Finlayson Op-Ed: 'Clean growth' is a nice idea, but policymakers shouldn't forget what really makes B.C. money (The Province)

Policymakers in Victoria have a lot more work to do if they are interested in strengthening the province’s export economy.

The provincial NDP government has pledged to develop a “clean growth strategy” to position the province for continued prosperity in a world where demand is increasing for products and technologies that reduce the impact of human activity on the environment. With a carbon-free electricity system and an array of local companies in the “clean tech” space, B.C. has some of the ingredients necessary for clean growth. But amid their enthusiasm for developing new industries, policymakers also need to pay close attention to the industries that pay the bills today.

In a small jurisdiction like B.C., the ability to raise real incomes over time depends, in part, on whether we can increase exports and stimulate the growth of export-capable industries. Successful export industries produce many benefits, including furnishing the income that allows domestic households and businesses to finance imports.

In thinking about economic development, it makes sense to focus on industries that currently export because they represent the sectors where British Columbia has established some form of global comparative advantage.

Last year, B.C. earned $43 billion by selling goods to other countries. More than three-quarters of these exports consisted of natural resources and related products. B.C. also exports services such as engineering, finance and communications, as well as tourism services. But this column concentrates on exports of tangible goods.

Forestry continues to occupy a prominent place in B.C.’s export mix, providing one-third of merchandise exports (in dollar terms) in 2017. The top-two forestry exports are lumber and pulp and paper.

More than one-quarter of B.C.’s exports came from the energy sector, with coal and natural gas being the principal contributors.

Metallic minerals comprised 12.3 per cent of B.C.’s exports in 2017. Copper, aluminum and zinc are the three biggest mineral exports.

Machinery and equipment industries supplied almost 11 per cent of B.C.’s merchandise exports in 2017, up very slightly from 10 per cent in 2010. Electrical/electronic equipment, transportation equipment and parts, and scientific and technical equipment are among the advanced manufacturing industries in which B.C. is home to successful exporters.

Companies that produce the “clean tech” products that many politicians are enthusiastic about are also included in this group. I estimate that they account for one or two per cent of B.C.’s merchandise exports — less than the value of zinc exports in 2017.

Agriculture and seafood products made up 9.4 per cent of the province’s merchandise exports last year. B.C. boasts a notably diversified agri-food sector, with a variety of sub-industries involved in selling agricultural and seafood products to markets around the world.

Smaller shares of exports are provided by fabricated metals, chemicals, plastics, apparel and textiles, and a few other industries that manufacture consumer goods.

The industries listed above will remain foundational to B.C.’s economy for the foreseeable future. How can the government help them to thrive and grow?

The primary policy challenge is to create an environment that encourages companies, entrepreneurs and investors to allocate capital to improve business operations, modernize facilities, establish new firms and expand production capacity. Without regular investment, industries are destined to stagnate, shrink or wither away.

This, in turn, requires competitive taxes and fees for the province’s export-focused industries; efficient and timely regulatory and approval processes; an ongoing supply of qualified labour and high-quality education and training systems; modern infrastructure that supports trade (e.g., transportation, energy and communications infrastructure); and reasonable energy and other business input costs.

An assessment of the competitive landscape for B.C.’s export industries provides grounds for concern.

The overall business tax regime discourages investment in most categories of productive capital — new plants, factories, mines and mills; machinery and equipment; engineering infrastructure; information technology products; and other advanced process technologies.

Any previous tax advantages that B.C. may have enjoyed vis-à-vis the United States have disappeared in the wake of recent U.S. tax-policy changes. Energy costs in B.C. are high and rising. The regulatory processes that apply to the natural resource and manufacturing industries that dominate the province’s exports are becoming more complicated and cumbersome by the day.

In short, policymakers in Victoria have a lot more work to do if they are interested in strengthening the province’s export economy, rather than simply promoting the vague and politically pleasing notion of “clean growth.”

Jock Finlayson is executive vice-president of the Business Council of B.C.

As published in The Province.