How TILMA’s economic benefits were manufactured

BC’s Economic Development Minister Colin Hansen has been waving around at every opportunity a study by the Conference Board of Canada that allegedly demonstrate the benefits the deal will bring. When the report was finally released to the public this past January, Erin Weir and I were so shocked at how shabby the research was that we wrote a paper summarizing what we know about the economic costs of interprovincial trade barriers and how the Conference Board’s estimate of benefits to BC was overstated by a factor of about one hundred (they estimate net gains to BC of 3.8% of GDP, whereas the 1985 MacDonald Commission figured that interprovincial trade barriers cost no more than 0.05% of GDP, and given the 1995 Agreement on Internal Trade, this number has probably dropped to 0.02-0.03%, if that much).

A colleague used the Freedom of Information Act to request a copy of the contract and just got it last week. The terms are an interesting case study in manufacturing research. The value of the contract was $49,800. But the contract was not put out to tender; instead, the Conference Board and one consultancy, MMK Consulting, were asked to submit proposals. MMK did not submit a proposal, which makes sense since they have little economics expertise in their group. The reason for this process was cited as: “An RFP was issued to the two firms deemed qualified. A wider call was not made because of tight timelines and the confidential nature of the work. A preliminary search identified these firms as having the necessary qualifications.”

This is unusual, as there is some genuine expertise on this topic in BC (the Conference Board is based in Ottawa). For example, John Helliwell at UBC has done research on interprovincial trade and has even acted as a panelist for AIT disputes, and Brian Copeland, also at UBC, did a review of the evidence on interprovincial trade barriers back in 1998. In addition, there are others like Rick Harris at SFU, who have experience working with CGE models that would have provided a better methodological foundation for the study.

The task of estimating barriers to interprovincial trade and investment is a large undertaking. All of this work, however, was done between August 22, 2005 when the contract was signed, and October 15, 2005, when the report was submitted. This is an alarmingly short amount of time to engage such a complicated topic, which explains why there is so little content on actual barriers (no lists of barriers, no empirical evidence, no data, not even a compelling anecdote). Since the deal was not signed until April 2006 and will not go into effect until April 1, 2007, there was clearly more time to do a thorough analysis, if the BC government wanted to.

The BC government would appear to have got off cheaply with a fee of only $49,800. But then you get what you pay for. My early response to the resulting study was that the BC government should have asked for its money back. But now it is clear that the BC government knew precisely what it was going to be getting, and played an active role in selecting the Conference Board itself, and the business groups and government ministries that were to be surveyed by the Conference Board.

To sum up: an untendered contract done over a span of seven weeks in Fall of 2005 is the sole justification for TILMA. The BC government obviously got the result it wanted. A nudge here, a wink there, and suddenly BC stands to gain almost $5 billion from this deal.