Government calculators out of whack

Idon’t normally spend a lot of time taking reports from the Atlantic Institute for Market Studies (AIMS) as gospel. The think-tank — a registered charity — describes itself as providing “a distinctive Atlantic Canadian perspective on economic, political and social issues.”

I mean, I read AIMS reports — I read everything — but it often seems to me that while the scholarship is fine, the choice of what’s to be studied seems to suit a particular business-based worldview. Which probably isn’t surprising, given its funders. (Those same funders get income tax receipts, even in this world where charities that try to affect public policy — at least the ones whose work doesn’t dovetail with the federal Conservatives — seem to get quickly and mysteriously selected for audits by tax authorities). But more on that another day. This week, AIMS released a report on golf courses in P.E.I., and the thrust of the research essentially proves a bit of a truism about government investment in business. Primarily, it’s that when governments invest, they’re often the investors of last resort, and things don’t go very well.

The short version? “A number of basic but critical strategic questions were overshadowed by enthusiasm, hype and optimism at the beginning of the golf boom in the 1990s.”

But buried in the report is something every single Atlantic Canadian should be aware of: how you should look at those economic multipliers govern- ments like to trot out to justify their spending.

They are, the report says, often bull.

It cites the remarkable growth, not in golf itself, but in the forecasts of what the sport was doing for P.E.I. Between 1994 and 2007, for example, estimates of the economic value of golf shot from $12.7 million to a wildly enthusiastic $100 million a year. But the methodology behind those numbers is suspect.

The report’s author, Ian Munro, cites work on the economic impact of Canadian tourism done by Texas A&M researcher John Compton:

“Because the motivation undergirding them usually is to prove the legitimacy of the sponsor’s economic case, the temptation to engage in mischievous practices is substantial. In some cases, the practices are the result of ignorance and are inadvertent, but too often they are deliberate and enacted with intent to mislead and distort.”

Often, tourism economic impact numbers include spending by local residents, which should be knocked out of the equation. As well, they may include people who were coming to the area for other reasons, and, in this case, picked up a round of golf.

Much worse is the kitchen sink problem. Economic impact multipliers often focus on everything someone buys on a trip, from sandwiches to Tshirts. Problem is, if you’re buying and importing the ham for the sandwich and the T-shirts from somewhere else, that cost should be subtracted from the impact numbers. It often isn’t.

As the report points out, “If, for example, $12 out of the $15 spent on the knick-knack is paid by the gift shop owner to the importer in Vancouver who brought the item over from the manufacturer in China, then the economic impact on P.E.I. is only $3.”

The take-away? When a politician tells you the economic impact of a government “investment” in fish-farming or ferry boats or forestry is $30 million or $40 million or $70 million, you should take it all with the equivalent number of grains of salt.