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The downtown blame game

Halifax elites are pointing fingers at others for their own failures

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Psychologists speak of "displacement," a neat little mental trick to blame others for your own failures. We've got a pretty nice example of it going here in Nova Scotia. Let's review.

The business and political elites of the province, most of them based here in Halifax, have chased one pipe dream after another in pursuit of some sort of economic nirvana, which of course is narrowly defined as lots of wealth for themselves, and not for us little people. Some examples...

Offshore revenue It was a nice fantasy: natural gas revenues were going to turn us into Alberta East. At one point the politicos had illusions of 40 trillion cubic feet (TCF) of natural gas in Nova Scotia waters, enough to drive a local industry for 25 years. Alas, the actual figure is something like 1.4 TCF over 13 years:

According to the most recent NEB projections for Nova Scotia's offshore, Sable will have played out by 2011, while Deep Panuke is expected to begin production in 2010, reach its peak within a year, and cease production by 2020.
Then there's the matter of Rodney Macdonald's government caving on the Atlantic accord:
n 2004, the federal government of Prime Minister Martin was forced to sign a second Atlantic Accord which allowed 100 percent of the royalties to be kept by both provinces. In 2007, Prime Minister Harper reversed this agreement, causing a constitutional showdown between Newfoundland and Labrador, Saskatchewan, and Nova Scotia. In late summer of 2007, Premier MacDonald of Nova Scotia broke ranks with the two other provinces and agreed to a formula which would, apparently, mean the province would be better off by $229 million sometime after 2016. There is considerable debate about this figure, as it appears to make a number of optimistic assumptions about future natural gas production and prices... A substantial portion of the revenues from Nova Scotia’s offshore will be diverted to Ottawa under the revised Atlantic Accord.
For a while last year, the province was making more money from companies paying forfeiture fees for abandoning their rights to drill offshore than from actual gas royalties, but EnCana is now indeed doing real work to bring in gas from the Deep Panuke field, and real money coming is into local firms servicing the contract. But, the really big money is illusive:
The loss of the more than $50 million accommodations model contract for Deep Panuke is a classic case of how politics can skew a business case.There are still many unanswered questions surrounding EnCana's decision to build the module in Europe and find other contracts to fulfill the commitment of 280,000 hours of work that was supposed to come to this province under the Offshore Strategic Energy Agreement (OSEA) signed in 2006...We also have to wonder when the premier's office was aware the deal had hit the skids. We hear the Rodney MacDonald's office knew about the problems with the deal a month ago but there is no record of any formal attempts by the province to keep it alive...The agreement is great for politicians who want to boast about the benefits of offshore gas development. But it imposes an unusual and possibly unsupportable business case on those who want to build something like the accommodations module.
In short: the provincial government blew it, first in estimating the size and potential of the offshore revenues, second in caving to Stephen Harper's demand to ditch the Atlantic Accord and third in securing contracts for Nova Scotian firms that were supposedly guaranteed by the offshore agreement. The offshore won't bring economic nirvana to our business elite.

Atlantic Gateway This is my favourite example of boneheaded elites grasping a fantasy future that never had any hope of becoming reality. As they told the story, Halifax and Nova Scotia would become a megaport for the American midwest, outstripping in volume the existing, actual megaports of New York and Hampton Roads. In order to believe this, you had to first swallow a line of logic that included a sequence of particulars, each one of which is absurd on its face:
1) Americans are going to buy more and more and more plastic crap from China, forever;
2) west coast ports (Vancouver, Seattle, Oakland, Long Beach) are going max out their capacity and won't do anything to increase the amount of shipping they can handle, and so
3) shippers will look to send their goods the other way around the globe in "Post Panamex" ships too large for the Panama canal that need to call in deep water ports;
4)Halifax can compete successfully against the other east coast deep water ports (New York, Hampton Roads and Charleston, South Carolina) because
5) like the west coast ports, those other east coast ports won't do anything at all to increase the size of their operations and
6) shippers can be convinced they should call in Halifax because our fair city provides the shortest sea voyage and never mind that a short sea voyage thereby creates the longest land voyage for their containers (the land side of shipping being far more expensive than the sea side) because, well, because it sounds good to say "shortest sea voyage."
7) And we'll (I'm not kidding here) get around high trucking costs by using cheap Mexican truck drivers driving "long combination vehicles"---truck trains of two and three trailers--- on a new super duper four lane expressway that's going to connect Halifax to Buffalo, New York.All these particulars will come together, and before you know it, Halifax will be a boom town, and we'll all be rich.It was all a sick joke, of course. Vancouver, Long Beach, New York, Hampton Roads and Charleston are all investing heavily to increase capacity, and new rail lines connecting Hampton Roads to Chicago are slashing land transportation costs. Shippers are not, in fact, stupid, and care more about the total price tag for moving their containers from point A to point B, and not simply one leg of the journey. The Americans are essentially bankrupt, thanks to an unnecessary war and an economy based on a financial house of cards, and their consumption of plastic crap from China has been reduced accordinglyAs a result, the Port of Halifax is in freefall. It still hasn't recovered from the end of the Cuban trade (the 1989 dissolution of the Soviet Union resulted in the loss of Canadian grain shipments through Halifax to Cuba), and has been operating at 50 percent capacity for years. Even that poor performance has recently collapsed, with a 20 percent reduction in port business in the first six months of this year, a trend that reportedly has deepened since---and that was before the American financial collapse. Earlier this month, the company that runs operations at Fairview Cove placed the Ceres terminal up for sale, and there's a distinct possibility that all port operations will be combined and the Halterm terminal in the south end will be shut down completely. Things are so bad at the port that CN has stopped running one of its two daily trains from Halifax, a move that will in turn reduce traffic even further as shippers have less flexibility.Unfortunately, our elite business and political class so believed the Atlantic Gateway fantasy that they thought Halifax ports would be maxed out and the province would need more capacity. They therefor embraced the construction of a new megaport at Melford that will be privately owned and operated, albeit serviced by a new four-lane highway 104, costing tax payers several hundred million dollars. That operation will be up and running in 2011, in direct competition with the Port of Halifax, and will no doubt pull the rug out of the sickly local operation and, by and by, the future of downtown Halifax.Port officials and other Gateway fantasists have any number of excuses for the collapse of their dream, but the bottom line is they lacked the foresight and reasoning skills to see they were chasing a phantom.

Commonwealth Games Once again, the movers and shakers thought they could personally make a boatload of money and "put Halifax on the map" by hosting the 2014 Commonwealth Games. As with the Gateway fantasies, the elite blame everyone else for the collapse of the bid effort, but the bottom line is that it didn't fall apart until two independent auditing firms took a look at Halifax 2014 operations and saw that the whole thing was poorly planned and irrationally executed. Here's part of what I wrote in my full account of the failed bid effort:

The report criticized nearly every aspect of Halifax 2014, including its organizational structure, its business plan, its proposed ticket prices, its budget assumptions, the sports it selected for the Games and much more.

A second independent consultant's report, prepared by the auditing firm Price Waterhouse Coopers for the province and HRM, echoed McMahon's concerns about Ocean Breeze. That report noted the potential HRM expenditure for Ocean Breeze would be $212 million—an amount not included in the Halifax 2014 budget and over and above the city's $200 million original commitment.

"The 2014 Games budget could be in the $1.6 billion to $2 billion range," commented McMahon. " currently estimates $1.724 billion in dollars spent but this excludes any additional risk attached to the Village Development. This could push the costs to the higher end of the range." And, he added, "a bid budget tends to act as a floor rather than a ceiling."

That was a far cry from the $785 million "right sized" Games celebrated on Pier 21 in November. And even the best case economic forecast—as outlined by the Canmac study—suggests that a $2 billion Games price tag would generate additional economic activity of...about $2 billion.

Regardless, both consultant reports reached similar damning conclusions.

Noting that even Halifax 2014 acknowledged that fully 92 percent of the cost of the games would be publicly funded, the PWC report suggested "that the Government Stakeholders should readdress and formalize their key goals and objectives, including what they are hoping to achieve, with respect to their respective investments and support of the Halifax Bid."

"The case for the sustainability of the facilities and the long-term benefit accruing from hosting the Commonwealth Games has not been made," wrote McMahon.

In consultant-speak, the stark language of both the McMahon and the PWC reports is about as close as it comes to "get out, and get out quick."

The fault for the bid collapse does not lie with a skeptical public, but rather with the local elites' own incompetence.

The blame game

These are but three examples, and I could go into more, including the truly scandalous provincial immigration program (why hasn't that brought down the government?) and the latest brilliant idea-- turning downtown Halifax into a financial centre just as the world's financial industry collapses.

The point is that in each of these instances it's not a skeptical press or a "culture of defeat" public to blame for failure, but rather the sheer ineptitude of the people in charge, and a fundamentally flawed view among local elites of how the world really works.

But rather than blame themselves for their stupidity, local elites are displacing blame onto the essentially powerless, who in this topsy turvy world are to blame for the elites' failure to enrich themselves.

And so, we have a new political framing: Halifax is "anti-development," and locals are "more concerned about heritage than progress." The business and political elite are uttering this nonsense at every turn, and therefor the local media is pretty much regurgitating it without question as truth. Never mind that it's all a lie.

This post is already long enough, so I'll leave it here for the present. But what we need to do is start thinking about building an economy that benefits everybody and not just a handful of self-appointed poobas. That will require a change in the political order, of course.

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