Monday, 16 January 2017


There are only a half million of us. And one half that number is so dispersed that it inhibits the achievement of the scale economies needed for normal commercial growth and for efficient public administration.

We have known those facts for a long time but, as a society, we have also affirmed that the higher marginal cost of maintaining hundreds of small communities is an acceptable one because it means preserving our rural character. Rural is who we are — even the more urban of us claim it as their identity.

While it was tough at times over the years, successive governments concocted budgets which maintained a reasonable balance between demand and the affordability of rural infrastructure and services. With the arrival of high oil prices — and low interest rates — successive Administrations engaged in, by any modern historical standard, outrageously excessive public spending. They watched as labour inflation — due to ill-staged megaprojects — helped distort a small economy. These economic factors, and a runaway boondoggle at Muskrat Falls, now threaten the whole province — but especially our rural communities.

The province had an opportunity to eradicate the debt — and to secure a sound economic foundation.  The opportunity - and the need - were ignored. We lost touch with reality. Even now, despite an increase in a plethora of taxes, the public — both urban and rural — seems wilfully blind to the fact that two out of every eight dollars of government spending must be borrowed.

Yet, neither urban nor rural wants anything to change — including how education and health care are administered. That is only natural, except it isn’t sustainable.

Of course, the worse effects of change didn’t remain at a standstill — even as government behaved like drunken sailors. 

Rural NL continued to thin out as a demography, virtually empty of babies, maintained perfect alignment with increasing gentrification — assuring rural NL’s continuing demise.

Whether rural might have developed a “real” economic diversification strategy using the opportunities afforded by the province’s oil revenues— levering lower tax levels, the fishery and other resources, and by creating an environment in which private capital is attracted — is moot. It just didn’t happen. As a result, hundreds of communities now constitute “base camp” for mobile workers; many of the younger ones at the ready when permanent work affords putting down stable roots elsewhere.

For those reasons (and there are others) rural NL has the most to lose as our fiscal position deteriorates and the Province has difficulty borrowing — and as mounting interest costs on the debt diminish the funding available for public services.

Change is an integral part of every society. Nothing is ever the same for long. But change is a problem when any calculus denotes decline. Rural will have a tough time fending off not just the bean counters, but the bias of the bureaucrats in St. John’s and of those having assets to protect where business has agglomerated.

Off the Avalon, every region will come under pressure as savings are sought. The clamor of business and politicians from the Avalon will drown out the voices of those from far more dispersed and politically weaker areas - not because they are any smarter or innovative but because they are closer to the seat of power and to an uncritical media. Rural will also begin to suffer for its failure to stop the Conservatives’ reduction of seats in the House of Assembly. It is is unlikely they will ask why the Members they elected don’t think in terms of “big issue” politics.

At any time, the most threatened regions should never send municipal minds to Confederation Building — especially when rural is politically vulnerable, which is most of the time. The days when the fishery can absorb endless surplus labour have long passed. The appetite for $50 million ferries, and a ferry system requiring over $100 million to operate — against $7 million cost recovery — won’t be tolerated when the tough choices eventually get made. Of course, the ferry system is an easily identifiable expression of disproportionately bad economies of scale. Those who believe their hospital or the nearest school - representing even bigger money - is inviolate likely aren't preoccupied with such issues.

If rural has any chance it must have strong advocates. It needs smart leaders, sensible enough to see more than potholes, and savvy enough to recognize that a far more complicated agenda underscores issues of survival — even if the potholes are occupying the average person. And the best people don’t let partisanship interfere with a higher agenda.

The truth is that rural — like the Avalon Peninsula — elected a pretty weak group. Most are Liberal Members — not that the electorate had a choice.  Instead of laying out a strategy to stall rural’s hollowing out, they foiled even the most tepid plans of a poorly constructed budget. The Caucus went so far as to threaten the political survival of Premier Ball if cuts were pursued.

To be fair, the MHAs gave Ball an ultimatum because of the bruising they received from their constituents. It’s not just rural: all members of the public want the status quo, even if their expectations are short-sighted and unattainable.

Likely, the rural MHAs never considered that rural, especially, cannot afford the status quo — or, more precisely, that more status-quo-type budgets will undermine rural forever.
They didn’t consider that a bloated public service — centered chiefly on the northeast Avalon — not only drains the government of every option to recover some semblance of budget sanity but that, lacking a cohesive power base, rural will be the first to pay.

The question of rural “inefficiencies” are already on the lips of every person who dares discuss our fiscal circumstance. As a result, the most remote areas will discover just how deep desperation, and the power of self-interest, will drive the fiscal knife into the services they hold dear.

Marystown Shipyard
But scarce government money isn’t the only threat. 

Consider Marystown and Bull Arm as examples of rural economic rot.

Marystown has historically enjoyed greater prosperity than most NL communities. If one apprises the history of that Town — not the fishing industry but the shipyard — its claim on work has been inextricably linked to government spending and on contracts obtained using local preference rules under the Atlantic Accord. When there are no local opportunities for work the facility is shuttered — as it is now — which illuminates its inability to attract Canadian or international work based upon local wage rates and other input costs. Now, add twenty-plus cent electricity to those input costs. What are Marystown’s prospects? What is its strategic advantage? Who talks about the problem, anyway?

A not terribly different narrative haunts the Bull Arm site as well — which will be empty mid-year. When the Hebron platform is completed, Exxon Mobil will vacate infrastructure built when when the Hibernia GBS was constructed in the 1980s. The site is unmarketable internationally except to an operator compelled to use it as a condition of an offshore oil development permit. Neither the Terra Nova nor the Hebron projects included modernization to help make it a world-class deep water construction facility. Nalcor management, responsible for the Site, has done nothing to advance its marketability.

It is difficult to think of Nalcor without feeling a sense of derision for its leadership - and those who flag wave for them. The usual cheerleaders applauded as evening news showed the Hebron topsides entering Bull Arm in July 2016. Neither they nor the evening news anchors noted that the province accepted a penalty of $150 million from ExxonMobil — the company having successfully argued that, in the then-overheated labour environment, the project schedule would be “derailed” if it was built here. As a result, the drilling equipment module went offshore, too, bring to 80% the topsides module construction not performed in this province.

Hebron Topsides
Shouldn’t someone ask, as did one engineer recently, why a company needs to go to the other side of the world to have such a high percentage of work performed, pay the cost to ship it here, and pay a large penalty to the local authorities, too?

Are the union agreements excessively expensively? Is the problem productivity? Taxation?
Aren’t Newfoundland and Labrador workers highly sought out in Western Canada? They are. Isn’t the low Canadian dollar adding to our competitiveness? It ought to.

Indeed, if we are so uncompetitive, we might ask: given the low C$ shouldn't all the work be performed elsewhere? What is the cost to every taxpayer to have any offshore work done? Should we stop insisting on local reference - given the royalty structure - because the higher the capital cost of each production platform mean less revenue for the province? 

Likely, such a step would be unacceptable. Strangely, though, what is acceptable is that we can be placated by a “bit” of short-term work. 

Locally-induced inflation -especially wage inflation - has a lasting downside. It is not something to be played with for a political purpose or to boost inflated egos. How could one not see that lights that lit up the Hebron topsides array in July constituted a hoorah for the jobs that went to South-east Asia?

Vale and Hebron rightfully deserved priority. Muskrat Falls could easily have been delayed, even if it had been adjudged economic and necessary — a fact confirmed by a schedule off-side by more than two years. 

Wouldn’t we like to have some of the Hebron work lost to South Korea now?

As in the case of Marystown, we might ask: what is the competitive advantage (aside from the preference demanded under the Atlantic Accord) of Bull Arm? It isn’t the facilities. And as to labour, contractors at the Muskrat Falls site use a higher cost per unit of work than does the oil sector in Fort McMurray. Does Bull Arm suffer the same problem? 

Important as they are, a rural — or even an urban — MHA (or any leader) will never speak to those issues or of the many others that underlie the real challenges to rural economic development.

Indeed, rural’s vulnerability is that not a single spokesperson has emerged: not one person emboldened by its progressive decline, no one capable of articulating the really large realities which many communities face, not one Mayor, not one community leader. It is not that rural is absent such spokespersons but that the risk of offense to the government leadership — even to trade union leadership — far outweighs questions of rural survival.

Any calculus that defines change is a product not just of the size of the population, our resources, or of development opportunities. Negative change — decline — is also caused by weak political leadership and weak governmental institutions. A passive citizenry is no antidote either.

Larger societies — except for the fractious and broken — accommodate periods of cyclical decline. Most comprise a diverse and vibrant private sector possessed with finding new economic fuel when the economic engine becomes tired. But Newfoundland and Labrador is not one of those. Ours is a relatively small province driven by a resource-based economy. We understand cyclicality. We even know that when rebound occurs, a mirror image of what existed at the start rarely reappears.

If rural or urban hasn’t gotten the message that the current economic circumstance is not about cyclicality, that the five years or so of high oil prices and high revenues were anomalous, that it must reinvent itself and not just around a brief tourism season, there is little hope for that part of the province.

Possibly, people embrace the Liberal vision expressed in the document called "The Way Forward". 

It was launched with the claim of containing a strategy in which "success is not defined by the value of commodity prices, but by sound fiscal management and actions defined by clear goals..." Yet, it contains no mention of how the chief components of an economic plan - wages, taxation, infrastructure, and inputs such electricity costs - will be managed to achieve competitiveness and to attract outside capital. 

The same government talks of "sound fiscal management" as it continues to borrow two dollars of every eight for government services. (Include Muskrat Falls and borrowing becomes $4.5 billion on a total of $10 billion of expenditures.) 

It doesn't counter notions of innovation and initiative as an easy ride on the occasional horse ridden by international oil, or admit that without dramatic change this province will receive no pity from the budget “fixer” who will arrive when liquidity in the bond market dries up. (That’s the one who will say: “I’m from Ottawa and I’m here to help”.) 

Indeed, what the Ball administration billed as "a vision for sustainability and growth" attracted far less review - from any quarter - than a bad Hollywood 'flick' even though our economic plot contains a thriller - with real lives at stake.

When leaders, municipal and provincial, marry myopia — blissfully content in their municipal thinking — and that is not to disparage municipal issues but to note the dismal funding prospects of rural services and the lack of awareness to that risk - the only possibility, even if unlikely, is that the public will assert themselves.

The people of rural NL will have to start very soon, and it may already be too late. They will have to inspire the people they elected, and insist that rural survivability is raised in their Council Chambers, and in the House of Assembly. 

Rural voices needs to be organized. Rural needs able and articulate spokespersons - and the funding necessary to support the effort - to help formulate and influence public policies - not to maintain what they have now - it's too late for that - but to identify the practical building blocks of a sustaining rural economy in which "subsidization" and "compulsion" aren't the only watchwords. They need to discuss not only issues of infrastructure but deal with the thorny issues of labour, productivity, electricity and other input costs essential to commercial competitiveness - which is to say "jobs". They need to ask themselves, not just what the government is prepared to do but what they are prepared to change. 

I would make one suggestion. None of this is possible unless the public - especially the rural public - gets behind the need for a 'real' plan of fiscal sanity. Rural has to make the linkage between provincial deficit and debt and the sustainability of rural communities. It's as simple as that.

At the risk of seeming repetitive - if rural communities decide to come to their senses and take the first bold step, their public needs to remember that any solutions cannot include the status quo.