El Dorado (I)

[In the post-Confederation era] Newfoundlanders again eagerly embraced that curious intoxicating myth which runs like a thread through their history—that their land, underneath its harsh and unproductive exterior, is really a shining El Dorado, awaiting only the right leader to unlock its treasures. Flights of fancy about the new province's 'vast economic potential,' the alleged existence of which was used to justify the expenditure of public funds on a variety of highly dubious private development schemes, thus became the rhetorical stock-in-trade of the governing Liberal party, whose leader [Smallwood] excelled even Edward Morris and Richard Squires in his ability to tell the people what they loved to hear.

— S.J.R. Noel, Politics in Newfoundland, 1971, p. 276

Plus ça change.

"We got more resources per capita than any other province," Ted Sheares said within moments of introducing himself. "The federal government has robbed, plundered, and wasted it all. We're poorer off today, in a sense, than we were when we joined Confederation."

So encountered John Stackhouse, as surely as a screech-in, on p. 99 of Timbit Nation, his account of his 2000 hitch-hiking trip across Canada.

Some of the myth-makers don't even bother with the "per capita" qualifier.

"We got more resources than any other province."

With or without the qualifier, the statement is wrong.

Between 1961 and 2004 inclusive, the years for which stats are available, the value of mineral production in Newfoundland and Labrador averaged 3.8% of the Canadian total. The province typically ranked seventh of the ten provinces, which, not too coincidentally, is exactly where it ranks in landmass.

At times, as recently as 1993, the provincial minerals sector has bottomed out at a meagre 1.5% of the entire Canadian total.

In 2004, the value of NL's mineral output ranked behind, in descending order, Ontario — yes, Ontario, the Canadian mining champion for ten consecutive years now — Saskatchewan, B.C., Quebec, Manitoba, and New Brunswick, and only slightly ahead of Alberta's non-petroleum minerals industry, which was worth only $15-million less than NL.

All things being equal geologically, with 4.1% of the Canadian landmass, you should expect NL to account for about 4.1% of the Canadian mining industry. However, for nearly half of that period, NL's share of Canadian mineral production has been lower than its share of the Canadian landmass, this, despite things not being equal: some provinces, including NL, have more-favoured geology over large swaths of territory for finding economically significant mineral deposits. (P.E.I. accounts for more than 0% of the Canadian landmass, but 0% of its mining industry.)

Even measured against population, NL's mineral production hasn't always stood out. For much of the 1980s and 1990s, the value of the industry, as a share of the all-Canada total, was actually lower than the province's share of the population. And even in 2004, the per-capita value of the mines and minerals sector in NL was less than that of Saskatchewan, and not that far ahead of New Brunswick's.

Why hasn't the natural wealth of Newfoundland and Labrador turned the province into a fabulous new, northern, El Dorado?

First, as noted above, while large in absolute value, compared to any other part of the country, Newfoundland and Labrador's endowment of natural resources is nothing out of the ordinary or unexpected. (Labrador, taken alone, would be so on a per-capita basis, though not by area; Newfoundland, taken alone, would be resource-poor without Labrador, which accounts for nearly 100% of the provincial mining industry these days.)

Second, provincial politics may well have reduced the value of the industry.

And no, this is not the "not one spoonful" argument about secondary processing. In fact, the value added to raw mineral output in NL, as a ratio of the value of the raw mineral resource, has ranked at or above the comparable figure for Quebec since about 1980, and in recent years, has been near the middle of the all-Canada pack.

Instead, one has to question whether the province has made itself a good place for mining companies to invest in, given that the provincial resource endowment has no shortage of competition, not just from elsewhere in Canada or the North American continent, but especially from developing countries with huge advantages in terms of labour costs and regulatory requirements (or lack thereof). A deposit may be worth a billion dollars in its raw state, and the province may set a royalty of 5% on it, but if no one is willing to develop that project, the value to the provincial treasury, and economy, is zero: zero percent of anything is zero.

Finally, in the modern economy, there is virtually no correlation between the wealth of a society and its natural resource endowment. What natural resources do Hong Kong, Great Britain, or the Netherlands possess? Or, by contrast, why aren't countries such as Nigeria, Peru, or Angola doing so much better economically?

In fact, in the case of Newfoundland and Labrador, the El Dorado myth may have had a pernicious economic effect. What incentive is there for economic diversification, for entrepreneurship, for sound management of the provincial finances and public services, if there is always lurking, just around the corner, some new megaproject (or, in the case of the so-called "Lower Churchill", and endlessly-recycled one) that will be The Great Salvation?

A.P. Herbert semi-famously wagged:

Labrador may become another Alaska, because it has the largest iron ore deposits in the world waiting to be exploited, and they will be a terrific thing. Whoever runs them, Labrador will be an old age pension for Newfoundland for a very long time….

In an earlier age, an anonymous economic philosopher said "Cape St. Mary's pays for all."

As long as there's a Cape St. Mary's, a Lower Churchill, a mine, a myth, an old age pension in the form of some natural resource megaproject of short duration and dubious overall benefit, the provincial economy will continue on its current spiral.

It is lots of little things, and lots of non-natural-resource things, which will pay for all, and which will be the old-age pension.

Instead, we get the usual platitudes about "potential" such as the ones Noel discredited; the myth-makers persist in weaving their myths, no matter what the objective statistics might say; and the politicians, including Smallwood: The Next Generation, keep telling his for-now adoring public everything they think they want to hear.