Category Archives: Economics

Opening of airline ownership rules is good news for travelers

Stanfield
(Stanfield International Airport. Photo credit: Nova Scotia Department of Tourism)

By Jackson Doughart, Research Coordinator

The Globe and Mail reports that the federal government intends to introduce legislation allowing greater foreign ownership in Canada’s airline industry. The announcement comes from the office of Transport Minister Marc Garneau.

If the legislation passes, it will increase the limit on foreign ownership from 25 percent to 49 percent. In the meantime, two new airline companies will be granted exemptions to the present 25 percent rule, allowing them to move toward offering discount flights by Summer 2018.

This is unquestionably good news for Canadian travelers. Unlike their counterparts in Europe or the United States, they do not benefit from ultra-low cost carriers to compete with the mainstream airlines. Thanks in part to the cap on foreign ownership, Westjet and Air Canada lack competition. It is no surprise that one can only fly domestically by paying exorbitant fares.

Regulations of this kind are analogous to protectionism, limiting investment in Canadian airlines from a worldwide market in financial capital. As when a jurisdiction removes barriers to the trade of goods, the principal benefactor to accepting more sources of airline investment will be consumers, whose costs decline. Plus, the appetite for more international investment is not merely theoretical: the case of the two airlines granted immediate exemptions shows that foreign investors are willing to contribute to an untapped market for discount airlines immediately.

Mr. Garneau is right to anticipate that introducing more competition will result in lower fares. The benefit will accrue to travelers, of course, but also to the country as a whole. With Canada’s peculiar geography – including a population spread mostly beside the long U.S. border – impediments such as high air fares limit travel for many people, thereby reinforcing the country’s persistent regionalism. Lower costs will motivate more air travel, and with hope greater exchange – both economic and cultural – between Canadians from different regions.

The new law would ensure that Canadians remain the majority shareholder in domestic airlines. This is a rule worthy of scrutiny as well; but for now, the effective doubling of allowed foreign ownership is an excellent step for Canadian travelers.

 

Supply management: a costly endeavor

SM.pngSource: Trevor Tombe, Twitter @TrevorTombe

By Alex Whalen, AIMS Operations Manager

The viability of supply management has come into discussion lately due to the new Trump Presidency. Dalhousie University’s Dean of Management, Sylvain Charlebois, a food expert, recently issued a press release examining the potential effects of Trump policy on the Canadian Dairy Industry.

Following Dr. Charlebois’ announcement, AIMS President Marco Navarro-Génie appeared on the Sheldon MacLeod Show. Dr. Navarro discussed the economics of supply management and why they are prejudicial against consumers. The simple explanation is that in Canada some industries, dairy being most prominent, have a restriction on production. The result is more profit for the producers at the cost of a higher price for everyday consumers.

This leads one to wonder: how do producers get away with such a scam? The answer lies in the distribution of costs and benefits. The costs of supply management are large in the aggregate, but relatively small on any individual purchase. A few extra pennies per transaction is not enough to outrage the public, even if the total costs are enormous. On the other side, the benefits of supply management are large and distributed among a small number of vocal, organized, and politically strong producers.

This phenomenon is analogous to the issue of inter-provincial trade, which has made it into the public lexicon only sporadically. The costs of not allowing Quebec beer into New Brunswick, for example, are small on a per-transaction basis, but large in the aggregate. The benefits accrue to a single entity, NB liquor, and in other cases, to Quebec’s SAQ, the LCBO, etc.

Recent trade deals reveal just how bad things have gotten. While we see occasional lip service paid to abolishing supply management, the provisions included in actual deals are paltry. For example, the recently negotiated CETA allowed for just 2% of the Canadian cheese market being opened up to foreign producers. Such reforms are merely symbolic and do not match the intensity of the problem.

For economists, demolishing inter-provincial trade barriers and phasing out supply management are as close to consensus items as you may find. However, the problem is not economic, it is political. The answer to these issues lies in the broader consumer base realizing it is being conned to the benefit of a select few. Such anti-market interference is unjust and consumers should demand better.

All their economic roads lead to more spending

screen-shot-2017-01-06-at-2-34-12-pmIn commenting against our recent study exposing talk of “austerity” in Atlantic Canada as alarmist, Jordan Brennan’s prescriptions are misguided. Brennan himself recently published a paper with the Canadian Center for Policy Alternatives that depicts as austerity measures the modest attempts to keep government spending under control in Nova Scotia.

However, Brennan’s comment is useful in that it draws attention to an economic worldview that no one endorses, save those who profit from it. That view offers government growth and the hiring of more civil servants as the response to both a succeeding and a failing economy:

  1. If the economy is contracting, their standard recipe is that growing government and hiring more public sector workers serves as an economic stimulus and will prevent deeper recessionary troubles.  This suggests spending one’s way out of recessions, as British economist John Maynard Keynes proposed.
  2. If the economy is growing, Brennan thinks that governments ought to hire more public sector workers in order for government growth to keep up in proportion to overall economic growth. This suggests spending one’s way through economic booms (It means little that this is the opposite logic of point 1, and the contrary to what Keynes prescribed).

Brennan goes on to taunt the productive sectors of the economy in near-zero growth: “Nova Scotia’s public sector is giving a boost to overall employment growth when the private sector has not stepped up to do its part.”

Apart from the contradicting issues, the vicious circularity of the last point is lost on me.  Taxed more and more in order to pay for the bloated public sector in Nova Scotia, the productive sector is less able to hire additional workers.

It is not a shock to see that for those who over time profit most handsomely and most directly from greater and greater government spending, the only solution to every type of economic situation is more government spending.

 Editor’s Note: This blog entry is the final part in a series of four blog posts related to our recent paper “Measuring Austerity in Atlantic Canada” by Patrick Webber. Following misdirected comments and criticism of the study, we compiled this series to clarify misconceptions and to underscore its findings. Read part one here. Read part two here. Read part three here.