Halifax – Ian Munro, director of research for the Atlantic Institute of Market Studies (AIMS), a Halifax independent economic and social policy think tank, says it is a bad idea for government to pump money into private businesses instead of general infrastructure. When you do, he says, you can end up with a situation like the two Atlantic Yarns plants, with tens of millions in taxpayer money written off that could have been used more effectively to benefit the economy.

“It really is about fundamentals,” said Monro recently in an interview with The Tribune about the province facing a potential write-off in excess of $34 million in tax dollars on the Atlantic Yarns mills in Atholville and Pokemouche.

“It’s about investing in basic infrastructure to allow you to get your goods to market cheaply and to bring the input that you need cheaply. It’s about having a highly skilled and educated workforce, focusing on education,” he said. “And I think the evidence shows both from the Atlantic Canadian perspective and, if you want to look at Ireland, that when governments try to prop up economically underperforming regions by having bureaucrats try to determine which business is going to be the one to make it, and which one isn’t, it tends not to work very well. We’ve had a lagging economy in the region here for who knows how many decades and pumped billions and billons of dollars into these kinds of development and support initiatives and we haven’t moved that much further ahead. Whereas, you look at other jurisdictions where they moved away from that firm-specific targeted support, and instead focused on the basics, focused on the fundamentals — like Ireland, for example — and we see much better performance, so I think that should tell us something. Monro said that this kind of work doesn’t have the big impact of announcements where politicians just hand over a cheque, and make it look like they are doing something.

“We do seem to keep smashing our heads against the wall. Politics is always part of it. A big announcement of a cheque coming to this company or that company which can be portrayed, at least in the short-term, as saving or preserving or creating the jobs for ‘x’ number of people, that makes a better headline for a politician and certainly it probably grabs the average person’s attention better than focus on the more mundane but more fundamental things like a competitive tax regime and ensuring a quality school system.”

He said that Ireland is an example for the poor regions of Canada. Once bogged down by restrictions on its economy, it lowered its tax rate, removed shackles on the free market, and stopped propping up failing businesses. In spite of the fact that it has almost no resources, the country is now, per capita, one of the most prosperous in the world. “They did a few different things that all seemed to work in concert with each other. One was moving from one of Europe’s highest tax regimes to one of its lowest. Another was a decision to just simply stop often politically motivated support to individual businesses, and rather to turn that spending to things like ports, bridges, roads, railways, and airports — that kind of basic infrastructure that serves an entire economy. And, to focus very heavily on the education system. You could sell the location, then, as a place where you have a ready pool of highly educated, highly skilled, eager-to-work people. That’s why you have seen a lot of growth there, and Ireland is not a place blessed with a lot of natural resources or those kind of advantages. But now you have seen the growth in things like pharmaceuticals, electronics, software, all those sorts of high-tech, high paying jobs that keep people employed and provide a tax base that can support comfortable public services, ” said Munro.

Munro said that we do have to give ourselves some credit for changing things somewhat for the better over the years. He pointed out that New Brunswick’s small business tax rate is very attractive, and benefits have come from that.

“We are seeing some signs of some success in some areas. There are certainly pockets of Atlantic Canada where things are still lagging behind: northern New Brunswick, Cape Breton, rural PEI, rural Newfoundland. But if you look at some of the changes we have seen in centres like Moncton, Saint John, and Halifax, compared to ten or twenty years ago those places are going gangbusters. We are seeing, at the provincial level, record low unemployment rates. We are down to numbers we have last seen in the mid-seventies. Governments have been doing some of the right things. They have been trying to get their debt burdens down over the last number of years. That means interest payments on the debt go down, and that frees up money which allows tax rates to go down….I hope that we don’t undo it by sticking to the old methods in areas where they just don’t seem to be working. It’s just putting good money after bad.”

What shouldn’t be done, he said, is to put money into the Atlantic Yarns companies after the write-off. (The province, in fact, did withdraw a million dollar unaccessed loan offer for waste treatment.) “What I hope we won’t see is more good money going after bad. That they are in this position in the first place suggests that there are some fundamental problems with the business in question, and that’s $34 million the taxpayers aren’t getting back. I certainly hope there won’t be any more government money going into it in at this point.”