From 1989 to 2008, economic pizza expanded, but who was eating it?
“Follow the money.” It’s a tried and true way to explain a lot of politics and government, and in recent months I’ve been reminded why.' It started with a mystery, and ended with an answer that went beyond anything I expected.
The mystery?' If the Alberta government’s spending on public health care is ‘out of control’ and ‘skyrocketing’ and ‘unsustainable’' --as we are constantly told—then why do we have such crowded hospitals and emergency rooms, and such a shortage of doctors and nurses?' If spending on public health care has climbed so much, where’s the real life evidence?
To find the answers I dug into some fundamental data, with the help of two economists from the University of Alberta: Prof. Mel McMillan and Junaid Jahangir, an economics PhD student.'
We started with the most reliable data available, Statistics Canada’s CANSIM database.' This database sorts through all the shifting government programs to provide one consistent source of information on provincial spending and revenues since 1989.
When we ran the numbers on health care spending, and adjusted them for inflation and Alberta’s growing population, we were a bit surprised.' Despite a lot of erratic swings down and up, the Alberta government in 2008 wasn’t spending much more on health care than it was 20 years before.' We did some more analysis, comparing Alberta to other provinces, adjusting for Alberta’s younger population, and looking at the portion of the total provincial budget going to health care.'
The conclusions were clear: Alberta’s spending on public health care in 2008 was at most a few percentage points higher than the Canadian average, after being well below average for many years.' Its long-term growth rate was under two percent a year for the twenty years from 1989 to 2008, so describing it as ‘out of control’ is unjustified.' The much noted rapid increase is only relative to the unsustainable lows resulting from the Klein-era cuts, when Alberta was spending far below the other provinces.
So then I wondered, what’s the pattern for other spending?' We ran the numbers for education, environment, social services, and several other areas.' Lots of interesting patterns emerged.' Spending on schools has been fairly stable, hovering close to the national average.' Spending on environment is higher than other provinces, but jumps around a lot.' Spending on social services was cut in half in 1995, the year after Premier Klein won his first election, falling from well above the Canadian average to way below.' It has never recovered.'
When you add up all the numbers, overall provincial spending on public services in Alberta, once inflation is considered, was actually 3.7% lower per person in 2008 than twenty years before.'
So one mystery was solved: the biggest reason that ‘skyrocketing’ public health care spending hasn’t produced a generous supply of hospitals and doctors is that, for the past twenty years, the skyrocketing has been an illusion.'
But a bigger mystery appeared.' Government spending may not have grown, but Alberta’s economy certainly had.' From 1989 to 2008, economic activity per person increased 76%, even after accounting for inflation.' If spending on public services was flat while the economy had grown by three-quarters, where was all that new wealth going?'
The economic pizza had grown from medium to extra large, but public services were still just getting two pieces.' Who was eating all the rest?
We first looked for an answer in personal incomes.' We ran the numbers and, sure enough, average personal incomes in Alberta had risen almost 40% in the past two decades, reaching levels well above other provinces.'
But this was nowhere near a complete answer.' Personal income may have risen 40%, but the economy had grown 76%, so personal incomes were actually a smaller share of the economy than before.'
Could it be the Alberta government who was soaking up the money?' The numbers showed that provincial government revenues were indeed up, which is how the debt was paid and the new Sustainability Fund created.' But the increase was nowhere near enough to keep pace with the growing economy.'
The next place to look was corporate profits.' Once again we turned to Statistics Canada and ran the data through the computer.'
And bingo!' Here was our answer.' Corporate profits in Alberta' climbed, and they climbed, and they climbed again.' There were a few brief dips in the trend, but the evidence was stark.'
After adjusting for inflation, in 1989 corporate profits before taxes in Alberta were $3600 per person; in 1994 they were $4800; in 1999 they were $6000; in 2004 they were $11,900; and in 2008 they edged above $15,000 per Albertan.' (All figures in 2002 dollars.)' And because Alberta’s corporate tax rates are low, a very small portion of this increase went to public services.
This rate of increase was far faster than overall economic growth, which meant that corporate profits increased from less than one-tenth of Alberta’s GDP, to nearly a quarter.
So finally we knew where Alberta’s surging wealth was and wasn’t going.' After correcting for inflation, the picture that emerged looked like this: from 1989 to 2008, provincial spending per person on health care rose 37%; spending on schools rose six percent; spending on social services fell 25%; personal incomes rose 39%; and corporate profits climbed 314%.
It is time for a new debate in Alberta, and it shouldn’t be a narrow debate about, on one hand, driving business away or, on the other, rolling over and playing dead for investors.' Profitable corporations are a good thing.' Profits finance economic growth, create jobs, and help pay for public services.'
But in a balanced economy, competitive forces would have driven profits back down to normal levels.' In Alberta they haven’t.' Why not?' Are our corporate and government leaders that extraordinary?' Are profits so high because of the high level of capital investment that corporations make in Alberta?' Or are those profits coming from something else?
There are other questions too:
Who is benefitting most from this arrangement?
What is the appropriate perspective for the government to take, when long-term spending on public services is flat and the real value of the Heritage Fund has dropped, while corporate profits have soared?
What proportion of profits stays in Alberta, and what proportion leaves?' What proportion leaves Canada?
These are controversial questions that could fuel a whole new debate in this province.' And that, at least in my view, would be a very good thing.
