The economy of British Columbia went into a tailspin between 1994 and 2001, but a study published this morning by Statistics Canada says it is finally starting to recover.  The recovery has already created labour and other shortages and driven BC’s unemployment rate to a record low of 4.5%, well below the 6.4% national average.

Housing demand led the upturn, growing at double-digit rates every year since 2000.  This was soon followed by growth in mining, oil and gas, transportation, and utilities.  Exports to Asia, especially energy exports, have gained.  Strong growth has also been seen in business investment, consumer demand, and employment over the past few years.

Record commodity prices have triggered a revival of British Columbia's mining industries, notably metals and coal, even as forestry has slumped.

Infrastructure projects to carry the increasing volume of trade in both directions with Asia is boosting construction in the province, while work has only just begun on projects for the 2010 Olympics.

The 1990s: A "lost decade"

After leading Canada's economic growth from 1984 to 1990, British Columbia fell behind in the 1990s.
. . .
Much of the weakness in the 1990s originated in a prolonged slump in demand for housing. Residential construction fell nearly 25%. The housing slump partly reflected a sharp slowdown in population growth after 1995, as well as a correction from sky-high housing prices. The price of residential construction fell 10% between 1994 and 2000.
. . .
In 2001, economic growth in British Columbia hit a low of 0.6%. Since then, however, real gross domestic product has averaged 3.4% a year, surpassing the national average.

Why did BC’s economy slump so badly for most of the 1990s?  Statistics Canada’s answers focus on proximate economic causes: a fall in housing demand due to slow population growth and stagnant business investment.  That just moves the question back one step.  Why did those economic phenomena turn down so severely and for such a long time?

BC's economic slumpThe chart at left shows the ratio of BC’s real (inflation-adjusted) gross domestic product per capita to that of Canada.  In 1990, BC’s real GDP per capita was 6% higher than Canada’s; by 1993, BC’s average economic production per person was 8% above the national average.  But then the bottom fell out: In 2001, BC was about 9% below the national average.  Then the recovery begins.

Maybe political changes in BC provide some insight here.  Between 1975 and 1991, BC was governed by the Social Credit Party, whose attitude to government finance and fiscal policy was extremely conservative.  The party pursued pro-business policies, actively opposed labour unions, and discouraged growth in taxation and public welfare spending.

The 1991 provincial election saw the New Democratic Party (NDP) voted into power.  In its approach to economic policy, the NDP was close to the polar opposite of the Social Credit Party.  The NDP, a democratic socialist party with strong roots in the labour union movement,  generally favours greater government spending and tighter regulation of business activities.

The NDP was re-elected in 1996 in a very close race with the second-place BC Liberal Party.  In 2001, however, the BC Liberals take power in a lopsided victory, whereupon government economic policies change to a fiscally conservative, pro-free market orientation.

So, does anyone see a pattern here?  BC’s economic production per person grows under Social Credit; shortly after the NDP is elected, however, it nose-dives.  This continues until the NDP is voted out in favour of the Liberals, whereupon the economy recovers.  Under pro-business, pro-economic liberalisation governments, the economy prospers and unemployment falls.  Under the socialist party, on the other hand, the economy falters and unemployment rises.  Hmmmm.