Montreal, February 15, 2005 • No 151




Harry Valentine is a free-marketeer living in Eastern Ontario.




by Harry Valentine


          Over the past several months, we witnessed the spectacle of the national flag being removed from provincial government buildings across Newfoundland. At issue was the amount of revenue that the provincial government expected to receive from offshore oil wells. Following tough negotiation initiated by Newfoundland's premier, Canada's federal government agreed to allow Newfoundland and Nova Scotia to keep all of the offshore oil revenues.


          The discovery of undersea oil and natural gas reserves and the subsequent development of these offshore resources offered a new economic opportunity to Atlantic Canada, as well as a new source of revenue for the region's provincial governments. The availability of this extra revenue runs the risk of encouraging an increase in government spending. Atlantic Canada has been the site of successive government malinvestments that included a range of well-intended job-creation and entrepreneurship-training programs, industrial development and industrial partnership programs, as well as economic development initiatives funded by federal and provincial governments.

          Over the long term, these programs did little to alleviate the region's economic problems. Federal officials routinely justify them by pointing to the constitution that requires the federal government to undertake action to alleviate economic disparities between Canada's have and have-not regions. But the methods used by various levels of government have thus far achieved results opposite to what was originally intended. An urgent change of economic strategy may be needed to enable Canada's have-not regions to become self-sufficient. Achieving such change may be difficult as long as Atlantic Canada is required to maintain equality in social services with the rest of Canada.

Potential for future economic development

          Greater economic self-sufficiency in Atlantic Canada may be achievable in a suitable economic environment, that is, one free from government control. Atlantic Canada has examples of private entrepreneurs who developed economic opportunity without government funding or government assistance. K.C. Irving built a conglomerate on private capital and achieved business success at a time of less government control and regulation over the economy. Over a period of decades, the Irving group of companies created more employment opportunities in Atlantic Canada than any government-funded job-creation scheme or state economic development project.

          Parts of Atlantic Canada have potential for economic development that could be developed privately, using private investment. The potential of Newfoundland and Labrador could be developed if the province was declared exempt from all federal and provincial economic regulations. An absence of government partnerships would minimize malinvestment of tax revenue. Newfoundland and Labrador presently has two main areas of future economic potential; ocean food products and generating hydrogen for export. This region's coastline of bays, inlets, fiords and islands would make ideal locations for private fish hatcheries and private fish farms.

"Greater economic self-sufficiency in Atlantic Canada may be achievable in a suitable economic environment, that is, one free from government control. Atlantic Canada has examples of private entrepreneurs who developed economic opportunity without government funding or government assistance."

          Several of Labrador's rivers are capable of generating large amounts of hydro-electricity. The lower Churchill River has an estimated 2,800-Mw of hydro-electric potential, while extra power may be generated on the Goose, Naskaupi and several other rivers. Private companies could develop Labrador's untapped hydro-electric potential estimated at over 6,000-Mw, building privately-owned hydro-electric dams that produce hydrogen for export to markets in Europe and the Northeastern United States. Ships transporting hydrogen from Labrador may be able to sail into Lake Melville to take on hydrogen at an inland terminal, provided that shipping lanes to such a terminal could be kept open year round.

          Parts of Newfoundland's and Labrador's coast lines have heavy wind and rough seas. Entrepreneurs could erect wind turbines at suitable locations on land and offshore to generate electric power to produce hydrogen. New technologies that are capable of converting ocean wave energy to electric power are being developed abroad. One such technology may be built at coastal locations while another technology may be secured between offshore islands by cables. Another technology is a water turbine that operates like an underwater windmill, generating electric power from water flowing in and out of ocean inlets as tides rise and fall, which can be located at the mouths of rivers and ocean inlets.

Another episode of state malinvestment

          Several governments worldwide have already begun promoting hydrogen as a transportation fuel. However, the over-regulation of electric power production in many nations runs the risk of causing future hydrogen shortages. Private businesses that produce electricity and generate hydrogen for export from Newfoundland and Labrador could supply that needed hydrogen if they had the freedom to do so in a regulation-free environment. A future market demand for hydrogen would likely develop in the American Northeast as well as in Western Europe, allowing Newfoundland and Labrador to evolve into a significant hydrogen producing region.

          While governments are promoting hydrogen fuel cell technology for use in road vehicles, a private European company converted an existing commercial aircraft to use hydrogen as jet fuel a decade ago. As jet fuel prices are likely to rise over the long term, hydrogen prices could decline and become a cost-competitive aviation fuel. Hydrogen generated in Atlantic Canada could be shipped by ocean to airports at New York, Boston, London, Amsterdam and Paris where the fuel may be used to power commercial airliners on the busy trans-North Atlantic service. An intensive use of hydrogen in road vehicles in the future may now be doubtful due to recent developments in lithium-based storage battery technology and its subsequent demonstration in a road vehicle in Japan.

          There is the risk that a new energy-storage technology could unexpectedly appear and oust hydrogen as a transportation fuel, turning the massive amounts of funding that governments have already allocated to hydrogen energy development into another episode of state malinvestment. Unexpected research breakthroughs have occurred in polymer (giant molecule) chemistry and in high-temperature super-conductivity. Further breakthroughs in this latter field could lead to the development of a compact, high-energy density storage technology that could enable commercial aircrafts to undertake trans-ocean flights. Electrical energy generated in Newfoundland and Labrador could be stored in such devices and flown to international airports to "refuel" airliners. Due to the unpredictable nature of scientific breakthroughs, governments would avoid malinvestment by allowing private interests to develop Atlantic Canada's renewable energy potential.