There is a long-standing myth about the economy of the Atlantic provinces, which we can hear expressed in phrases like "Canada's Third World hideaway" and "our freeloading neighbours by the sea".
Fortunately, Fred McMahon's remarkable new study helps dispel that myth. McMahon, a senior policy analyst at the Atlantic Institute for Market Studies (AIMS), argues that in terms of pure regional economic growth the Atlantic provinces have consistently outpaced the rest of Canada. The problem has been the federal government's subsidies, which have slowed down the region's growth. If a free market strategy is adopted, it would prove that Atlantic Canada can stand on its own feet.
For the last three decades, the economic numbers have been favourable: since the 1960s, Atlantic Canada has had strong per capita growth. In fact, while Canada's per capita GDP was twice as large in 1994 as it was in 1961, Atlantic Canada's per capita GDP grew by two-and-a-half times. As well, the rise of personal income in the region has been, as McMahon puts it, "over the past 35 years.about the closest thing to a straight line found in economic data": always upwards, never downwards.
As the problem period, McMahon isolates the 1970s, when the federal government raised regional subsidies. The subsidies raised Atlantic Canada's demand for goods and services from outside the region itself; this outflow of money suppressed the demand for local goods. The increase in subsidies also suppressed private investment opportunities. And since regional subsidies began to rise at the same time as relative pay scales, the gap between Canadian and Atlantic unemployment levels doubled.
In the 1980s, Ottawa's cutbacks of these subsidies let Atlantic Canada resume its voyage of solid economic growth.
Fred McMahon finds no evidence that either the increases of subsidies in the 1970s or the cutbacks of the 1980s and '90s had any effect on the trend in personal income. Still, the policies of the '70s had lasting effects. Regional pay scales went back down, but only with a lag. As well, the disparities in unemployment rates remain. UI is still an easier way to receive a pay-cheque than going out and looking for work-especially in areas where there is heavy union control, or where there is no work.
McMahon takes an interesting look at whether or not market forces have failed in Atlantic Canada. He argues that the long history of federal government interventionism has always harmed the Atlantic provinces. Before Confederation in 1867, Atlantic Canada was not a one-dimensional region dependent on fishing expeditions. It was the National Policy that prevented the Atlantic provinces from reaching major markets efficiently, by blocking off waterway access. In 1988, the Free Trade Agreement at last re-opened these markets, restoring the region's economic potential.
The book describes a study commissioned by the Nova Scotia Department of Industry, Trade, and Technology and the Atlantic Canada Opportunities Agency (ACOA), conducted by P. N. O'Farrell, which compared the competitiveness of matched pairs of New England and Nova Scotia firms. It looked at the output of these firms and made microeconomic comparisons based on quality and price. The results were staggering: the government-subsidized Nova Scotia firms, with new equipment, often had weaker productivity rates and lower-quality goods. (O'Farrell also suggested that the New England firms could buy second-hand equipment from Nova Scotia, originally bought with government assistance, and then replaced with newer equipment in the same way.)
McMahon also discusses the disaster in the fisheries. The federal government loaded on heavy subsidies and encouraged employment (including seasonal work) in an industry that was in a long-term decline. Employment for Atlantic fishermen was "not based on productivity, but rather on government making up the difference between products and wages, breaking the link between the two." By letting labour and capital come into constant conflict, Ottawa caused a massive unemployment problem, one we still face today.
Looking the Gift Horse in the Mouth gives startling evidence of Ottawa's mistakes in Atlantic Canada, and offers hope for times without government subsidies. McMahon calls for an opening of the region's markets to increased competition, and for a quick end to the distortions caused by the federal transfer payments.
I have never before seen such evidence brought together to debunk the prevailing view of the Atlantic economy. McMahon uses graphs, charts, studies, and pure economic reasoning to support his position. It is a formidable study that leaves nothing to chance, and presents ground-breaking material. Looking for the Gift Horse is entertaining from front to back.
I have a feeling that this book is going to change a lot of minds about the potential of the Atlantic region. Bully for Fred McMahon and the AIMS! It's time someone told the truth about Atlantic Canada.

Michael Taube, M.Sc. from the London School of Economics, is the publisher and editor of From The Right. He has written for the Globe and Mail, Financial Post, Toronto Star, Literary Review of Canada, the Fraser Forum, and the Edmonton Journal.