Be careful what you wish for.

‘Splendor sine occasu’.  Splendour without diminishment.  The motto of  British Columbia, Canada.  For more facts about BC, click on ‘about’ above for a quick overview.

The principle economic engine for British Columbia has traditionally been resource based, primarily logging, mining and to a lesser degree farming, both on land and aquatic (fishing).

More recently, that economic driver has changed.

2013 BC GDP by Sector

(Click above to view Statistics Canada pie chart source)

As the 2013 BC government report on Gross Domestic Product indicates, the largest contributors (in dollar terms) to the BC economy are:

 Real Estate, Rental and Leasing    –    17.4%

Wholesale and Retail Trade            –    10.0%

Construction                                      –      8.1%

Manufacturing                                  –      7.2%

Natural Resources                            –      7.1%

Health Care, Social Assistance      –      7.1%

Public Administration                     –     6.1%

Transportation & Warehousing    –     5.7%

Finance & Insurance                       –     5.7%

Professional, Scientific, Research –    5.4 %

Education                                          –     5.5%

All other sectors                               –   14.7%

The BC government report further goes on to note that:

“BC has a mature, diversified economy. In 2012, services-producing industries accounted for 75.6 per cent of BC’s real GDP and goods-producing industries accounted for 24.4 per cent”.

The service sector (economists call it the tertiary sector) is sometimes defined as follows (Source:  Wikipedia)

“The service sector consists of the “soft” parts of the economy, i.e. activities where people offer their knowledge and time to improve productivity, performance, potential, and sustainability, which is termed as affective labor. The basic characteristic of this sector is the production of services instead of end products.”

To this point, we have provided a quantity of numbers and statistics.

So what does this have to do with the title of this article?  Why do we have to “be careful what we wish for?”

For the simple reason that the service sector (the tertiary, meaning third order, sector) is called the soft part of the economy for a good reason.  It is also considered tertiary or third in line for the same good reason.

The service sector grows and builds as a result of an expanding economy, with a growing population that has sufficient purchasing power to avail itself of those services.  If there is no purchasing power available, no matter the size of the population, the service sector is vulnerable.  Similarly, if the population base recedes, instead of growing, the service sector must inevitably shrink over time.

We will continue to pay for those things that are necessities to life and we will sacrifice the luxuries, those things not necessary to sustain life and the well-being of ourselves and our loved ones.

Those familiar with Maslow’s Hierarchy of Needs can readily identify with the challenge.

 maslows-hierarchy-of-needs

The production of ‘goods’, not ‘services’, provides the bulk of the physiological and safety requirements of individuals.  Food, clothing, shelter, tools, medicine, weapons to safeguard one’s own self, family and property (for those would argue that safety requires policing which is a service) and most elemental requirements are based on production of goods, not services.  Only when the base level needs have been satisfied do we turn our attention to the higher tier requirements which, for the most part, are going to be ‘service’ based, not goods based.

Government bureaucracy is a ‘service’ component, not a ‘goods’ component, even by the BC government’s definition.

Why introduce all this psychological baffle-gab?

We introduce it because the health, sustainability and viability of the British Columbia economy, as is the case with all economies, is based on the ability of individuals  and corporations to produce sufficient disposable income to keep paying for the ever-growing ‘service’ sector which is far outstripping the growth of the ‘goods’ sector.

Service sector spending is much more discretionary and less ‘elastic’ (in economic terms) compared to the production of goods.   The production of goods follows a very simple, time tested and inviolate principle.  Over a long period of time, the ‘supply’ of goods cannot exceed the ‘demand’ for goods.  The principle of elasticity dictates that a reduction in demand for goods will invariably result in a commensurate reduction in supply of goods – thus the goods sector is highly elastic.

Because more of the ‘service’ sector is discretionary and based sometimes on government policy decisions, the supply of ‘service’ based factors is much more ‘inelastic’ and the supply of services will not necessarily reduce as fast, or as fully, as the apparent reduction in the ‘demand’ for those services.  In other words, the ‘supply’ of services is not necessarily based on the ‘demand’ for those services. Services, whether justifiable and affordable or not, are often based on government policies and political choices.  In many cases, an economic case is not made for the service.  Instead, a nebulous ‘social’ or ‘politically expedient’ case is made for the provision of the service with little thought to the matter of affordability and sustainability.

So what, you may ask?  This whole academic argument seems kind of boring.

The fact of the matter is that it is not boring and it is of great importance because the over-provision of services, whether warranted or not, is a huge, and growing, cost to most economies, including that of the Province of British Columbia.  At some point in time, this excess of service based production will become financially and economically unsustainable.

Why is there an over-provision of ‘services’ and why is the ‘service sector’ a continually growing percentage of BC’s Gross Domestic Product?

Some of the major components of the growing ‘service’ sector of the BC economy are ‘speculation’ based, rather than based on current economic realities and indicators.  The growth of the real estate, rental and leasing sector (currently the largest contributor to GNP in 2013) is based on expectations of a healthy, sustainable economy, as an example.

Any major downturn in the economy will cause this sector to self-destruct, as has happened historically and elsewhere in a multitude of  jurisdictions, most notably the USA commencing in 2007.

From 2007 to 2009, the value of household real estate in the US fell by over 6 Trillion Dollars – yes that is trillion with a ‘t’.  At the same time, and partially as a result, the expenditures by consumers fell by more than 8%, plunging the US into a major recession.

The ripple effect, including the crash of the stock markets in the US and elsewhere, as well as plunging economies and recessions elsewhere in the Western World caused a financial crisis unparalleled since the Great Depression of the 1930’s.

Almost miraculously, because of some economic realities and some blind luck, Canada (particularly BC) was shielded from much of that economic carnage.

The economic reality that helped Canada and British Columbia weather the storm was the relative strength of the resource sector.  In the northern hemisphere, climatic and geographic conditions dictate that the consumption of energy fuel sources is a reality.

Homes have to be heated, vehicles need to transport goods and people across comparatively large distances and manufacturing as well as agriculture is based on the conversion of energy into products and goods vital to the human existence.

The relative strength of the much misaligned Oil and Gas industries helped Canada through an incredibly difficult time in the recent history of the industrial world as the wealth generated from that sector was distributed throughout Canada and elsewhere through Canada’s provincial equalization formula and through the creation of jobs and employment.

In British Columbia, the effect of the global recession was mitigated by real estate speculation that has driven up the price (not necessarily value) of real estate, particularly in the lower mainland, to incredibly high, and probably unsustainable, levels.  Much of that real estate speculation comes from Asian investors who see Canada and British Columbia as one of the safest havens for investment, at least on a comparative basis.  But for how much longer, given the prevailing political decision making process?

Be Careful What You Wish For.

Too many BC residents, and as a result the BC government, have collectively been lulled into a false sense of economic security.  Additionally, the promotion of sensationalized and often irrational special interest group considerations that have become ‘hot button’ mantras have  skewed ‘sober second thought’, ‘cost benefit analysis’, ‘fiscal responsibility’ and other traditional mechanisms that provide the checks and balances necessary to maintaining a healthy and sustainable economy.

It is vital that the trend of increased tertiary ‘service’ sector economic factors ultimately reverse in favor of ‘goods’ oriented production.

Goods produce wealth using other peoples’ money (through exports and a healthy balance of payments surplus with other economic jurisdictions).

 Services ‘consume’ wealth using our own money.

If the trend continues and we rely more heavily on ‘service’ industries to maintain the economy of BC rather than recognizing that manufacturing, development of resources (including raw materials and the growth of secondary and tertiary production), fishing, farming and goods related industries such as transportation are the true economic drivers of the BC economy, then we are on the precipice of an imminent financial disaster.

At some point, the ability of the BC government (or any government, for that matter), to extract more revenue from the taxpayer will be capped by the absolute inability of the taxpayer to fund any more government sponsored financial mistakes.

So, what is it that the average BC taxpayer appears to wish for?

  • Support for the Federal Government’s recently announced moratorium on the pipeline projects proposed for Northern BC, specifically the Northern Gateway Project.
  • Increased spending on social housing and related welfare programs for the ‘disadvantaged’  sector of the society.
  • Support for the Carbon Tax and the concept of ‘penalizing’ the use of hydrocarbons to heat even our provincial schools and municipal buildings.
  • Restrictions on the development of BC’s own natural resources based on land claims, speculation concerning potential unremediated environmental degradation, Climate Change speculation and political indecision .
  • Expansion of the BC civil service and the increasing cost thereof.
  • Acceptance of the apparent fact that there are different laws for bureaucrats and government officials compared to the remainder of the citizens of BC.  Computer hard drives are wiped, emails destroyed and evidence of these facts have been brought forward by the Privacy Commissioner in recent days.  Thus far, no strong condemnation or apology from the government including the Premier.
  • Mortgaging the lives of our children and grandchildren in favor of an ever increasing public debt which has already surpassed 65 Billion Dollars , that is $14,513 for every man, woman and child in the province. Note:  That is the Province of BC debt load.  (This does not include Federal and Municipal debt).  Anything other than a balanced budget creates even more debt – that eventually someone must pay for.  Politicians are generally short-sighted in this discussion.  Unethical, unaccountable politicians choose to maintain their political power through promises of providing more for less – and anyone who has to balance a household budget knows how ridiculous that argument becomes.  Whereas you or I have to convince a ‘hard-hearted banker’ that we have the capacity to repay our debts, governments have no such reality checks.  Witness the recent events in the US where every year (sometimes more often) Congress and the Senate have to pass increased debt ceiling legislation – required just to increase borrowings (adding debt) to make money available to pay for government employee salaries, pensions and loan interest.  When is it time to say that enough is enough?

So, residents and citizens of British Columbia, be careful what you wish for.

What you should wish for, in your own best interest as well as the best interests of future generations, is a resolve to gain more knowledge, to learn more facts, and to make a commitment to holding politicians and bureaucrats more accountable for their actions.

There is a legal requirement known as ‘fiduciary trust’.

By definition:

A fiduciary trust is a fiduciary relationship in which a trustee holds the title to assets for the beneficiary. The trust’s creator is called the grantor.

In the province of British Columbia, the trustee is the elected government including all of the civil servants and bureaucrats who manage the assets that by law belong to all of us who live and reside in British Columbia, almost without exception.

The assets are all of the land holdings, improvements, buildings, equipment, tax dollars et cetera that are publicly funded and owned, the resources of the land, under the land and on and under the sea.  These assets are the legacy that must be vigilantly and fiercely guarded and maintained by us so that they are sustained and available to future generations.

We are collectively the grantor of the fiduciary trust and it is up to the trustees to manage our assets to the absolute best of their ability.

It is our responsibility, our duty, to hold the trustees responsible and accountable and to remove them if they do not perform their duties in accordance with the trust bond that has been created between the voter and the government.

The creation of insightbc.org is intended to provide yet another vehicle to help facilitate the monitoring and the vigilance required of all of us, as residents and trustees in our own right with our children, grandchildren and future generations as the grantors.

Joseph de Maistre: “Every country has the government it deserves (Toute nation a le gouvernement qu’elle mérite”)

Diogenes: “The foundation of every state is the education of its youth“.

If we are responsible and vigilant, then perhaps future generations will truly  have the opportunity of benefiting from the motto of the Province of British Columbia.

‘Splendor sine occasu’.  Splendour without diminishment.