It's the public-policy problem that's raging through our country like a zombie, eating our economy, and apparently, our brains.
Trade barriers between the provinces have become the subject of intense campaigning by politicians like Industry Minister James Moore and Saskatchewan Premier Brad Wall, who vow to knock them down. Mr. Moore and his department say those inter-provincial barriers cost a lot, up to an estimated $50-billion a year – a number that's been widely repeated.
$50-billion! Yikes! That's a lot of money. It's about 2.8 per cent of the whole country's GDP. Do inter-provincial trade barriers really cost Canada that much?
No. They don't.
That number is fiction. It's a huge exaggeration cooked up by Mr. Moore's department from a flimsy, non-credible source.
That $50-billion is a way bigger figure than any cited in any credible economic study – it's almost triple the biggest estimates, and 50 times the smallest ones. There's no definitive estimate, but $50-billion is not in the ballpark Serious estimates have ranged from 0.05 per cent of GDP (about $900-million) to about 1 per cent (about $18-billion). The MacDonald-Laurier Institute, in a 2010 paper arguing for strong action against internal trade barriers, decided a fair middle estimate is 0.5 per cent of GDP, then about $8-billion. The numbers, said economist Patrick Grady, "don't come anywhere near" the government's $50-billion estimate.
That doesn't mean there's no reason to try to reduce internal trade barriers. There's choice, like the ability to order a case of wine from an out-of-province vineyard. There's freedom, like a tradesman who wants to work in another province, or contractor that wants to bid on a provincial contract elsewhere. And there are costs to the economy – just not the gargantuan costs Ottawa suggests.
To be fair to Mr. Moore, the $50-billion figure was floated by his predecessor, Christian Paradis. Mr. Moore repeated it, and Industry Canada put it in press releases. It was cited in newspapers and on TV, and by business groups lobbying for government action. But it's fiction.
Where did it come from? Industry Canada press releases say "it has been estimated" that the cost is $50-billion, but the department admits they came up with the figure; officials took a 2005 paper that pegged the costs of trade barriers to B.C. at $4.8-billion – and used a multiplier to come up with a figure for Canada. That's a dodgy method by itself, but the B.C. estimate it was based on was "not credible," in the words of Mr. Grady.
To put it more bluntly, it was bunk. It came from a 2005 Conference Board of Canada paper commissioned by the B.C. government when they were planning the TILMA agreement with Alberta to reduce inter-provincial trade barriers.
That paper wasn't based on an economic model. The authors sent out a survey, and ten respondents – six B.C. government departments and four companies – rated the benefits of the TILMA on scale of minus-3 to plus-3. Then the paper's authors decided that points on that survey scale would be translated arbitrarily into economic impact, so a 1 on the survey represented 5 per cent of GDP. Oh – and the authors also changed answers they thought were too negative.
Not credible indeed. And yet the federal government decided to expand it to a national figure, and use it.
A spokesman for Mr. Moore, Jake Enright, suggested the details don't matter. "While there may be some debate on the specific estimates of the damage done to the Canadian economy by internal trade barriers, there is no debate that this damage is occurring. Lost productivity, weakened competitiveness and job growth opportunities have all taken a hit as a result."
It's true that there's no definitive estimate, but those campaigning to reduce barriers sometimes seem to grab any big number. Several major business groups have used a $14-billion figure, using an Alberta government web site as the source. But they misquoted the website and didn't notice it included other figures that appear wildly inaccurate – or rather, way out of date. An Alberta government spokesman said the web page is based on an outdated 1993 study, and will be taken down.
The evidence indicates internal trade barriers costs billions, but not tens of billions, to the Canadian economy. And don't forget: the biggest estimates include costs of things that the politicians have no intention of changing, like the supply-management system that protects dairy and poultry farmers.
The hype, the unreal numbers, can only mislead us about the real issues with internal trade barriers. Politicians fuelling a campaign want it to be a bigger, scary monster, a zombie devouring the economy. But let's hang on to our brains.