Why isn’t B.C. getting more from its economy?

0:00Where's your playlist taking you? Down the highway, to the mountains? We're just into daydream mode while you're stuck in traffic. With over 4,000 hotels worldwide, Best Western is there to help you make the most of your getaway. Wherever that is, because the only thing better than a great playlist is a great trip. Life's the trip. Make the most of it a Best Western. BookDirect and save at BestWestern.com British Columbia used to be the grown-up in the room. Balance budget, strong credit ratings, fiscal restraint is a point of pride. That era is definitely over. We got record deficits, climbing debt, billions diverted to interest payments instead of classrooms and hospitals. The bookstore balance and the trajectory matters. How do we get here and is there a way back? This is BC in the Red. This is BC in the Red on the Jazz Joe Hall Show, presented by the Business Council of British Columbia,

1:02celebrating 60 years in business. Well, BC is spending more than ever running big deficits and still falling behind on the one thing that pays for everything else. Productivity, that's the amount our economy produces for every worker and every hour on the job. Right now, Canada and BC are lagging behind countries we normally compare ourselves to. Well, today on BC in the Red, we're asking a simple question. If we want to protect public services and grow the economy, why does BC seem to be creating less with more? What do you want me to talk about this issue is can Peacock an economist who writes about the BC economy on Substack, formerly the Chief Economist and Senior Vice President of the Business Council of British Columbia? Can thank you so much for your time today. And today we have to jazz. Well, when people hear productivity, I'm sure their eyes glaze over a little bit. In everyday terms, what does it actually mean and why should it matter to a family trying to get ahead? Yeah, that's a great question. And it is sort of one of those terms that does cause people to glaze over. I agree with that. But really, at the end of the day, productivity matters because over the long term jazz,

2:07it really is the primary driver of living standards. And when we talk about productivity, what we're really effectively talking about is just how much output per hour of work in the economy. And when you produce more per hour, that means there's more income available to flow to wages and salaries, more income available to flow to profits for businesses, which in turn can reinvest that back into the business and distribution profits. And then also more tax revenue for government. So it's a way of lifting all boats, if I can use that metaphor. And as I said, a moment ago, absent productivity gains, what you get is stagnating living standards. And then people in a population or a jurisdiction are scrambling and fighting over a fixed pie, so to speak, rather than expanding pie. So that's the main reason jazz.

3:07It really is directly linked to well-being and prosperity. So BC is spending more than ever, so why does it feel like we're getting less economic bang for the buck? Well, a lot of that has to do with BC spending more. So that's the government spending more and taking a bigger chunk from the private sector in terms of higher taxes, more owners, regulations and whatnot. So the government alone spending money, it can contribute and help productivity, while investing in infrastructure, more efficient infrastructure, helps improve productivity. One of the easiest things to think about there is just transportation, reducing traffic jams, making goods and services flow smoothly will improve productivity. But really, you don't want government to be the driver of productivity, because they're not in a position to boost it. It's investment in the private sector and growth and expansion in the private sector that will improve well-being over time. So in this case, you talked about government policy.

4:09In BC, is the problem mainly about government policy or how much should we be focusing on business choices and risk taking as well? Yeah, risk taking so. No, I mean, we can't delay the sort of productivity malaise that is affecting, as you said, Canada as well as BC, although I'd say BC is struggling a little bit more in that regard right now. It has to do with a lot of factors, Jess. First of all, you have to get capital investment. Without investment, economies don't grow. So we here in Canada and British Columbia is even worse. Have a relatively low amount of capital equipment measured on a per worker basis. It's about 60%, maybe even less, maybe 55% that of the US. So we're lagging far behind the US. And just when workers have less new equipment and fewer tools and less equipment to work with, they just aren't as productive.

5:14Another reason for BC's weakening productivity and Canada's, to some extent, but it's easier to talk about it in the BC context is the industrial structure of the economy. So what we're seeing in sort of generalized terms is higher productivity industries. Industries that produce more value per hour of work are shrinking or contracting or coming under pressure of all this regulatory burden. And you can think about the resource sector and think about forestry in particular. And growth is being more tilted towards lower productivity industries. And that's not to denigrate them anyway. They're just, they use more labor in the production processes. And those are things like hospitality sector, food services, restaurants and things like that. They just have lower productivity. So as you shift and have more of your economic activity produced and lower productivity, more of your economic, yeah, produced and lower productivity sectors, that tends to dampen productivity.

6:17The regulatory environment is absolutely front and center when it's more difficult to get things done in projects under way that adds costs and chases out investment. So all these things add up. And just one final comment and thought before I turn it back to you. The fact that BC has comparatively few large companies is also something that dampens down productivity gains. Because larger companies tend to be more productive. They tend to be exporters. And when you export into international markets, that really focuses the need to be productive and competitive. So you end up getting this lift to productivity from being engaged in international markets more so. Well, you brought up the issue of large companies. You talked to a lot of business leaders and investors. What's the number one reason or two reasons they hesitate to put money into British Columbia? We've always had a challenge in regards to having corporate head offices here.

7:17Even though we keep telling ourselves it's a great place to live because it is a great place to live. We all know that and it is expansive at the same time. But why do we have these challenges? Look, what are you hearing from investors and business leaders in regards to one or two things that say, I can't invest here or I'm hesitating to invest here or I'm going to take my time investing here. What are the challenges that we present to the business community specifically? Yeah, I think top of the list there would be regulatory complexity and operating costs. Some of the operating costs are beyond government control, high land prices, of course, come to mind. That's a deterrent if you're trying to purchase a piece of land and set up an operation. But this regulatory burden and the slow approval processes. If we accept the fact that we're going to get productivity gains by focusing more on our resource sector because they are the higher product, particularly while in gas sector, but also mining and also forestry.

8:20The regulatory hurdles and barriers and uncertainty that those sectors face really do put investment dollars into question. And let's remember international operators can look to other jurisdictions to deploy capital. So it's not that they only can invest in VC in Canada. They have options. And when you become a jurisdiction that's more complicated and difficult with inordinately long delays. Jazz, you tend to look to other jurisdictions to deploy your capital. America leads the world in medicine development. It matters. We get new medicines first, nearly three years faster. Five million Americans go to work because we make medicines here at home. And not relying on other countries keeps us safe. But China is racing to overtake us. Can we let them or will we choose to stay ahead? When America leads, America cures. Let's tell Washington to keep us in the lead.

9:20Learn how at AmericaCures.com. Pay for it by Farma. Spring is here and the shopping list is long. Time to make a lows run. Buy three bags, get three free of stay green, one cubic foot garden soy. Plus, right now, members can earn four times the points on an eligible purchase. Start spring off strong with these deals and more. Our best lineup is here at Loads. Valentine 325, while supplies last. Soil offer exclusive. Laskin Hawaii, loyalty program subject to terms and conditions. Sealows.com slash terms for details. Subject to change, point booster subject to exclusions and more terms apply. One time only offer. So we are speaking to Ken Peacock, economist who writes about the BC economy on substack, formerly the chief economist and senior vice president of the business council of BC. We're talking to him about our series BC in the red. And today's focus is on productivity and innovation. Ken, one of the interesting things with this recent budget is that we're still spending a lot on infrastructure, housing, social programs. Why hasn't that translated into productivity gains?

10:21Yeah, that's a good question. It's a lot of it is going into schools and hospitals, jazz. And so that probably is helping to lift productivity in the hospital. In the healthcare sector, it's very difficult to measure productivity in these government areas simply because there's no market prices. So statistical agencies have to estimate them. But I would say just to follow through on your comment and your observation, the government sector generally typically in the past has had higher productivity than the private sector, probably mostly because it produces higher value services, such as healthcare services. But in the past five years, productivity in the government sector has plummeted. And it's now just a little bit above that in the private sector. And that reflects the huge number of people that have been hired in the public sector. And you're not seeing the corollary increase in output from hiring those.

11:26I guess they're bumping into each other and the corridors and whatnot. So you're not seeing that productivity gain. So that's something. The infrastructure that you speak of, that government is investing in, that will deliver benefits over the medium term. But again, it's very mixed. I mean, we still don't have a messy tunnel completed. And if you drive through that corridor, you know about those huge long delays. So I mean, we get a lift in some areas, but it's by no means right across the board. So it's tough to unpack, but those are some thoughts. No, that's really important. And I'm sure there's a few people pulling out their hair right now as they drive through that tunnel trying to get home to, uh, to, uh, to, uh, South Delta or South Surrey or Langley, that's for sure. Um, so in regards to that, the previous question, when government is preparing its budget, I mean, people get excited about hospitals and highways getting built and bridges getting built, that's all well and good. But if an economist were to prepare a budget, you would want a greater focus on productivity in the private sector. So one of the things you think we need to be focusing on is here what, um,

12:29policies are you introducing that actually will lead to greater investment but productivity? Are we seeing enough of that in this budget or have you seen enough of this? Um, the simple answer is no to that. And one of the key reasons jazz is in this budget, not too much attention has been paid to it. People have been focusing on the deficits and the big lift in capital spending. But if you unpack the numbers and look at them closely, the big driver of the massive increase in debt has been the very, very large deficits. Capital spending has added a little bit to the debt, but nothing, nothing kind of out of the ordinary. It is these 10 and 12 billion dollar deficits for four or five years in succession that is adding to the debt. And it's actually a maybe going slightly off topic here, but it's actually crowding out spending in all other areas of government jazz.

13:31If you look at government expenditures in inflation adjusted dollars per capita per person, every function of government has declined from 2022 through to today and over the next couple of years apart from debt servicing and health care. And there's been some very significant declines in the areas of transportation, protection of persons and property and the like. And most people, it hasn't got a lot of attention in the media because I'm talking inflation adjusted per capita dollars here. But the reality is the error of restraint is already upon us. When you look at it more appropriately, as I said, an inflation adjusted dollars. And it's only going to get worse in the coming years, jazz. Well, final question to you. If you had the premier and finance minister in the room and could get three concrete moves this year, what would they be?

14:32And how would we measure success in a way people can actually see? Three concrete moves. Yeah. Well, there's some, this budget takes some steps, some, some timid steps towards restraint, spending restraint. I think you need a whole sale review of government expenditures top to bottom, just because there's going to have to be some savings found. I mean, to close a $13 billion deficit is going to be very, very difficult. I would continue to advance the large projects and accelerate them even more so than they're doing. There's lots of talk about frenetic, a rapid pace of bringing these projects online. It still seems kind of slow and feels kind of slow. The challenge there is large projects alone are not going to save the economy and save the fiscal circumstances. They're just not big enough in the economy and the economic malaise in all other areas is large enough and significant enough.

15:37They won't be saved from that. So the other thing the government has to do is turn its attention to the general competitive environment. And this is where it gets much more challenging and the politicians are going to need to figure it out. Because, you know, we're at the high end of taxes here in British Columbia. There's no room to increase taxes. But of course, if you're going to eliminate the deficit at some point, their likelihood is that they will increase taxes, which makes the competitive position worse. So they have to find some way of looking to make some tax adjustments, regulatory approval, speeding up regulatory approvals and whatnot to attract more capital investment into the province. But we are in quite a box here because of the size of the deficit. Yeah, and you've laid it out really well in regards to the decisions that will be needed and very big decisions and tough decisions that's going to take a lot of political will. And without that, we're not going to be able to dig ourselves out of this.

16:38That's for sure. Can I really appreciate your thoughts, your insight, always enjoy your commentary. Thank you so much. Thank you, Jess. Talk to you soon. New this with our own global. Have you ever told a lie? New serious. Wasn't lying part of the job description of CI? New partner. He can be a little by the book. Dude, how much used to be a library? You really know used to be dead. I never knew you can't. Two perspectives. One mission. Do you guys work in the open? We work in the shadows. Starring Tom Ellis and Nick Delphis. Nice work, partner. CIA. All new Mondays at 10 on Global and Stream on Stack TV.