private sector, the growing disparities of rich and poor. And above all, the rhetoric that accompanies these: uncritical admiration for unfettered markets, disdain for the public sector, the delusion of endless growth…We cannot go on living like this. The little crash of 2008 was a reminder that unregulated capitalism is its own worst enemy: sooner or later it must fall prey to its own excesses and turn again to the state for rescue. But if we do no more than pick up the pieces and carry on as before, we can look forward to greater upheavals in years to come."

In a world economy increasingly structured by the G-8 and the G-20, can governments challenge or provide alternatives to neo-liberalism and not be punished by the markets?

In part, yes. Governments are already doing so. The reconstruction of the auto industry, the radically increased role of public investment, and the acceptance of a major role for fiscal policy are all indicators of that. But governments will have to show results, first in GDP and jobs, and then in social and environmental conditions. A workable form of state capitalism will have to prosper. If governments fail as they did in the 1970s, people will demand renewed private sector support, and with it will come a new neo-liberalism. 

Q - China is now the world's second largest economy, yet there remain issues around human rights and democracy. How does a province like B.C. compete with economically booming, lower wage, neo-authoritarian regimes? 

We have everything that is needed to compete -- technological savvy, modern infrastructure, educated people, resources, location and acceptance of active government. We just need to get our act together.  The one place we cannot compete is in low wage, low skill sectors.

Q - The economic collapse in 2008 didn't happen in a vacuum. It was years in the making. How did the profession of economics fail the public interest so badly in the years leading up to it that something so catastrophic could happen so suddenly?

Economists stopped being scientists and became ideologues, more interested in normative models of how they want the economy to work rather than how it works. The profession silenced informed dissent, became dominated by a conventional wisdom that was more and more out of touch with reality, and failed to accept the complexity of modern economies. Any time a science is captured by a prevailing ideology, it loses its way.

Q - Some in the environmental movement argue that climate change is driven by consumption.  To grow the economy will ultimately mean the need for more consumption. Is it actually possible to grow the economy and not hurt the environment?

Yes, but it requires that producers of products be forced to modify and indeed transform production processes. A revolution in technologies is needed, and producer choices must be severely constrained.  This will require among other things a high level of new regulation. There is no hope if we simply rely on pricing mechanisms and enlightened consumerism. This will require a new economics as well as a new politics that accepts and makes work a highly regulated economy at the level of production. The forces in opposition are immense, the economic and policy elites are stuck in old neo-liberal ideas, and governments are bad at making regulation work. All of that must change. And as long as the environmental movement embraces enlightened consumerism and life style politics that avoids change at the level of capital, change will be slow.

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