Looking Forward:

The BC Economy at a Crossroads

A Message from Carole James
British Columbia is blessed with abundant natural capital, strong, vibrant communities
and a spectacular environment. We’re well-positioned to take advantage of the economic
opportunities the new, green economy will bring.
However, our economy is also undergoing fundamental structural changes. The global
recession has created instability and uncertainty. There are growing concerns about our
social condition. And above all this looms the challenge of climate change.
How do we build a strong, vibrant and green economy that creates jobs and generates
the wealth to provide a high standard of living and quality social programs for all British
Columbians?
Our Province, Our Future is an initiative I’m leading to begin a discussion about how we
harness the ideas and talent of British Columbians to build a plan for the future, driven
by the values that make for long-term economic stability: prosperity, opportunity, equity,
inclusion, sustainability.
This discussion paper is the beginning of that conversation.
Authored by Doug McArthur, Professor of Public Policy at Simon Fraser University, the
paper offers a thoughtful analysis of B.C.’s economic strengths and weaknesses, as well
as opportunities. The author poses some important questions to stimulate discussion
and dialogue.
I invite you to join in the conversation. Visit our website, ourprovinceourfuture.bc.ca,
where you will find more information about Our Province, Our Future, and links to a
number of thought-provoking articles. I also encourage you to share your thoughts,
ideas and reactions, post a paper of your own, or contribute to the discussion forum.
Let’s keep the dialogue going. By working together we will find solutions and our
common ground.
Together, we can renew British Columbia’s promise for a better tomorrow.

Carole James
Leader, New Democrat Official Opposition
Author’s Note: The findings, views and comments contained in this paper are solely those
of the author, and he alone is responsible for any errors or omissions.
Looking Forward:
The BC Economy at a Crossroads

Doug McArthur
Professor of Public Policy, Simon Fraser University
A background discussion paper commissioned
by the Leader of the British Columbia
New Democrat Official Opposition
23 April 2010
Introduction
British Columbia’s economy is going through a
major transition. This is part of a larger trend in
the industrial world toward more services and
less manufacturing. But B.C. is also unique in a
number of ways.
This paper is about the B.C. economy in
transition. It argues that value creation is
the single most important consideration in
assessing B.C.’s economic transition. Value and
wealth creation are not only important to the
private sector; they must also be the focus of
government in setting policy to guide and assist
the transition.
The paper explores various dimensions of the
value creation question, identifies constraints to
realizing maximum value creation, and points to
possible issues that should be addressed.
 Looking Forward: The BC Economy at a Crossroads
Government in the economy
The economy is in essence the arrangements
through which material goods are produced
and distributed, and through which income and
wealth are generated and shared. While there is
a large degree of “self management” in a market
economy, the underlying structure and results
are, to a considerable degree, influenced by
government policy. Many important influences
on the nature and direction of any economy
come from government.
Government policy is driven by ideas of what
is good and what is desired. These ideas are
rooted in values. As a consequence, values play
an important part in determining the nature and
direction of any economy. Indeed, value creation
can only be fully understood within the context
of values.
There has been lively debate over the last
30 years about the most effective orientation
of government policy if wealth creation is to be
maximized. This debate has had considerable
influence over government economic policy
throughout the world, including in British
Columbia.
In many ways this debate gained momentum
from widely understood failures of economic
policy during the 1970s. At that time, much
was promised from governments based on an
assumption that the economy would sustain
the high rates of growth and stability of the
1950s and 1960s. When this proved wrong and
stagflation set in throughout the world, thinkers
and political leaders understandably searched
for alternatives. These increasingly emphasized
free trade, deregulation of markets, increased
incentives for private wealth creation and
capital accumulation through tax reductions and
subsidies, and a reduced role for government.
Overall this approach to policy emphasized
market-oriented values and a belief that private
interests should be encouraged to find fuller
expression through reduced government.
Recently some policy analysts have debated
whether there is a need to recognize other
values and policy goals that transcend ideas
embedded in the conventional view of markets.
Growing inequality, the decline of rural areas,
environmental concerns and the recession
have fuelled interest in these questions. It is
suggested that material production and capital
accumulation are important and address one
important aspect of society’s needs, but are just
one of a number of legitimate goals informed by
society’s values.
Others include goals informed by fairness
and social justice, sustainability of the natural
environment, and meaningful participation in
all aspects of political, social and economic
life. These goals include, but are not limited to
jobs, opportunity based on substantive equality,
fulfillment through individual and community
development, inclusion of minorities, gender
equality and quality government services.
Those who ask these questions are not
necessarily hostile to private markets. The vast
majority recognize the enormous wealth-creation
potential generated by the enterprise and
entrepreneurial energy of the private sector. But
they do ask whether the modern economy can
meet our broader needs without government and
civil society playing their part in advancing the
economic interests of citizens.
According to the latter view, part of
government’s role is to frame and guide
economic activity consistent with society’s
values and these goals. Government must be
Looking Forward: The BC Economy at a Crossroads
an active partner with other key institutions.
Smart government is needed in order to
realize prosperity while valuing other larger
social and economic outcomes that contribute
to a high quality of life for all and the long-
term sustainability of human life and natural
systems. The important questions are about how
government should play that role, and about
how to achieve the appropriate balance among
government, civil society and the private sector.
The recession of 2008 was for many an
unexpected development. It has re-focused
attention on the need for government and
government policy. It is forcing us to examine
many assumptions and ideas. The way forward
will be difficult. Recovery is underway, but
many uncertainties remain. Wealth creation,
sustainability and equality of opportunity
will be of great importance, if there is to be a
meaningful recovery and if the future economy is
to serve human, social and sustainability values.
The first step in moving forward is to take
stock. That is what this paper is really about.
Value creation emphasizes sustaining,
cumulative value realized from producing private
and public goods and services, conserving the
natural environment and natural capital, and
fully realizing human potential. It is thus just as
much about conservation and lifting people out
of poverty as it is about goods production. It
also focuses on the future as well as the present,
since a narrow short-term emphasis invariably
leads to short-term gain at the expense of
longer-term loss, which is inconsistent with
sustainability. Consequently it is also about
wealth creation, since wealth is simply an
expression of value created by decisions today
summed over the present and the future.

 2,500,000
2,500,000
2,500,000
2,000,000

Industry distribution in the British Columbia economy 2,000,000

2,000,000
1,500,000
1,500,000
Employment trends are a good measure of how The following charts set out the changes in
1,500,000
1,000,000
the industry structure of the economy is and employment
1,000,000
1,000,000
that have been occurring in selected
500,000
has been changing. The following charts use sectors.
500,000
500,000
employment data to illustrate some of the most 0
0
important changes over the long and immediate Chart 2: Forestry employment
0

terms. (000’s), 1987-2009

Chart 1 sets out total employment in B.C. 40
40
since 1987. Overall, the period 1987-1997 was 40
35
35
one of relatively strong job growth, as was the 35
30
period 2005-2008. 30
30
25
25
25
20
Chart 1: total employment in B.C., 20
20
15
1987-2009 15
15
10
2,500,000 10
10
5
5
2,000,000 5
0
0 Source: B.C. Stats. ibid.
0
1,500,000

1,000,000 Chart 3: Manufacturing employment

(000’s), 1987-2009
500,000 400
400
400
0
Source: B.C. Stats. British Columbia Employment by 200
Detailed Industries, Annual Averages. 200
200

0
40 0
0 Source: B.C. Stats. ibid.
35

30

25
Chart 4: Construction employment
20 (000’s),
300 1987-2009
15 300
300
10
200
5 200
200
0
100
100
100

0
0
0
400 Source: B.C. Stats. ibid.

200

0
 Looking Forward: The BC Economy at a Crossroads
5
5
5
 200
100

100

100
0

Chart 5: Oil and gas extraction The charts largely speak for themselves.
5
employment (000’s), 2001-2009 From this and other data, it is obvious that
5
the B.C. economy has been going through
5
quite a profound shift over the past decade.
0 For instance, forestry and manufacturing have
0 declined, while the growth in jobs has been
0 large in the construction and health services
Source: B.C. Stats. ibid.
industries. Natural gas jobs have increased
although they have been small and surprisingly
Chart 6: Government employment unstable.
(000’s), 1987-2009 Potential problems are evident. Health
services jobs are largely dependent on
200
government financing. Construction jobs tend
200
100
to be short term and cyclical, and are also
200
100 highly dependent upon government financing.
0
100
The long-term sustainability of construction
Source: B.C. Stats. ibid.
0 is thus uncertain. Natural gas, while growing,
0 is not a significant overall job creation sector,
accounting for 2,500 to 3,500 jobs over the last
Chart 7: Health and social services
five years. Gains in natural gas have made a
employment
300 (000’s), 1987-2009
much bigger contribution to government and
300
200 corporate revenues than to jobs. The challenge
300
200 will be to achieve a future balance in job creation
100
200 that maximizes overall value creation in the B.C.
100
economy.
0
100
0
Source: B.C. Stats. ibid.
0

Chart 8: All services employment

(000’s),
2,000
1987-2009
2,000

2,000

0
Source: B.C. Stats. ibid.
0

Looking Forward: The BC Economy at a Crossroads 

Achieving a value and wealth-creating transition
A continuing theme of this paper is that the B.C.
economy is in major transition. Some of this
transition is similar to other modern developed
economies experiencing a relative decline in
manufacturing and increase in services jobs. The
challenge for such economies is to maintain high
standards of living by ensuring the mix of new
jobs includes sufficient long-lasting high value
jobs to ensure long-term value creation.
The B.C. economy has some unique features
to its transition as it is currently playing out.
In particular, the renewable resources and
processing sectors and manufacturing are
threatened.
All provinces have been experiencing some
relative shift from higher value goods to lower
value services. The challenge is to realize an
appropriate mix of activities as services increase
in importance. There are numerous high value
industries that can help sustain the overall value
mix in the economy. It is important to ensure
that sufficient industries producing higher value
goods and services are created and/or grow to
compensate for losses in declining industries.
 Looking Forward: The BC Economy at a Crossroads
The problem is not just one of earnings from
employment; it is also a problem of returns to
investment. There are two parts to the value
creation equation – earnings from employment
and return on capital. Together these constitute
the value generated in a sector.
The net economic value, or labour, capital and
other income created per job in selected sectors
of the B.C. economy in 2007 (in constant 2002
dollars) is shown in Table 1.
Table 1: Net economic value per job,
selected sectors (MILLIONS, 2002
constant dollars), 2007
High Tech $119,398
Wood Products 104,049
Timber Harvesting 93,621
Manufacturing 77,236
Tourism 51,153
Construction 45,632
Retail 35,824
Food and Accommodation 25,860
Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations.
 The implications for the economic transition
are of some importance. For an economy in
transition such as British Columbia’s, a sufficient
mix of higher value-added growth is needed
to offset the inevitable growth of lower value
sectors and activities. Each forestry-related
job in 2007 created over $100,000 of net
value in the B.C. economy, and the average
manufacturing job created $77,236. Tourism
jobs created about double the value of jobs in
food and accommodation services, and thus are
relatively valuable jobs. Manufacturing jobs do
even better. Retail, food and accommodation
services created from one-quarter to one-third
that of forestry jobs, and from one-third to half
that of the average manufacturing jobs. High-
tech jobs on the other hand – the majority of
which are in high-tech services – not surprisingly
actually add net value compared to forestry and
manufacturing.
Looking Forward: The BC Economy at a Crossroads
There are of course numerous considerations
that must be taken into account when pursuing
maximum overall value creation. The numbers
in the preceding table tell an important part
of the story but by no means the whole of the
story. Maximizing employment is important,
and requires that there be a mix of sectors with
different value-creation potential, determined
in part by relative product demands. Non-
market components of value must be also be
considered. In the case of natural resources,
conservation and depletion both have values that
aren’t included in the values set out in the table.
And there are things such as global warming
which can be and are value destroying, and thus
must be considered when examining the impact
of activity in various sectors. A number of these
and other matters will be considered in the
following sections.

High-tech and tourism
Two sectors of considerable interest in B.C.
are high-tech and tourism. These are not
traditionally defined sectors, and it is only
relatively recently that the numbers have been
available to track the performance of these
two sectors. They are of particular interest in
B.C. as the province makes the transition to
new and expanding sectors, since both have
been identified as growth sectors able to make
a significant contribution to jobs and wealth
creation in the future.
Table 2: Tourism and High-tech
Employment (000’s), 2000-2008
Year Tourism High-Tech
2000 102.4 67.1
2001 109.9 71.6
2002 110.1 67.1
2003 112.2 66.0
2004 115.1 68.0
2005 118.5 71.2
2006 123.4 77.5
2007 129.5 81.1
2008 131.0 n.a.
Source: B.C. Stats. B.C. Tourism and High Technology GDP
and Employment.
 Looking Forward: The BC Economy at a Crossroads
These sectors combined have experienced a
relatively good growth rate since the mid-2000s.
Together they now provide more than 200,000
jobs, making up about 10 per cent of the labour
force. This is a significant proportion of the
overall labour force and each, in its own way,
represents important possibilities for the future.
High-tech jobs are high-wage, high value-
added jobs that can help offset the erosion of
high-value jobs in forestry and manufacturing.
The ability to capture these jobs will be
important if B.C. is to avoid a drift into low-value
production.
On average, high-tech jobs add as much or
more wealth to the B.C. economy as forestry jobs
have in the past. However high-tech job growth
has been variable and somewhat sluggish.
Tourism is a significant component of the
private sector service economy that has had
significant growth. While tourism jobs are
somewhat different from high-tech jobs, it
may surprise many to find that tourism jobs on
average are relatively high-value jobs, adding
over double the value of the average retail
services and accommodation and food services
job. Tourism is thus of considerable importance,
not only in creating new jobs but in terms of the
contribution to value creation.
Culture and cultural industries
Cultural industries are an important source of
value creation in the B.C. economy, generating
close to 200,000 jobs. This is more than twice
the number in high-tech and considerably more
than in tourism. These are extremely important
to the job performance of the economy. Overall,
job gains have been disappointing during the
period, and also quite variable.
Many of the jobs in cultural industries are
filled by people with high levels of training and
education and high levels of creativity. Cultural
sector jobs are generally high value, knowledge-
based jobs. They contribute to the overall social
capital essential to sustainable development. It
is of concern that there has been very little job
growth since 2000 in this sector, and that job
losses since 2007 are almost certain to be quite
substantial given the two most recent budgets.

Table 3: Cultural Industries Employment (000’s), 2002-2007

Year Info/ Publishing Movie Broad- Telecom. Arts & Performing Heritage
Culture casting Enter. Arts Inst.

2002 56.8 11.3 10.2 4.0 26.0 49.2 20.7 2.5

2003 51.4 14.2 11.0 3.4 17.1 57.3 17.6 4.0

2004 57.2 15.1 11.0 4.4 20.3 57.6 21.8 2.4

2005 56.0 15.6 9.3 3.7 18.4 56.1 19.6 3.5

2006 56.1 15.0 12.2 4.3 17.6 57.0 19.4 2.3

2007 61.0 15.3 14.7 3.0 21.2 56.8 19.4 3.1

Source: Statistics Canada. Special Request for NVS, Employment in Cultural Industries.

“The last few decades have belonged to a certain

kind of person with a certain kind of mind. But
the keys to the kingdom are changing hands. The
future belongs to a very different kind of person
with a very different kind of mind – creators and
empathizers, pattern recognizers and meaning
makers. These people – artists, inventors,
designers, storytellers, caregivers, consolers, big
picture thinkers – will now reap society’s richest
rewards and share its greatest joys.”
—Dan Pink, A Whole New Mind

Looking Forward: The BC Economy at a Crossroads 

Wages and earnings
Unique among the provinces, there has been a
decline in average earnings in B.C. over the past
few years. This is a worrying trend because of
the importance of high-wage, high-knowledge,
and high value-added jobs in maintaining living
standards, government revenues and services.
Data from the years 2000 and 2005, the last
years for which census results are available, tell
a story of a province in some difficulty compared
to the rest of the country. Between 2000 and
2005, full-time median earnings in B.C. declined
(after adjustment for inflation). The only other
province having a decline was Quebec, where the
drop was insignificant – less than one-third of one
per cent. The changes in median earnings for full
time people in B.C. by occupation are provided in
Table 4. Comparative figures for B.C., Alberta and
Canada are contained in Table 5.

Table 4: Full time median earnings (2005 constant dollars), 2000 and 2005

Selected Occupation (B.C.) 2005 2000 % Change

Health Care Assistants $ 35,660 $ 37,977 -6.1 %

Technical Workers 23,983 28,044 -14.5 %

Resource Workers 29,735 33,764 -11.9 %

Manufacturing 32,065 33,586 -4.5 %

Food & Beverage 17,178 20,122 -14.6 %

Senior Management 79,977 77,372 +3.4 %

Business Professionals 54,488 52,360 +4.1 %

All Occupations – B.C. 42,230 43,715 -3.4 %

Source: Statistics Canada. Earnings and Incomes of Canadians Over the Past Quarter Century, 2006 Census.

10 Looking Forward: The BC Economy at a Crossroads

 Table 5: Full time median earnings, all occupations, B.C., Alberta and Canada
(Constant 2005 dollars), 2000 and 2005
2005 2000 % Change

All Occupations – AB $ 43,964 $ 40,782 +7.8 %

All Occupations – BC 42,230 43,715 -3.4 %

All Occupations – Canada 41,407 40,443 +2.4 %

Source: Statistics Canada. ibid.

One consequence of the shift in the economy
has been the above indicated pressure on
real earnings. Declining real earnings, both in
actual and comparative terms, are a reflection
of the effects of the transition. BC is falling
behind, both over time and compared to other
provinces. This contributes, in turn, to a shift in
the distribution of income. The overall proportion
of families living in poverty has increased
while only a small number are enjoying great
prosperity. While rewards to professions, senior
managers and investors in the B.C. economy
have been increasing, there has been negative
pressure on ordinary wages due to the internal
structural shifts.
B.C. faces a singular challenge. The earnings
gaps indicated above are relatively large given
the reporting period. The reported overall gap
in B.C.’s place in Canada can be averted by
generating more long-term jobs in alternate
higher-wage, high value-added sectors. This,
along with overall productivity gains, is needed
to maintain the wage and earnings structure that
has prevailed historically. This is clearly a high
priority for B.C. over the next few years.

Looking Forward: The BC Economy at a Crossroads 11

GDP in British Columbia and the rest of Canada
The rate of growth of real GDP has been relatively Chart 9: Real GDP of provinces
variable, as can be seen from the table below. per capita (2002 constant
dollars), 2008
Table 6: per cent Real GDP Growth, B.C.
(constant 2002 dollars), 1983-2009

Year % Year % Year %

1983 0.6 1992 2.6 2001 0.6
1984 0.8 1993 4.5 2002 3.6
1985 6.9 1994 2.8 2003 2.3
1986 0.2 1995 2.4 2004 3.6
1987 6.2 1996 2.5 2005 4.7
1988 5.8 1997 3.2 2006 4.2
1989 3.3 1998 1.3 2007 2.9
1990 1.4 1999 3.2 2008 0.0
Source: BC Progress Board. Benchmarks Report.
1991 0.2 2000 4.6 2009 -2.7

If BC is to improve its relative position in

Source: B.C. Stats. B.C. GDP at Market Prices.
terms of GDP, it will be necessary to, among
Part of the explanation for lower real earnings other things, place a greater emphasis on value
is lower gross domestic product (GDP) on a creation.
comparative basis. GDP per capita is well below
the better performing economies in Canada.
16%
GDP is a measure of the dollar value of incomes 14%
and wealth, and thus of the monetary value of 12%

goods and services, created within the economy 10%

during a particular year. As can be seen from 8%

6%
Chart 9, a considerable gap exists between
4%
B.C.’s two nearest western neighbours as well 2%
as with Ontario, whose economy has been itself 0%

struggling over the past few years.

$50 -

45 -

40 -

35 -

30 -

12 Looking
25 - Forward: The BC Economy at a Crossroads
1999 2001 2003 2005 2007
ab can
on bc
 ns
pe

0
$

Unemployment and labour markets

The unemployment rate in B.C. reached historic Chart 10: B.C. Unemployment Rates,
highs in the late 1980s and early 1990s and then 1976-2009
progressively declined throughout the 1990s.
16%
After increasing again in the early 2000s, it again
14%
began a decline in 2003 that levelled off in 2007
12%
before sharply increasing in 2009.
10%
Youth unemployment, currently at 8%
approximately 13 per cent, is a particular 6%

concern. 4%

A value-maximizing economy must create 2%

sufficient jobs to reduce unemployment as 0%

Source: BC Stats. Labour Force Activity for British

much as possible. The ability to restore the Columbia and Canada - Annual Averages.
unemployment rate to such a level is a major
challenge in an economy in transition.

$50 -

45 -

40 -

35 -

30 -

25 -
1999 2001 2003 2005 2007
ab can
on bc

2.5% -

2.1% -

1.7% -

1.3% -

0.9% -

0.5% -
1998 2000 2002 2004 2006
ab can
on bc

Looking Forward: The BC Economy at a Crossroads 13

16%

14%

12%
Resources in the British Columbia economy
In order to fully appreciate the direction
of the B.C. economy, it is important to pay
special attention to the resources sectors.
The B.C. economy is, as with all economies, a
product of its history, its people and its natural
endowments. Land and resources were for a very
long time the primary source of prosperity for
many and the source of great riches for some.
The fishery, now in serious if not fatal decline,
was at one time at the core of the B.C. economy.
Forestry, always a source of considerable wealth
creation, became by the third quarter of the last
century the single most important contributor to
B.C.’s ascendancy within the Canadian economy.
Mining was always a considerable but lesser
source of wealth and employment.
All of that has changed. The renewable
resources sectors of B.C. are in decline due to
unsustainable management and other policy
and industry failures. Natural gas, and to a
lesser extent mining, are displacing renewable
resources in importance. The changing position
of resources in the provincial economy is
described in the following tables:

Table 7: Resources Sectors Net Value of Production ($millions, current), 1997-2006

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Forestry $3,185 $3,272 $2,919 $2,584 $2,344 $2,713 $2,487 $2,841 $2,809 $2,641

Fishing, Hunting 201 138 130 140 104 134 133 142 138 131
and Trapping

Oil and Gas 1,080 803 1,239 3,380 4,161 2,826 4,825 5,160 7,300 6,330

Mining 1,289 1,143 1,007 1,051 1,227 1,233 na na 3,258 3,765

Wood Products 3,634 3,189 4,459 4,225 3,623 3,979 3,465 4,910 4,194 3,765

Paper 1,599 1,374 1,723 2,517 1,727 1,453 1,233 1,575 1,678 1,792

Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations.

14 Looking Forward: The BC Economy at a Crossroads

 Pine beetles have devastated the forests of the
Table 8: Resources Sectors
Interior, while over-harvesting has laid waste
Estimated Net Value of Production
the coastal and Vancouver Island forests. The
($millions, current), 2007-2009
Softwood Lumber Agreement with the United
2007 2008 2009 States, restricting and penalizing the export
Forestry $2,456 $2,059 $1,441
of softwood lumber, has made an already bad
situation worse. Forestry is being subject to the
Oil & Gas 6,320 6,580 4,500 largest job cuts in any sector in the 2010 B.C.
Mining 3,686 3,577 2,503 budget.
There are limited prospects for improved
Wood Products 3,528 2,888 2,021 conditions in forestry. There is a developing
Paper 1,785 1,598 1,199 interest in the utilization of forest residue fibre
in the production of electricity. New prospects
in China and a housing recovery in the United
Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations States are also possible sources of improvement,
and Author’s Estimates.
but neither is likely to bring dramatic change
in the near future. Value-added wood products
The decline in important parts of the resources manufacturing has always been a goal, but it
sectors is a matter of considerable concern. The remains elusive. The continuing challenge in
shift from the wood-based sectors to the gas forestry is to find new value-added opportunities
and minerals sectors evident from the statistics as the transition proceeds.
has potential implications in terms of wealth
creation, jobs, sustainability and regional
development.
As recently as the late 1990s, forestry
contributed directly and indirectly to over 35 per
cent of the annual income and wealth generation
in B.C. It is now a shadow of what it was then.
The impact on jobs and private wealth creation is
unprecedented in B.C.’s history. Forestry-related
revenues to the B.C. government in the form
of stumpage and various taxes are less than
one-fifth of what they were in the 1990s. Timber
harvesting jobs are in free fall – to about one-
third their number in the mid-1990s. Mills have
closed all across the province and more closures
are expected over the next two to three years.

Looking Forward: The BC Economy at a Crossroads 15

Sustainability and the green economy
Sustainability will be a necessary goal for all
future economic development. This will require
that all value-creating activity be assessed
in terms of environmental and other related
impacts. There is considerable room for concern
about the extent that an economy overly-
dependent on construction, mining and natural
gas accords with good sustainability goals. The
actual value created on a full accounting basis
may be much less than that expressed by the
current method of reporting.
Green energy is also recognized as important
to a future high-value economy. Again however,
there is considerable concern that many of the
private hydro developments in the province
have significant environmental impacts not
being accounted for, and that their success is
also dependent on value-destroying time-of-
year specific low-value exports that will require
subsidization from hydro users. If these concerns
are valid, many of these projects will not meet
the standard of high-value creation.
Carbon emissions are, of course, a great
concern. Society faces a monumental challenge
in reducing greenhouse gas emissions. There is
widespread agreement on the need for dramatic
measures to address this problem. Given the
magnitude of the measures required, questions
arise as to the form that greenhouse gas policies
must take and what such policies will mean for
the evolving economy.
16
The transition in the B.C. economy will
necessarily have to include within it a transition
to reduced carbon dependency and adaptations
in response to global warming. Global warming
is and will continue to be value destroying, and
thus undermines value creation. With the pine
beetle kill, B.C.has already experienced one of
the single largest destructions of value in the
world as a result of global warming. Others are
occurring in a less dramatic way. B.C. must join
in an aggressive and coordinated world-wide
shift away from carbon dependency if such
affects are to at least be ameliorated. Effective
regulation and new technologies applied to
slightly more than a dozen major industrial
high-carbon emitters, tough restrictions on
internal combustion emissions in the transport
sectors, and a much more aggressive pursuit of
conservation in space heating would go a long
way toward altering B.C.’s carbon dependency.
Other policies can also contribute.
Most agree that part of the solution
must be to shift the B.C. economy to a much
“greener” base. This is needed not only
to reduce greenhouse gases, but also to
compete with economies in Europe and Asia
who, as early adopters, threaten to move
well ahead in the transition to a more energy
efficient economy. This means not only greater
efficiencies in the consumption of energy, but
also major investments in the production of
new technologies that will make dramatic gains
possible.
Looking Forward: The BC Economy at a Crossroads
 Two things in particular are happening in
Europe and China: the rapid development and
production of new technologies, and the rapid
installation of these new technologies in goods
and services production. Many nations and
jurisdictions are pursuing industrial strategies
that will generate rapid growth in the production
of green technologies. To date, there has been
only limited progress in B.C. The main focus has
been on subsidies for private electrical energy
for export, which will do little to encourage
adaptation in industrial production within
the B.C. economy itself. The development
and production of green technologies that
will generate fundamental industrial shifts in
B.C. requires immediate support. It is difficult Many modern economies count on deriving
to obtain reliable data on the current size of considerable strength and diversification through
economic activity related to these technologies. developing the green technology sectors. There
The B.C. government reports that B.C.’s clean is a real risk the early adopters will dominate
technology sector includes over 250 companies these important, high value parts of the economy
employing about 3,700 people.1 This is an of the future, leaving the latecomers at a real
extremely low number and it is not clear what disadvantage. Decisions need to be made soon
is included or even what the source of the as to B.C.’s commitment to participation in these
number is. opportunities, if we are not to be left behind.
In part, the pace of green technology While new legislation is promised, it is unclear
production reflects the need to address the how this will address the two fundamental needs
second strategy named above – the financing referenced above.
of investments that support the development
and adoption of green technologies. Most
jurisdictions are devoting significant resources
to funding research and development and to
adopting the new technologies. B.C. is behind in
this regard, raising the question of how more can
be done.

Looking Forward: The BC Economy at a Crossroads 17

Farming and agriculture
B.C. has a large market for food products and a
rich land base. Farm production employs about
35,000 people, or almost two per cent of the
labour force. Food processing employs another
25,000 people. Both have been relatively
stagnant in terms of job growth. A substantial
portion of farmland is protected for agricultural
use in the Agricultural Land Reserve (ALR).
Most studies and reports agree that B.C.
has considerable potential but underperforms
badly in realizing its potential from farmland
and agriculture. The protected land base
has been eroded by industrial and urban
development, and many are concerned about
further incursions. There is also concern about
the erosion of the productivity of the land within
the ALR. A recent report states it well, saying
“the preponderance of ALR lands near urbanized
areas have been purchased at values orders of
magnitude higher (reaching $100,000 per acre or
more) than justified by any form of conventional
18
agriculture utilization. Thus ALR land is clearly
being purchased by entities, expressly to hold for
speculative investment purpose, fully expecting
the ALR to break down in the near future…
Other ALR designated holdings are utilized for
low-intensity agriculture and produce low-value
per acre crops such as Christmas trees or horses.
These two factors significantly undermine our
efforts to actualize regional food security and to
maintain agriculture sector economic vitality.” 2
There is considerable potential for value
creation in the farm and food economy. Much of
this potential can be realized through serving
the local and regional economy. The realization
of B.C.’s full potential in farming and food
production will require that the issues above be
discussed and addressed.
Looking Forward: The BC Economy at a Crossroads
Exports from the British Columbia economy
British Columbia has long looked to exports
to develop and sustain its economy. While
forest products markets have been particularly
badly hit over the past couple of years, B.C.’s
export performance has been sluggish for a
number of years. The following table traces the
export patterns for selected provinces since
2005. As can be seen, Manitoba, Saskatchewan
and Alberta all have had substantial growth
in exports over the period, while B.C. has
changed hardly at all. BC is also eighth in
provincial rankings in terms of international
and interprovincial exports. The failure of B.C.
exports to keep pace suggests a potential threat
to a prosperous future, given the importance of
exports to economic success.

Table 9: Exports by province ($millions, current), 2005-2008

Year On MB Sk AB BC

2005 229,796 12,821 17,102 88,345 48,658

2006 228,019 14,027 17,934 89,992 49,487

2007 227,760 16,311 20,357 92,323 49,649

2008 216,401 16,179 28,284 116,580 49,942

Source: B.C. Stats. Interprovincial and International Trade.

Looking Forward: The BC Economy at a Crossroads 19

 $2002 Canadian
6%

4%

2%

0%

The productivity challenge

Productivity
16% is widely recognized as important to A continuing shift to lower-value production,
maintaining
14% standards of living and the overall the weak export performance and under-
$50 -
well being of the population. B.C. has a serious
12% investment in research and development and
45 -
productivity
10% problem. On a comparative basis, high value-added technology have resulted in
8%
productivity is below Alberta, Ontario, and the relatively
40 - poor productivity gains.
6%
Canadian average. B.C.’s relative productivity, as The
35 -
following chart illustrates B.C.’s
4%
well as absolute productivity, fell between 2005 substandard performance in research and
2% 30 -
and0%2008. The following chart illustrates B.C.’s development. Research and development
relative position compared to Alberta, Ontario expenditures
25 -
1999
are
2001
well below
2003
Ontario
2005
and the rest
2007
and Canada overall. of the country,ab although canthis is one area where
on bc
B.C. outperforms Alberta.
Chart 11: Productivity trends (2002
constant dollars per hour worked), Chart 12: Comparative research
1999-2007 and development expenditures
$50 - as percentage of GDP, 1998-2007
45 -
2.5% -
40 -
2.1% -

35 -
1.7% -

30 - 1.3% -

25 - 0.9% -
1999 2001 2003 2005 2007
ab can 0.5% -
1998 2000 2002 2004 2006
on bc
Source: B.C. Stats. Provincial Comparisons of Various ab can
Performance Indicators. on bc

Source: BC Stats. ibid.

In a 2006 report, the B.C. Progress Board Three things are needed to significantly
deplored the province’s “mediocre productivity improve
16% productivity: investment in new
performance, sixth in Canada for real GDP per high-value
14% technologies, improved export
2.5% -
hour worked.” performance and a reversal of the shift to low-
12%
2.1% - 10%
A related factor is B.C.’s relatively weak value production. Low productivity translates
8%
export
1.7% - sector. In 2004, B.C. posted eighth rank into low-value production. Increased productivity
6%
among
1.3% - the provinces for exports of goods and is essential to creating a value-maximizing
4%
services
0.9% - per capita. 3 economy.
2%

0.5% - 0%
1998 2000 2002 2004 2006
ab can
on bc

16% 18% -
20 14% Looking Forward: The BC Economy at a Crossroads
16% -
12%

10% 14% -
8%
12% -
Business clusters
One fear associated with the decline of forestry
and its sub-sectors is the loss of the most
important “business cluster.” Clusters are
geographic concentrations of interconnected
processors, manufacturers, suppliers and
research institutions networked economically
through economic associations and
dependencies around a particular core sector.
A 1999 study by B.C. Stats suggested that
that the forestry cluster accounted for about
one-third of B.C.’s wealth generating activity.
Today that cluster has virtually imploded. Some
economists such as Paul Krugman argue that
clusters are essential to success in the modern
global economy. Clusters uniquely increase
productivity, which companies need to compete
nationally and globally. An important policy
question is whether the decline of the forestry
cluster is fatal, and what B.C. needs to do to
establish alternate clusters in the face of the
decline in forestry.
One apparent cluster that has done well is
that related to the film industry. Government
policy, skilled workers and local suppliers and
facilities have carefully nurtured this cluster. It is
important to continue the support for this sector
and perhaps to look to it for lessons learned, if
other sustaining clusters are to be created.
Looking Forward: The BC Economy at a Crossroads
The diversification imperative
Many of the trends discussed in the previous
sections are a source of real concern. It is well
understood that modern industrial economies
can only prosper by fostering ever higher value-
creating sectors. The challenge is to get the right
value mix of sectors and activities in order to
retain its position relative to the rest of Canada
and the world.
Unfortunately, government exacerbated
the situation in the pre-recession period by
re-enforcing a construction bubble through
unprecedented infrastructure spending. This
was particularly detrimental to the fortunes of
manufacturing and high-tech by inflating internal
costs of labour, materials and equipment. At the
same time, housing construction, natural gas,
and consumption spending occupied a much
larger place in the economy. Overall the economy
became less diverse and more concentrated over
the last few years.
Diversification acts as a kind of insurance
against potential instability and a possible
permanent downturn in concentrated activities.
It also provides the basis for a more diverse
pursuit of opportunities to assist the transition
so as to maintain a high-wage, high value-added
economy.
Diversification directed at strengthening
value-added activity could go a long way to
addressing many of the problems arising from
structural change while stabilizing the economy
to protect against the negative impacts of
pursuing narrowly-defined growth opportunities.
Diversification of the B.C. economy is an
imperative if long-term sustainability is to be
realized.
21
Inclusion and value creation
– small business
The small business sector is extremely
important in the B.C. economy. A total of 391,300
businesses were operating in British Columbia
in 2008. Of these, 384,300, or 98 per cent,
were small businesses. Fifty-five per cent were
operated and staffed by owner operators with
no paid staff. The number of small businesses in
B.C. declined by 0.1 per cent between 2007 and
2008.
Small business accounts for 46 per cent of
employment in B.C., followed by large business
at 36 per cent and the public sector at 18
per cent. B.C. leads or is near the top among
the provinces with respect to small business
employment (including self-employment),
growth of small businesses and value generated
by the small business sector. 4
The largest two concerns of small business
operators in B.C., as reported in a March survey
by the Canadian Federation of Independent
Business, are the state of the overall economy
and access to working capital financing. 5
These will both be of major importance if this
critical part of the business community is to
contribute its full potential to the B.C. economy.
A strong, vibrant small business sector will be
critical to both the recovery and to longer-term
value creation in the economy. It will be critical
to ensure the credit crisis does not result in a
continuing problem in financing small business.
22
Inclusion and value creation
– the two economies
One of the disturbing developments in the B.C.
economy has been the sharp divide that has
developed between the large urban areas and
the rural and more remote areas of the province.
In general, the former includes metropolitan
Vancouver and the Fraser Valley, Victoria and the
Lower Island, and the Okanagan regions.
The rural and remote areas tend to share
a number of characteristics (although the
northeast region differs in significant ways):
• High resources dependency.
• High unemployment.
• Low average earnings and incomes.
• Low population density.
• Declining population.
• Out migration of young people.
• Declining political influence.
• Declining government and community
services.
• Mill closures.
• Vulnerable property tax bases.
• High proportion of smaller communities.
• Lower investment on a per capita basis.
• Significant First Nation populations.
Looking Forward: The BC Economy at a Crossroads
 ab can
on bc

30% -

28% -

26% -

24%--
2.5%

22%-- Negative earnings differentials in rural

Unemployment
2.1% rates are particularly high in
the20%
rural
-
1.7% - areas of the province. It is in these areas regions compared to the BC average of $34,978
that
18%the
1.3% -
- most serious and difficult employment were large in most regions in 2005. It is also
creation
16% - issues must be addressed. The likely that the differentials have increased after
0.9% -
unemployment
14% - rates in the Cariboo region for 2005, as the forestry sector in particular has
0.5% - 2000 2002 2004 2006 2008
the years
1998 1995-2009
2000
ab are set
2002 out in the
can2004 2006following declined.
chart. ab
on can
bc Overall, the rural communities are defined
on bc
by challenging economic prospects and deep
Chart 13: Cariboo Region concerns about the economic and social
Unemployment Rate, 1995-2009 conditions of the future. Rural unemployment
30% -
16% is high, and investment in rural areas is
14%
25% - lagging. Most communities are considered
12%
by the residents to be good places to live and
20% -
10%
raise families, but there is deep concern about
8%
15% - whether this will be sustainable for future
6%
generations.
10%
4% -
Survey data and anecdotal evidence supports
2%
5% -
the view that the residents of many rural
0%
Source:
0% - BC Stats. Labour Force and Related Rates. communities feel government cares less and less
low med high
about their well being. There is a growing sense
Incomes are also generally lower in the rural of marginalization and isolation. There is also
regions. concern about the viability and sustainability of
communities. Many people hope for and want
18% -
chart 14: average Employment government to devote attention to the problems
Income,
16% - BC Health Regions, 2005 before it is too late. The assets and capacity are
there to create value, but it must be enabled
14% -
$40,000 - through effective policy.
34,163
33,831

bc avg. $34,978
35,000
12% --
28,359

30,000 -
22,337
20,426

20,688

21,298

25,000
10% --
20,000 -
8% --
15,000
10,000 -
6% --
5,000
2000 2002 2004 2006 2008
0-
1 ab 2 3 4
can 5 6 7
onVancouver Island
1 Central bc 5 Northern Interior
2 Kootenay/Boundary 6 Northern Sunshine
3 Okanagan Coast/Garibaldi
4 Thompson/Cariboo/Shuswap 7 Northeast

Source: BC Stats. Social-Economic Profiles. Health Service

Delivery Areas.

30% -

28% -
Looking Forward: The BC Economy at a Crossroads 23
26% -

24% -

22% -

20% -
Inclusion and value creation –
the importance of aboriginal people
Unemployment rates and income gaps are severe
for aboriginal people, who are disproportionately
resident in rural areas. The following tables
contain comparative rates of unemployment
and median incomes in 2005 for the total B.C.
population, the on-reserve population in B.C.
overall, and the rates for five Cariboo reserves.
Provincially and in the Cariboo, First Nations
unemployment rates are at least four times
greater than those of the general population.
Table 10: unemployment rates, 2005
Geographical Area Unemployment Rate
British Columbia 6.0 %
British Columbia 25.0 %
All Reserves
Cariboo Reserve #1 29.2 %
Cariboo Reserve #2 25.0 %
Cariboo Reserve #3 28.6 %
Cariboo Reserve #4 14.3 %
Cariboo Reserve #5 32.4 %
Source: Statistics Canada. Special Interest Profiles, 2006
Census.
24
Average incomes of aboriginal people
are substantially below those for the general
population. This is illustrated again from the B.C.
on-reserve First Nations population and from
examples from the Cariboo region, where median
reserve earnings are less than half of the median
earnings of the B.C. working-age population.
Aboriginal people, and aboriginal youth in
particular, make up a substantial part of the
employable work force in B.C. As such, they are
a major asset in terms of future development
and wealth creation. It will be essential to
improve the degree to which aboriginal people
are included in the active economy. The situation
must be addressed in the urban as well as the
rural areas.
Throughout the province and in the rural
areas in particular, the unresolved issue of land
title and resource interests of First Nations
people remains an important matter to be
resolved. The failure to reach agreements
with First Nations acts as a large deterrent
to investment, particularly on what are now
designated as crown lands. There has been
limited progress in treaty making, but much
more is needed.
Looking Forward: The BC Economy at a Crossroads

Table 11: median incomes, 2005
Geographical Area Median Income amounts of badly needed wealth and job
British Columbia $28,327
British Columbia 15,293
All Reserves
Cariboo Reserve #1 10,292
Cariboo Reserve #2 10,292
Cariboo Reserve #3 14,240
Cariboo Reserve #4 15,008
Cariboo Reserve #5 11,680
Source: Statistics Canada. Ibid.
Looking Forward: The BC Economy at a Crossroads
Resolving the First Nations lands and
resources questions will release immense
creation all across the province. And the benefits
of reconciliation extend well beyond investment
and development. Certainty of title will improve
the overall social and economic environment,
improve the management of land and resources,
and encourage an overall accommodation
between aboriginal people and the rest of the
people of B.C.
Conflict and uncertainty have too long
been an endemic part of the relationship. The
conditions are now right for real progress to
change all of that, through agreements that
result in a full partnership between First Nations,
government, and industry. The gains in terms
of value creation would be very large. A recent
report estimates $10 billion of value-added, and
some studies suggest the number could be much
higher. 6
At the same time that reconciliation is
pursued with First Nations, much more must
be done to capitalize upon the contribution
of urban aboriginal people. A recent report
by the Environics Institute shows the urban
aboriginal population in B.C. is large, committed
to urban life, and positive about its place in B.C.
society. 7 Much more can be done to ensure full
inclusion of this important component of the
B.C. population. This too would result in a larger
increase in value creation in the B.C. economy.
25
Inclusion and value creation – addressing poverty
British Columbia has a poverty problem. Table
Table 12: percent Below Low Income
12 sets out comparative percentages of those
Cut-Off, B.C., Alberta and Canada
below the low-income cut-off, which is commonly
(After Tax), 2000-2007
used to define poverty, for B.C., Alberta and
Canada. As can be seen, B.C. lags Alberta and Year Canada AB BC
the Canadian average. The gap between Alberta 2000 12.5 % 11. %1 15.1 %
and B.C. has become progressively larger. While
2001 11.2 % 10.0 % 14.1 %
data are not yet available, poverty rates have
almost certainly increased after 2007 as a result 2002 11.6 % 9.4 % 6.0 %
of the recession.
2003 11.6 % 10.7 % 15.4 %
Progress in reducing poverty contributes
considerably to value creation in that lower 2004 11.4 % 10.6 % 14.1 %
levels of poverty are accompanied by improved
2005 10.8 % 8.5 % 13.0 %
labour force participation and greater
employment success. Investments in poverty 2006 10.5 % 7.0 % 13.0 %
reduction among families have particularly high
2007 9.2 % 6.1 % 11.1 %
pay-offs. The lower the poverty rates are for
children, the more successful they are as adults
Source: Statistics Canada. Cansim Table 202-0802.
in terms of work and earnings. Single-parent
families headed by women have a particularly
high incidence of poverty and thus should be the
subject of special consideration.

26 Looking Forward: The BC Economy at a Crossroads

Inclusion and value creation – immigration
Immigration has long made a positive
contribution to the B.C. economy. In particular,
although not solely, immigrants from China
and South Asia have provided much needed
additions to the labour force and have
contributed significant amounts of investment
capital.
In 2005, there were 1,119,200 foreign-born
individuals in British Columbia, accounting
for 27.5 per cent of B.C.’s population, up from
26.1 per cent in 2001 and 22.3 per cent in 1991.
Many sectors have gained from the contribution
of immigrants. The buoyancy in residential
construction for instance has relied to a
significant degree on investments in housing by
immigrants and foreign residents. These inflows
have made possible considerable increases
in wealth of homeowners, which in turn have
stimulated rapid increases in consumption. This
has added substantial buoyancy to the B.C.
economy over the last few years. 8
A continuation of immigration consistent with
that of the 1990s and 2000s will be important to
B.C.’s economic development. By 2017, Statistics
Canada reports British Columbia will be the
province with the largest proportion of visible
minority persons. Nearly one of every three
people living in British Columbia will belong to a
Looking Forward: The BC Economy at a Crossroads
visible minority group. The vast majority will be
of Chinese or South Asian descent and a large
proportion will be relatively new immigrants. It
will be a relatively young population, with the
median age being about eight years younger
than the overall population. 9
Considerable government and private sector
attention and effort will be needed to ensure
immigrants are fully brought into the mainstream
of the economy, and to maximize future
investment flows from immigrant populations.
The value creation resulting from immigration
will be large. Recent studies indicate, however,
that new immigrants are not being as fully
included in the economy as once was the case,
and that the potential value realization would
be much higher within an improved policy
framework.
27
 2.5% -

2.1% -

1.7% -

1.3% -

Equal opportunity 0.9% -

and value creation A0.5%

skilled
-
1998
work
2000 2002
force
2004 2006
ab can
A value-creating economy will provide The unemployment
on
rate is not
the only concern
bc
opportunities to all of its people consistent with with respect to the labour market. Another is
their abilities and potential. Too many small ensuring future labour demand is met by the
businesses are struggling. Unemployment and necessary supply of labour with the right skills
16%
sub-par incomes are too high among rural, and training.
14%
aboriginal and immigrant populations. Income The college and university systems in B.C.
12%
inequality is growing in B.C. as is the incidence have performed very well in preparing people for
10%
of family poverty. future opportunities in B.C., as can be seen from
8%
Poverty contributes to the exclusion of the following chart. B.C. outperforms Alberta,
6%
people from access to the avenues needed to be Ontario and Canada overall in the percentage of
4%
opened in order for them to become productive people
2%
age 19 to 24 with a college or university
members of society. An equal opportunity degree,
0% diploma or certificate.
society is one in which there is a commitment to
equalizing both opportunities and capabilities Chart 15: Share of 19-24 year-olds
to access opportunities. Government has a without degree, certificate, or
responsibility to ensure that is the case. The pay- diploma, 2000-2009
off is that each and every person can and will add
18% -
maximum value to society’s economic activity.
Income assistance, spending on education 16% -

and training, and the provision of government

14% -
services to help people overcome barriers to
economic participation, are value-creating in 12% -

economic terms and need to be part of any 10% -

successful transition.
8% -

6% -
2000 2002 2004 2006 2008
ab can
on bc

Source: B.C. Stats. Provincial Comparisons of Various

Performance Indicators.

30% -

28% -

26% -

24% -

22% -

20% -

18% -

16% -
28 14% -
Looking Forward: The BC Economy at a Crossroads
2000 2002 2004 2006 2008
ab can
on bc
 16% -

14% -

12% -

10% -

8% -
Savings and debt
6% -
B.C. has also
2000 2002
done quite 2006
2004
well in 2008
terms of B.C. is unique in another important respect.
university graduation,
ab ascan
can be seen in the Some of the buoyancy in the B.C. economy has
on bc
following chart. been fuelled by a much lower rate of savings,
and thus higher consumption expenditures,
Chart 16: Share of population 25 compared to the rest of the country. Indeed
years and over with a degree, citizens in B.C. have been net borrowers while
2000-2009 the rest of Canada has had a positive savings
30% -
rate, even during the difficult recent years
28% -
leading into the recession.
26% -
Table 13: Savings rates as percentage
24% -
of income, British Columbia and
22% -
Canada, 2007 and 2008
20% -

18% - 2007 2008

16% -
% of Income

14% - British Columbia -5.9 % -3.4 %

2000 2002 2004 2006 2008
ab can
on bc
Canada 2.5 % 3.7 %

Source: B.C. Stats, ibid.

Source: B.C. Stats. Personal Income and Savings Rate, 2007 and
2008.
However some concern has been expressed
30% - The fact that B.C. residents have been
that if there is a reasonable recovery from the
spending more than they have been taking in as
recession,
25% - there could be significant shortages of
income has added to the expansionary impact
labour by 2015 in certain high-skill occupations.
20% - of construction, infrastructure and natural gas
The transition to specific high-value sectors
15% - over recent years. Negative savings rates for a
could very well be impeded because there are
province or a country as a whole are somewhat
not10%sufficient
- skilled and educated candidates
unusual, although the United States had a
for 5%
the- jobs essential to the transition. The
history of negative savings in the years leading
problem, if there is one, will be one of job
0% - up to the recession.
matching rather
low than the medoverall levels
highof
education and training. Whether this happens
depends almost exclusively on whether the
training system prepares enough people for the
jobs that will be required.
A failure to prepare potential workers for
high-value jobs can seriously impede value
creation.
$40,000 - A meaningful training plan for the post-
34,163
33,831

bc avg. $34,978
35,000 -
recession economy is necessary if the B.C. labour
28,359

30,000 -
22,337

force is to be prepared for the demands of the

20,426

20,688

21,298

25,000 -
next
20,000decade.
-
15,000 -
10,000 - Forward: The BC Economy at a Crossroads
Looking 29
5,000 -
0-
1 2 3 4 5 6 7
1 Central Vancouver Island 5 Northern Interior
2 Kootenay/Boundary 6 Northern Sunshine
3 Okanagan Coast/Garibaldi

In part, the negative savings can be explained
by the rapid increases in house prices, creating
what is known as a “wealth affect” on spending.
Over the longer term negative saving rates are
not sustainable, since they are only possible
through ever-increasing debt loads. There is a
widespread expectation that a correction is due
in debt accumulation, in which case the affect of
spending on growth will be reduced. This could
assist in financing the investments needed for a
value-creating transition, but it will also reduce
the stimulating affect of high consumption
expenditures.
30
Value creation and
non-market values
It is important to note not all value creation
involves market values. In many cases, markets
do not correctly articulate important values of
people and society. This is the reason for many of
the public goods that government provides.
Markets cannot or do not efficiently organize
the provision of roads, water and sewer, policing,
many health services, defence, schooling, and
many other goods and services of great value.
Markets also fail to express the full costs of
environmental damage and the full value of
public resources, traditional harvests and
natural systems. Market values also often fail
to fully express the value of social services
and of community activity. The responsibility
for recognizing and articulating non-market
values falls primarily on government. It is also a
significant responsibility of civil society.
Government spending decisions on goods
and services should thus also be about value
creation and maximizing value. Governments
must see that there is an appropriate mix
of activity in this regard. Some argue that
government spending is too large and negatively
affects value creation. Such arguments are
largely premise driven, deductive and impossible
to prove one way or another. However, it is
important that they be acknowledged in the
context of value-creation strategies.
Looking Forward: The BC Economy at a Crossroads
Government finances
A matter of considerable concern in the future
is that of the sustainability of the existing fiscal
framework. Government spending has almost
doubled over the last 10 years by an amount
almost equal to the whole of the increase
in spending over the first 125 years of the
province’s history.
Operating and capital spending in 2000-2001
was about $24.3 billion, while in 2010-2011 it
will be about $46 billion – an increase of 90 per
cent. If this is to be sustained, robust economic
growth and strong government revenues will
both be required. The government’s assumption
that the current large deficit is temporary and
that the province can grow its way back to fiscal
balance is by no means certain. Concerns arise
about whether B.C. can simply grow its way out
of deficit and debt, and whether government
revenues will be sufficient to meet government
obligations in the future. If this is not the case,
then B.C. will in fact have to wrestle with a
structural deficit that could confront the province
with hard choices in terms of its current business
model.
It is generally assumed B.C.’s debt is
manageable. However, there is some cause for
concern. Like many corporations and individuals
today, B.C. has become highly leveraged. The
total provincial debt will have grown from $35
billion in 2008 to $55.9 billion in 2012, an
increase of 45.5 per cent. Of this, $36.7 billion
will be tax supported. 10 There has also been
a large increase in the form of new financing
arrangements in the form of public-private
partnerships (P3s) that, while imposing long-
term payment obligations on the government
sector, do not have to be reported as debt. These
Looking Forward: The BC Economy at a Crossroads
obligations grew from a negligible amount a
little more than five years ago to more than
$55 billion in 2009,11 and are expected to be
in excess of $70 billion by 2012. While these
obligations have been largely ignored in reports
of the government’s financing, the result is that
total financing repayment obligations in the
government sector will approach $130 billion
by 2012. While many firms and individuals in
the private sector are moving rapidly to reduce
leveraged exposure of this kind, there is no plan
to do so in the B.C. government sector. According
to government statements the intention is to
aggressively increase the amount of external
financing, particularly by structuring debt
through P3s.
There are many questions to be asked
about the tax system. The introduction of the
harmonized sales tax (HST) will result in a shift
of a portion of the tax burden from business
inputs to consumer purchases, resulting in an
increase in individual taxation. Questions arise
about the affects on consumption spending, and
on the investment impacts, sector impacts and
distribution impacts of this change.
31
 18% -

16% -

14% -

12% -

10% -

Modern
8% - tax systems, in order to be fair, are In the case of the federal income tax, the
designed to be progressive. Chart 17 illustrates share of income taken as tax rises more quickly
6% -
the distribution
2000 2002of average
2004 community
2006 2008 taxes as incomes increases, compared to the provincial
paid per person ab as income can taxes as a percentage tax. Thus, the federal income tax is significantly
on bc
of average community income in B.C. in 2007. more progressive than the provincial income tax.
The lower scatter line is the per cent of income The question arises as to why, and whether the
taken as provincial tax across communities, provincial tax should more closely match the
the upper scatter line is the per cent of income federal system in terms of progressivity.
taken as total federal and provincial tax, and Transfers within the federation are
the30%
difference
- is per cent of income taken as important in Canada, and of particular interest
federal
28% - tax, by community average income. to B.C. In other regions, a lower-than-average
From
26% this
- chart, one can see that the federal contribution to federal revenues is associated
tax24%
increases
- from 11 per cent of income in low- with proportionally higher federal government
income
22% - communities to 25 per cent of income in spending. In contrast, British Columbia both
high-income
20% - communities, while the provincial contributes less to and receives less from the
increases
18% - from a low of about 3.5 per cent to a federal government’s coffers than its share of the
high
16%of
- about seven per cent. population. In 2001, the province’s share of the
14% - Canadian population was 13 per cent. Individuals
2000 2002 2004 2006 2008
Chart 17: Income
ab tax
can paid as and corporations generated 12 per cent of total
percentage of per capita
on bc
community federal revenues, while 11 per cent of federal
Income, Total and provincial, spending went to B.C.12
B.C. communities, 2007 The cyclical nature of the B.C. economy has
30% -
also become evident with the events of recent
years. Some resources-dependent jurisdictions
25% -
prone to frequent cycles and non-sustainable
20% - booms in revenue have developed special “rainy
15% -
day” or government savings funds available
to mitigate the impact of sudden downturns.
10% -
Given the sudden and disruptive government
5% - cuts of the past few months in response to large
0% -
drops in revenues, the advisability of the B.C.
low med high
government doing the same is a matter of some
Per capita community income
policy interest.
Upper Scatter – Fed. and Prov. Tax Per Capita
Lower Scatter – Prov. Tax Per Capita

Source: B.C. Stats. B.C. Taxation Statistics.

$40,000 -
34,163
33,831

bc avg. $34,978
35,000 -
28,359

30,000 -
22,337
20,426

20,688

21,298

25,000 -
3220,000 - Looking Forward: The BC Economy at a Crossroads
15,000 -
10,000 -
5,000 -
0-
1 2 3 4 5 6 7
The post-recession recovery
The 2008-2009 recession hit the B.C. economy
hard. The largest single year drop in the value
of wealth and consumption generated in the
economy occurred in 2009. The same is true
of employment and wage income. Job losses
have been particularly devastating in forestry
and resources, manufacturing and processing,
construction and the food services industries.
In many respects the recession resulted
from policy failure. It is not, as some claim, a
blanket condemnation of private capital and
private markets. Deregulation of financial
markets and the blind pursuit of private gain
by some resulted in the creation and trading
of investment instruments that inexorably
undermined the asset base of banks and other
financial institutions. Greed and opportunism
ran rampant as short-term private advantage in
some quarters consumed capital markets. The
result was not only a credit collapse and the
worst investment and credit crisis in generations,
but also an almost universal recognition that
government is one necessary ingredient in
the success of the market economy on an
on-going basis.
Looking Forward: The BC Economy at a Crossroads
The encouraging thing is that people and
governments are learning from experience that
government and the private sector are both
necessary. We can now see that new rules, new
standards, and new institutions will be needed.
And government will never again be able to
credibly deny that it does not have a positive role
in the success of the economy. But government
will need to be clear about its goals and its role.
Concern about the recovery is dominated by
four important challenges:
1 Establishing the needed amount of
investment to restore employment and
wealth creation,
2 Ensuring that high-value, high-wage sectors
are sufficiently supported through policy in
order to ensure a successful value-creating
transition over the long-term,
3 Achieving greater diversification to
reduce dependence on the limited drivers
of the largely urban boom of the pre-
recession period – residential construction,
government-financed infrastructure, and
natural gas, and
4 Restoring government fiscal conditions.
33
 This is not to denigrate the lower value-
creating sectors. They are of critical importance
to overall employment. But the challenge is to
get the right mix in order to remain competitive
with the rest of Canada and the world.
Unless sufficient numbers of new jobs are in
sustainable, high-value, high-wage sectors the
long-term prosperity of the province cannot be
assured. The right mix is needed, and to achieve
that mix there is a clear imperative to maximize
high-value jobs. Further, the fear that the post-
recession recovery could be a “jobless recovery”
raises further concerns about ability to create
needed value.
For a time in the mid-2000s, aspects of the
transition were, to some degree, masked. The
forestry sector was supported by the short-
term harvest of the pine beetle infected stands.
Further, elements of apparent prosperity
appeared for a short time before the onslaught
of the recession in 2008 as a result of booms
in construction of housing and government-
financed infrastructure projects, consumption
spending, and natural gas production.
34
These fairly narrowly defined booms, or
what might be called “boomlets,” have tended
to mask many underlying challenges that point
to potential longer-term problems. Further,
concentrated “boomlets” such as these make
the economy highly vulnerable to changes in
a small number of economic drivers, which
are at a high risk of not being sustainable over
the long term. Thus, with some material part
of the growth in the middle of the last decade
attributable to bubbles in consumption, housing,
government-financed infrastructure and natural
gas, there is a danger the economy is not only on
a non-sustainable path, but that it has become
highly vulnerable to changes in a small number
of economic drivers.
The challenge is to ensure the long-term
transition maximizes sustainable value creation.
The next few years will determine whether B.C.
is able to make a successful transition to new
value-creating industries and new sources of
wealth that will sustain it in its historic position
as a high-value, high-wage economy within the
Canadian context.
Looking Forward: The BC Economy at a Crossroads
Strengths and opportunities within the economy
British Columbia is in many ways well-placed to
manage the transition in the economy referred to
in this paper. The province has many strengths
and assets upon which to build. These are
important considerations when looking forward
and when mapping out a plan for the future.
British Columbia has a long history of
economic prosperity and successful economic
development. It has been, with a few exceptions,
a “have-province” within Confederation, and
has welcomed people from throughout the
world. And it enjoys many economic advantages,
including:
• A relative abundance of natural resources.
Renewable resources, including water,
forestry, wildlife, and the various aspects of
the natural environment have long provided
B.C. with a comparative advantage. Managed
well, these can be a source of wealth and
well being for citizens for generations to
come. Non-renewable resources are and
will continue to be important. The challenge
will be to ensure that their management is
consistent with sustainability principles.
Looking Forward: The BC Economy at a Crossroads
• A favourable climate and well-developed
amenities, making B.C. a natural draw to
in-migration from other parts of Canada
and the external world, particularly China
and South Asia. This in-migration has not
only brought an infusion of highly skilled
and creative people. It has also brought
with it a significant and continuing inflow of
investment capital. This has been particularly
important for investment in residential
construction; it has also contributed
significantly to business investment. Capital
transfers from outside contribute directly to
the wealth of the province in numerous ways.
• A large and successful immigrant population
that has made a large and lasting impact on
its economic, social and political life. B.C. is a
world-recognized success story in building a
multi-cultural society that has drawn heavily
on the capital, skills and energy of people
from beyond its borders who have sought and
found a new and successful life here.
• A well-educated and highly-skilled labour
force. The province is well placed to support
high-value, high-tech, high-wage, and
knowledge-based industries with a well-
educated work force. These industries will be
key if B.C. is to maintain a competitive and
successful economy.
• Relatively low-cost access to the large and
growing Asian, and particularly the Chinese,
market. The distance between B.C. and China
by water is shorter than it is for Europe and
other parts of North America. This provides
B.C. with an important competitive advantage
in the emerging and rapidly developing
emerging markets.
35
• A significant endowment of good farmland
capable of producing for the B.C. market.
The Agricultural Land Reserve has protected
against the loss of farmland common to
other jurisdictions. Locally-produced food
is being recognized as ever more important
as transportation becomes more costly
and as preferences shift toward fresh, local
products.
• A relatively well-developed and extensive
system of social support and development
services. Health care and education services
are efficient in terms of comparable taxpayer
costs, and notwithstanding recent spending
restraints, continue to be important assets.
Municipal services are generally good and
infrastructure is of relatively high quality.
• Vigorous and empowered aboriginal people,
including First Nations people, in possession
of robust traditional rights, including land,
renewable resources and culture. With a
population of about 170,000, the aboriginal
people of B.C. are extremely important in
terms of human resources, developmental
capacity, and wealth creation. Effective
partnerships in conjunction with historic re-
conciliation measures have the potential to
support the development of aboriginal lands,
resources, governments and institutions and
to capture unique and valuable opportunities
in communities all across B.C. and in
particular in remote and rural communities.
36
• The potential to achieve a low-carbon
emissions economy relatively quickly.
Competitive economies over the coming
decades will be those that make a fast
transition to a low-carbon state. The large
proportion of electricity generated by B.C.
Hydro from large-scale public hydro ensures
electricity is both clean and affordable. The
continued ability of B.C. Hydro to supply
clean energy can ensure clean, low-cost
electricity will be available long into the
future without costly subsidies. Care needs
to be taken to ensure new government-
supported private hydro for export will not
over time require ever-increasing subsidies,
higher electricity prices and ever greater
reliance on dirty energy to fill the seasonal
gaps that cannot be served by these facilities.
• A strong public service. This is important
in any modern economy today, and its
importance will be even greater in an
economy facing a difficult transition. Over its
history, B.C. has developed and maintained
a high-quality public service, a strong record
in policy innovation and a history of efficient
service delivery. The public service in B.C.
at the federal, provincial, regional and local
levels is professional, incorruptible, and
public interest oriented. British Columbians
value good government committed to
efficiency, fairness, pragmatism, non-
partisanship, independence from special
interests, rules-based approaches, and
honesty. These values are important to
development and wealth creation.
Looking Forward: The BC Economy at a Crossroads
The basic challenge – posing the right questions
Numerous questions arise from the preceding
review of the B.C. economy. Some, although
by no means all, of the questions that need
addressing include:
1. The challenge of good government
• Is economic policy being driven by valid
assumptions and beliefs?
• What is the likely fiscal situation over the
next three to five years?
• Is B.C. encountering a structural deficit?
• Will taxes have to be raised or spending
reduced to balance the budget? How quickly
should the budget be balanced?
• Has government contributed to a cyclical
bubble over the past few years, to the
detriment of longer-term adjustments?
• Have government expenditures themselves
been a source of instability in the economy?
Should B.C. develop a government “rainy
day” savings fund to stabilize the flow of
government spending?
• Is the current tax system fair? Is tax reform
needed? To achieve fairness? To achieve a
balanced budget?
2. Shifts in the economy
• Is the current direction of the economy
sufficiently directed at value creation?
• Is the current direction of the economy
sustainable?
• What is the significance of the downward
trend in forestry and forestry products as
reliable wealth and job generators distributed
widely throughout the province?
Looking Forward: The BC Economy at a Crossroads
• How can the transition away from carbon
dependency be achieved?
• Is the high dependence on construction and
infrastructure sustainable?
• What can be done to generate a shift toward
high value-added production?
• What are the causes and factors contributing
to the economic crisis in virtually all of the
rural communities in B.C.? What can be done?
3. Economic strategies
• What can we learn from the fact that the
forest and salmon resources were harvested
on a non-sustainable basis for generations
and that they likely can never again provide
the basis for prosperity as they once did?
• Can B.C. compete in the world economy as
a high-wage, high value-added, knowledge-
based economy? If so, how is that to be
achieved? How can productivity be improved?
• How can exports be increased?
• What are the new sectors that policy should
support?
• How can cultural industries be supported and
strengthened?
• What is needed to build green economy
sectors? How much can these contribute to
diversification?
• Is it possible for the B.C. government to help
reconfigure the economy in the face of the
deeper structural changes at work?
37
4. First Nations and aboriginal people
• What can be done to accelerate settlements
with First Nations?
• What is needed to ensure that aboriginal
youth receive education and training to
participate fully in the economy?
• How can greater aboriginal participation
in investments and ownership be made a
reality?
5. Diversification
• What role should diversification play in B.C.’s
development and what approach should be
taken to encourage diversification?
• What sectors should receive priority in
future policy and planning? Should an
industrial strategy and a development plan
be developed? How? What should it contain?
What should be the role of government?
• Where will the needed investment capital
come from and how can it be encouraged?
• What can be done to stimulate and
encourage investments and growth devoted
to local, non-mobile capital such as farming,
traditional resources, amenities, the natural
environment, and others that provide B.C.
with a natural advantage? How can these
sectors be encouraged?
38
6. Exports and export development
• How much emphasis should be placed
on Asian trade? What policies should be
pursued?
• How can investments in export industries be
encouraged?
7. Population, immigration and the
labour force
• What will be the impact of population
changes on the B.C. economy? Of the
declining proportion of young people?
Of the increasing proportion of the elderly?
• Will there be a developing shortage of highly-
skilled new entrants to the labour force in the
future? Will this constrain the economy?
If so what should be done to address it?
• What contribution will immigrants make to
the B.C. economy over the coming decades?
What is the likely impact of the recent
StatsCan projections showing an increasing
relative size of the immigrant population in
B.C.?
• What can be done to sustain the in-migration
of people with skills and resources?
• How can poverty reduction be addressed?
Looking Forward: The BC Economy at a Crossroads
End notes
1 British Columbia. Your BC Government:
Technology and Innovation.
http://www.gov.bc.ca/yourbc/high_tech/
ht_economy.html
2 Patrick Condon and Kent Mullinix.
Agriculture on the Edge. Accessed at www.
kwantlen.ca/__shared/assets/agriculture-
on-the-edge12901.pdf
9 Statistics Canada. Population Projections of
visible minority groups, Canada, provinces
and regions, 2001-2017.
Accessed at http://www.statcan.gc.ca/
pub/91-541-x/91-541-x2005001-eng.pdf
10 British Columbia. Budget 2010.
Accessed at http://www.B.C.budget.gov.
B.C..ca/2010/

3 British Columbia Progress Board. Boosting 11 Province of British Columbia. Public

Incomes, Confronting Demographic Accounts for the Fiscal Year Ended March
Change: B.C.’s “Productivity Imperative”. 31, 2009. Accessed at http://www.fin.gov.
Accessed at www.bcprogressboard.com/ bc.ca/OCG/pa/08_09/Pa08_09.htm
archives/aTB07Productivity.html
12 B.C. Stats. Business Indicators, August
4 BC Stats. Small Business Profile, 2009. 2004. Accessed at http://www.bcstats.gov.
Accessed at http://www.bcstats.gov.bc.ca/ bc.ca/pubs/pr_bi.asp
data/bus_stat/busind/sm_bus.asp

5 Canadian Federation of Independent

Business. British Columbia Business
Barometer. Accessed at http://www.cfib-
fcei.ca/cfib-documents/Barometer-B.C.-
201003.pdf.

6 BC Treaty Commission. Treaties Will Boost

BC Economy by Over $10 Billion. Accessed
on at http://www.bctreaty.net/

7 Urban Aboriginal Peoples Study. Report.

Accessed at http://uaps.ca/

8 Statistics Canada. Immigration in Canada:

A Portrait of the Foreign-born Population,
2006 Census: Findings. Accessed at
http://www12.statcan.gc.ca/census-
recensement/2006/as-sa/97-557/
index-eng.cfm?CFID=3621895&CFTOKEN=
33703151

Looking Forward: The BC Economy at a Crossroads 39

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bcprogressboard.com/2009Report/CT1.html
B.C. Stats. British Columbia Employment by
Detailed Industries, Annual Averages. Accessed
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labour.asp
BC Stats, BC GDP at Market Prices. Accessed at
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BC Stats. Labour Force and Related Rates.
Accessed at http://www.bcstats.gov.bc.ca/data/
lss/labour.asp#LFS
BC Stats. Labour Force Activity for British
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BC Stats. Interprovincial and International Trade.
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bus_stat/trade.asp
40
B.C. Stats. Personal Income and Savings Rate,
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cel/olc-cel?lang=eng&catno=13-018-
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Looking Forward: The BC Economy at a Crossroads