Regional Disparity and Regional Disparity and Development Development

Pols 322 Pols 322

Douglas BrownDouglas Brown

November 2010November 2010

Theories of Regional Disparities Theories of Regional Disparities and Development and Development

Three main theoretical approaches:Three main theoretical approaches: Neo-Marxist, theory of Neo-Marxist, theory of

“underdevelopment” “underdevelopment” Neoclassical economicsNeoclassical economics Institutional political scienceInstitutional political science

Neo-Marxist theoryNeo-Marxist theory

Class-based analysis of society and politicsClass-based analysis of society and politics Ownership and spatial concentration of wealth is Ownership and spatial concentration of wealth is

importantimportant Structure of development versus Structure of development versus

underdevelopment: regions are “kept” underdevelopment: regions are “kept” undeveloped or underdevelopedundeveloped or underdeveloped

International application, but also within a large International application, but also within a large country such as Canadacountry such as Canada

Metropolitan-Hinterland thesis is a variant of this Metropolitan-Hinterland thesis is a variant of this analysisanalysis

Neoclassical EconomicsNeoclassical Economics

The market is (or should be) what determines The market is (or should be) what determines development.development.

Geographic and natural resource development Geographic and natural resource development help determine economic distribution of help determine economic distribution of resourcesresources

The free market will adjust labour and capital to The free market will adjust labour and capital to promote optimal allocation of resourcespromote optimal allocation of resources

Economic integration and trade patterns Economic integration and trade patterns important to considerimportant to consider

More recently: human capital formation seen as More recently: human capital formation seen as important factorimportant factor

Institutional TheoryInstitutional Theory

Politics and the shape of institutions drive Politics and the shape of institutions drive economic outcomeseconomic outcomes

Policy factors shape the economy over Policy factors shape the economy over timetime

Markets (and their rules) are themselves Markets (and their rules) are themselves institutions.institutions.

In a regionally diverse economy, some In a regionally diverse economy, some regions win, some lose, according to their regions win, some lose, according to their political influence and input to institutionspolitical influence and input to institutions

Actual Policy Solutions Employed Actual Policy Solutions Employed in Canada to deal with regional in Canada to deal with regional

disparitiesdisparities

Constitutional ProvisionsConstitutional Provisions Fiscal FederalismFiscal Federalism Direct Regional Development Spending Direct Regional Development Spending

ProgramsPrograms State EnterprisesState Enterprises

Constitutional ProvisionsConstitutional Provisions

Provinces have significant fiscal and legal power Provinces have significant fiscal and legal power to shape their own economies (so-called to shape their own economies (so-called “province-building”)“province-building”)

Federal government uses its spending power to Federal government uses its spending power to redistribute income from richer regions and redistribute income from richer regions and individuals to poorer ones.individuals to poorer ones.

Section 36, Constitution Act, 1982Section 36, Constitution Act, 1982 provides a provides a general commitment to regional equality of general commitment to regional equality of opportunity, economic development to reduce opportunity, economic development to reduce disparities, and fiscal equalization.disparities, and fiscal equalization.

FiscalFiscal FederalismFederalism FF = The system of revenue sharing, expenditure FF = The system of revenue sharing, expenditure

sharing, and direct intergovernmental transfers in any sharing, and direct intergovernmental transfers in any multi-level government political community multi-level government political community

Fiscal equalization = A Federal government program to Fiscal equalization = A Federal government program to top-up the revenues of provinces with below-average top-up the revenues of provinces with below-average fiscal capacityfiscal capacity

Equalization provides unconditional grants to the Equalization provides unconditional grants to the recipient provinces -- allows provinces the autonomy to recipient provinces -- allows provinces the autonomy to spend as they like…to alleviate disparities in basic spend as they like…to alleviate disparities in basic services.services.

CHT = Canada Health Transfer….it and other federal CHT = Canada Health Transfer….it and other federal transfer programs (intergovernmental grants) are more transfer programs (intergovernmental grants) are more or less conditional…i.e. funds are for a specified or less conditional…i.e. funds are for a specified purpose.purpose.

Regional Development ProgramsRegional Development Programs

All governments involved: both cooperative All governments involved: both cooperative and competitive programsand competitive programs

Types of spending:Types of spending: Public Infrastructure Public Infrastructure Grants and Loans to BusinessGrants and Loans to Business Sectoral strategiesSectoral strategies

Political and Bureaucratic Factors are Political and Bureaucratic Factors are important: partisan pork-barrel, regional important: partisan pork-barrel, regional ministers, nature of regional agenciesministers, nature of regional agencies

State EnterprisesState Enterprises(a.k.a. Crown Corporations)(a.k.a. Crown Corporations)

Role in Historic Development: Role in Historic Development: railways, canals, pipelines, airlines, railways, canals, pipelines, airlines,

telecommunicationstelecommunications

Nationalization of Private Business: Nationalization of Private Business: uranium, potash, steel, electricity, shipbuildinguranium, potash, steel, electricity, shipbuilding

In decline as a policy instrument:In decline as a policy instrument: commercialization and privatization now the normcommercialization and privatization now the norm Should they be used more?Should they be used more?

Current issuesCurrent issues

Is equalization sufficient to ensure similar Is equalization sufficient to ensure similar national standards in programs?national standards in programs?

Are regional development programs Are regional development programs working? Is there fairness in federal working? Is there fairness in federal industrial policy?industrial policy?

What impact is free trade having on What impact is free trade having on regional disparities?regional disparities?

Are we allowing the market to work Are we allowing the market to work properly?properly?