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Looking for economic freedom? Try Delaware, then Alberta

Eric Beauchesne, Canwest News Service
Published: Thursday, July 10, 2008

OTTAWA - Alberta has more economic freedom than any other province in Canada, and ranks second in all of North America, while the rest of the provinces are at the bottom when it comes to freedom from taxes and other forms of government regulation and interference, says a right-wing think-tank.

Newfoundland and Labrador, meanwhile, posted the greatest increase in economic freedom of any province through the first half of this decade, the Fraser Institute said in its annual report.

And while Alberta is second only to the state of Delaware, the next highest ranked province is Ontario - in 51st spot among the 60 provinces and states - followed in descending order by British Columbia, Newfoundland and Labrador, Saskatchewan, West Virginia, New Brunswick, Manitoba, Nova Scotia, Quebec and Prince Edward Island.

"The majority of U.S. states have high levels of economic freedom and prosperity but Canadian provinces are poorly positioned to benefit from economic freedom," said the institute's report.

"There is a clear connection between levels of economic freedom and prosperity throughout Canada," it said, noting that the five provinces with the highest rankings of economic freedom had an average per capita GDP that was 41 per cent, or nearly $11,490, more than the five provinces with the lowest levels of economic freedom.

The study defines the economies with the most freedom as those that operate with the least government interference, such as from taxes or minimum wage legislation, or high levels of unionization, which allows individuals and markets to determine what, how, and how much is to be produced and for whom.

That concept of economic freedom, however, was challenged as misleading and narrow by a labour economist.

"In fact, what they are measuring is the freedom of business to operate without the intervention of government, not the freedom or citizens or workers," said Sylvain Schetagne, senior economist at the Canadian Labour Congress (CLC).

Also, just looking at GDP per capita - while often used as a broad measure of economic prosperity - says nothing about the well-being of individual citizens, fairness and social justice, which are all a "part of enjoying freedom," Schetagne said.

While the Vancouver-based Fraser Institute argued that the greater the economic freedom in a jurisdiction, the greater the prosperity, it said that is less so in Canada than in the United States because of fiscal federalism under which the federal government transfers money from the richer provinces to the poorer provinces.

"Since economic freedom spurs prosperity and growth, fiscal federalism in effect transfers money from relatively free provinces to relatively unfree provinces, muting the impact of economic freedom and perversely creating incentives for provincial politicians to limit economic freedom and, thus, economic growth since this increases the flow of federal transfers, which are directly controlled by these politicians," it said. "This enhances their power and their ability to reward friends and penalize enemies."

Schetagne, however, said the report's criticism of the transfer of wealth from the richer to the poorer provinces just demonstrates that fiscal federalism in fact works.

"It equals things out across the country," he said. "It provides increasingly equal opportunities to citizens across Canada."

Also, while the report noted that Newfoundland had the greatest economic growth, as well as the greatest economic freedom over the first half of the decade, conceded that "the province has benefitted from oil and gas development and it would be hazardous to draw any connection to economic freedom."

Erin Weir, a United Steelworkers economist, said "this same logic should also apply to Alberta, the Canadian star of the Fraser Institute's ranking."

In fact, four of the five provinces with the highest economic-freedom rankings - Alberta, British Columbia, Newfoundland and Saskatchewan - are the provinces that have gained most from skyrocketing commodity prices," Weir noted. "The other top-five province, Ontario, is Canada's commercial centre."

"The relative prosperity of these provinces reflects their underlying economic structures rather than the public policies emphasized by the Fraser Institute," he said.

Canwest News Service 2008