Business

Are the Maritimes finally getting wise to Corporate Welfare Bums?

LYNDON WATKINS June 13 1977
Business

Are the Maritimes finally getting wise to Corporate Welfare Bums?

LYNDON WATKINS June 13 1977

Are the Maritimes finally getting wise to Corporate Welfare Bums?

Business

Back in 1868, in the first heady days of a newborn nation, the Atlantic region Fathers of Confederation, Charles Tupper and Leonard Tilley, thought their eastern provinces would become “the great emporium for manufacturers in British America.” If they could only see what has come to pass. As University of New Brunswick economist W. Y. Smith commented recently: “They might have been great statesmen but they were no hell as economic forecasters.” Instead, piecemeal attempts to attract industry to the Atlantic region in recent years have backfired very expensively, with the governments in all four provinces getting their fingers burned badly by misadventures in business. The problem isn’t limited to the Atlantic provinces: the Churchill Forest Industries debacle in Manitoba and Saskatchewan’s troubles with Prince Albert Pulp are prime examples. But government-subsidized failures in the Atlantic region have cut more deeply into already strained economies. Clairtone, Bricklin and now the Mercator One cruise ship are only the most publicized failures. In New Brunswick alone, at least 14 government-assisted industries have disappeared in the past two years, at a loss to the province of nearly $50 million. Nova Scotia, Prince Edward Island and Newfoundland have their own sad experiences as well.

But now there’s considerable evidence that the various provincial administrations are not going to be as easily lured into business deals in the future; that they’re finally concluding that there has to be a better, more coordinated solution. In PEI, the government has refused to guarantee a threemillion-dollar loan to a company with a proven record of success, C. M. McLean Ltd., which wants to expand its frozen French fries operation to provide chips to the McDonald’s hamburger chain. Expansion would mean up to 175 additional jobs and about 7,000 more acres of potatoes this year, but Premier Alex Campbell thinks McLean should raise the money privately. Referring to the “sorry history of industrial development in this province,” Campbell doesn’t exactly deny that the loan refusal is based on the experience with Georgetown Shipyard, the province’s best-known loser, a still unsuccessful shipyard and fish plant complex which has absorbed more than $9.3 million from the public purse since its inception in 1964. Says Campbell, explaining the reverse to a stance of government noninvolvement: “We’re telling private enterprise that the government, with public funds, will not go all the way. If something happens, the industrialist would be free to walk out and leave the mess behind for the government to clean up.”

It is also clear in New Brunswick that Premier Richard Hatfield’s government, still reeling from its string of failures, is pulling in its horns. The emphasis now is on smaller, homegrown industries. The days of the big project, often directed by someone from outside the province—and the $23 million Bricklin sting is the classic example—appear to be numbered. Says Commerce and Development Minister Gerald Merrithew: “The record is clear. Our small businesses have been remarkably successful. We’ve had a very low failure rate on those.”

Almost six years ago a government-appointed task force on social development criticized New' Brunswick agencies and officials for fostering a “spirit of artificial optimism” about the province's economic future by suggesting with each new industrial project or program that the dawn of the millenium was at hand. The idea of heavy government investment in job-creating industries has been considered virtually sacrosanct in the Maritime provinces, but the 1971 task force came to a conclusion that only now seems to be gaining widespread currency, namely, that the province’s economic underdevelopment was “rooted in

economic forces that are largely beyond our control, and any amount of further public investment in new industrial plants will probably not significantly alter this fact.”

Government involvement in industry is being questioned in Newfoundland, too. since the April 28 announcement that the Labrador Linerboard mill at Stephenville. operated since 1972 by a Crown corporation. will be closed within a few' months. Like so many shaky dominoes, the ambitious, costly industrial projects begun by former premier Joey Smallwood are toppling under the strain of a growing provincial debt. The Stephenville mill lost $21 million in 1974-75, $34 million the next year, and $40 million so far this year, with the total capital debt now around $300 million and rising. The whole project was born in near desperation after the Ameri-

can forces moved out of nearby Harmon Field in 1966. leaving the economy of the area reeling. In recent years, three new schools and a shopping centre have been built for Stephenville’s 12,000 residents, water and sewer services have been expanded, and hundreds of workers have settled into comfortable, modern homes, many mortgaged to the hilt. But the foundation for their future has collapsed.

And now in Nova Scotia, the federalprovincial venture capital company Metropolitan Area Growth Investments Ltd. (MAGO has scuttled the Mercator One project. MAGI put up $5.4 million that Joe Nugent, the chief steward-turned-entrepreneur. needed to buy the 11-year-old. German-built Mercator, and another $800,000 to refit and provision it for Caribbean cruises. But the 271-passenger ship had to cancel two of its first four southern cruises for lack of business and has carried a total of about 100 fare-paying guests. With losses of $250,000 in only six weeks of operation. Nugent went back to MAGI for another $300.000 in working capital and. late last month, he was turned down, MAGI has a first mortgage on the vessel and chairman Derek Haysom feels certain the ship could be resold for more than its purchase price. But Michael Forrestall, the Conservative MP representing DartmouthHalifaxEast, doesn’t share Haysom’s optimism. He contends that the Mercator could have been bought for just over one million dollars instead of $5.56 million, and he has been asking questions about why such an inflated price could be paid.

With Mercator One dubbed Clairtone II by its critics—evoking memories of the $22 million in public funds that went under with the stereo and TV company in the 1960s—Premier Gerald Regan confessed recently that he’d be happy if it “just sailed away.” Like the slick promoters of the past—Malcolm Bricklin, Clairtone’s Peter Munk—Nugent was long on ideas but short on cash. And, as with projects in the past, the government found itself increasingly enmeshed in Mercator after its original commitment.

But because of their economic circumstance, the Atlantic premiers have snapped at almost anything that has been dangled in front of them. They can’t be blamed for most of the mistakes they’ve made. Nor have other Canadians made it any easier for the Atlantic region to break out of its economic bind. Federal efforts to help the region, says the economist W. Y. Smith, have traditionally been uncoordinated and essentially welfare oriented. And Canadian industrialists have tended to look on Atlantic Canada as some kind of leper colony, best left alone and supplied from afar.

The $ 10 billion that Ottawa has pumped into the region in the past 10 years in equalization grants, cost-shared health and education programs, DREE expenditures and transportation subsidies has helped. But it also perpetuates a colonial industrial structure by attracting lameduck companies to the backward regions, while the better funded and technologically superior companies, which don’t need the marginal financial incentives accruing from settling in the east, stay close to their market and bolster the central manufacturing base. Besides, more than money is needed from Ottawa. Prime Minister Trudeau has spoken about his commitment to regional development, but if he had saved the Atlantic fishery by cutting the nets of the plundering offshore foreign fishing fleets five years earlier, his efforts would now be more appreciated.

With its excellent shipping links to all parts of the world, the Atlantic region could be considered a natural base to expand Canadian exports. Instead. Ottawa proposes—by lowering seaway tolls—to remove the $850-million debt of the St. Lawrence Seaway, something which is bound to have an adverse effect on Atlantic port activity. As long as the Maritime provinces have substantially weaker employment and economic bases than the rest of the country, they will be tempted by risky ventures. It’s a vicious circle. Unless they take risks, they see no way out of their present situation. And if they do take risks, they’re likely to get burned ... again.

LYNDON WATKINS WITH CORRESPONDENT REPORTS

(Business Editor Peter Brimelow is on assignment )