Economy of BC

The 2001 population of BC is estimated to be just over 4 million people. At the time of CONFEDERATION in 1871, the population was about 36,000, including the First Nations (see ABORIGINAL DEMOGRAPHY; PEOPLES OF BC). Getting from then to the present has involved economic development on a large and continuous scale.

The Gold Rush to the Modern Era

Before the GOLD RUSHES that began in 1858, the small European population of BC was located at a few fur-trading posts, the largest of which was FORT VICTORIA. The gold rushes brought relatively large, but short-lived, population increases to southwestern BC and to the CARIBOO. When the first comprehensive census was taken in 1881, about one-half of BC's population lived in the Lower Mainland and VANCOUVER ISLAND, with another 20% in the southern Interior and 30% elsewhere. The regional distribution of the population fluctuated considerably between 1881 and 1911, but by the outbreak of WWI the current distribution of about 70% on the southwest coast, 20% in the southern Interior and less than 10% in the rest of the province had been established.

The aboriginal economy, prior to contact with Europeans, was based on the use and exchange of products from the natural environment. While it is impossible to calculate the total product of this economy, it is noteworthy that the highest aboriginal population density in the Americas north of Mexico was along the Northwest Coast. Interior FIRST NATIONS populations in BC were smaller, reflecting the less abundant resource base found there. Once Europeans began arriving, the initial economic activity was the FUR TRADE. European interest in exchanging manufactured products for furs, matched by the First Nations' interest in acquiring new products through the processes of commodity exchange, brought the modern commercial economy to BC. Since fur production was antithetical to extensive settlement, there was little development of BC so long as it was a protected preserve of the HBC, which it was until the gold rush of 1858 changed BC forever.

The story of the FRASER R and Cariboo gold rushes is familiar. Fortuitously timed to catch a lull in the much richer and larger California gold rush, the discovery of significant quantities of gold along the Fraser caused a huge increase in population within a few months. The newcomers had little intention of remaining, and few of the more than 20,000 would-be miners who poured into BC in the summer of 1858 saw beyond their own personal fortune-hunting. Yet the gold rush did leave behind a political structure and a sense of great economic potential that had been absent to that time. This potential was slow to be realized. The end of the gold rush and the continuing decimation of aboriginal populations by epidemic disease brought a decline in economic activity. Yet the economy was more diverse than before. Commercial salmon FISHING, AGRICULTURE and lumber production for export all began in the 1860s and early 1870s (see SALMON CANNING; LOGGING; SAWMILLING). These industries, along with base metal and coal MINING, boomed in the 30 years before WWI. Tens of thousands of people migrated to BC each year as the population grew from 49,000 in 1881 to almost 400,000 in 1911. Annual rates of population growth averaged over 6% for this period. Large inflows of investment capital from the US and the UK accompanied the interest of entrepreneurs from those countries in developing the province's natural wealth.

Normal economic life returned after the war, but it was a different normalcy than had existed before 1914. BC never again received the enthusiastic attention of British investors. The economy's growth slowed and annual population growth dropped to an average of less than 3% in the 1920s and less than 2% in the 1930s. The Great Depression was felt intensely because of its negative effect on export markets, but people in other Canadian provinces still decided to move to BC. The main structural elements of the economy remained the same—between 30% and 40% of provincial output consisted of primary and manufactured resource products destined for markets outside the province. Within this group, the FOREST INDUSTRY continued to garner an increasing share of exports.

WWII caused a sudden burst of diversification in the manufacturing sector because of the creation and expansion of factories to build war products. After the war the world economy behaved very differently than it had following WWI, and the differences were important for BC. Demands for resource products surged as the world economic environment focussed on rebuilding war-damaged countries and took a more internationalist perspective on trade and investment. In the 1940s and 1950s BC's population grew by an average of almost 3.5% annually, and while it was a slower rate of growth than earlier in the century, the base for the growth was larger. New government policies encouraged use of the province's FOREST resources and large investments in various resource industries resulted. Typical were the expansion of PULP AND PAPER manufacturing and the ALCAN ALUMINUM project built at KITIMAT during 1951–54. And just as another resource boom was underway, the growing size and prosperity of the economy encouraged the development of the service sector as consumer and government services expanded rapidly. Total output growth in the services was over 5 times as large in the 1950s as growth in the resource-dominated goods sector.

1960 to the Present

As the 20th century drew to a close, most British Columbians seemed to believe that good economic times had ended some years earlier. They were correct: the postwar boom ended around 1980. The recession of the early 1980s was deep and prolonged in BC. It took until 1985 for Gross Domestic Product to recover its 1981 level, and the rate of population growth during the 1980s was second-lowest to the 1930s. Yet this slowdown needs to be viewed in context with the rapid development of the resource industries that had preceded it, an expansion that was bound to end as world markets began to be served by competing suppliers and the environmental and social consequences of continued rapid economic growth became problematic.

In the year 2000, BC had over 25 times the population and 90 times the real output of 100 years before, a considerable economic achievement by any standard. Yet as the century turned, uncertainty about future prospects for the economy was rampant and the need for restructuring almost an article of faith. Of course, the economy was already restructuring itself as the resource industries steadily lost their share of total output and employment while new economic activity in TOURISM and technology flourished. Neither of these sectors was as important as the resource industries, but both grew rapidly in the last 2 decades of the century. Importantly, in an era of environmental consciousness, both promise less impact on a natural environment perceived by many British Columbians to be more and more at risk (see ENVIRONMENTAL MOVEMENT). Also, both match the expectations of the large number of immigrants who have come from Asia to the Lower Mainland since the mid 1980s expecting good urban employment opportunities. Increasingly, the attention of policy-makers in both the private sector and government will be directed away from the industries that have played such a large role in shaping BC.

BC's economic dependence on the resource industries has been declining for decades. This process is not unusual—it has happened in many regional economies in N America—and it need not be viewed with alarm. Nevertheless, the path of this adjustment is not smooth and its effects are felt unevenly across communities and labour groups. That said, the traditional resource industries are not at the disappearing point and will be influential in the provincial economy for many years to come. Together, these industries directly employed almost 10% of BC's labour force in 2000, and still accounted for almost 80% of exports to other countries.

BC has 5 important industries based on its natural resource endowment: forestry, agriculture, mining, energy and fishing. Arguably, two other industries also rely on the natural environment: tourism and the footloose HIGH-TECHNOLOGY INDUSTRIES, whose success seems to rely on attracting and retaining highly skilled employees whose decisions about where to live are influenced by the quality of the natural environment. The forest industry indirectly employed just over 100,000 people in 1997, not far off its historic peak a few years earlier. However, the industry's share of total employment has been falling for decades and during the 1990s declined from 6.5% to 5.5%. Its share of total provincial GDP has shown a similar downward trend. The timber harvest peaked in 1989 and by 1999 was almost 30% below that peak. The reduction is partly the result of new land-use priorities that reserve a larger part of the forest for non-timber use such as PARKS, and partly the natural effect of having logged mature forests before the replacement second-growth forest was ready for harvest. The decline in this industry is not just cyclical; it represents a long-term trend. Nonetheless, forestry is still BC's most important industry and it is especially important in dozens of forest-based communities. Its impact on employment and output across the whole economy is made larger through indirect employment and output that are dependent on harvesting and processing timber. This indirect employment may be twice as large as the forest industry's direct employment. Government policy is of immense importance to the industry given that most forest land is Crown-owned.

Agriculture in BC is diverse and scattered across much of the province. Specialization in different regions reflects differences in climate and soils. Of the total $1.9 billion in farm cash receipts in 1999, about $1 billion was from animal products (split about evenly between DAIRY, eggs and poultry, and livestock) and about $878 million in crops, led by floral and nursery products. TREE FRUITS account for less than 10% of total crop receipts as new crops such as GINSENG are introduced. Economists do not include illegal activities in their calculations but media reports suggest that cultivation of illegal drugs may be larger in terms of market value of output than all other crops (see MARIJUANA).

After the fur trade, mining was BC's first basic industry. BC has a very diverse geological profile and, while some of the province is not highly mineralized, much of it is, and a wide variety of minerals have been exploited. COAL has been mined in BC since the 1850s and in the late 1990s the industry in the E KOOTENAY and the PEACE R district was larger than ever before. Gold was another big mineral discovery in the 1850s and was soon followed by SILVER, COPPER, lead, ZINC and several other metals. The industry is heavily influenced by world prices and by the perceived advantages of mining in BC as compared to mining elsewhere. Since most of BC's deposits of metallic minerals are low-grade, economic mining has to be based on large-scale operations and efficient mining and preparation of concentrates. Markets for mineral concentrates are now centred in E Asia. Mining in BC in recent years has not been associated with a SMELTER industry producing metals from concentrates. There are only 2 smelter operations (Kitimat and TRAIL), and only the Trail smelter processes concentrates from BC mines (see COMINCO). Periodically suggestions are made that the HYDROELECTRIC resources that brought the aluminum smelter to Kitimat should be exploited to bring other metal smelters to the province, but environmental concerns about the building of new power dams and the pollution associated with metal smelting have so far prevailed over these proposals.

BC is a significant producer and exporter of electricity and of natural gas (see OIL AND GAS INDUSTRY). Major hydroelectric dams have been built on the Peace and COLUMBIA rivers, and the province is connected to a comprehensive electric grid. Natural gas is available as a domestic, commercial and industrial fuel in most places in BC and has become an important export. While BC does produce petroleum, consumption is far larger than can be supplied from BC oil wells. Two potential energy-related activities are currently prohibited by government policy: the offshore exploration for petroleum and natural gas and the mining of uranium.

Fur trapping aside, the smallest natural resource industry is fishing. This fact surprises many people because of the amount of media attention paid to the SALMON fishery, but the interest in this industry follows from its historical and cultural significance, not its economic importance. The salmon fishery used to be more important, but changing habitat and poor management of this complex and sensitive natural resource necessitated closure of many fishing opportunities and curtailment of others. There are, however, many other fisheries that are not being utilized at their potential and the future of FISH production and processing in BC may well lie with these or with SHELLFISH AQUACULTURE and FIN FISH AQUACULTURE.

In BC, as in other advanced economies, about 80% of the economy is in the service sector. The production of goods has declined partly as a result of statistical classifications that bias these calculations against the goods-producing sector as companies contract for business and professional services that were previously provided in-house, but the major impetus for the increased service sector share comes from rising consumer demand for such services as education, financial services, health care and travel. The 7 largest service industries in BC are, in order of direct employment, retail trade, health and welfare, accommodation and food, education, wholesale trade, government administration, and transportation. Together they account for 43% of total employment. Much of this employment is driven by purchases or consumer spending from what economists call "basic" (export) industries. Retail trade employment in particular communities depends in large measure on employment and output in a community's export industries. When the pulp mill closes, for example, retail business shuts down in its wake and jobs are lost. Service industries can be basic industries in their own right. Successive BC governments have sought to promote service-type economic activity that can be a successful export as the province experiences the transition away from reliance on natural resource commodities and products. For example, spending by a family on vacation from outside BC is just as much an export as a carload of lumber sold in Chicago. Tourism, which is split between about 30% spending by British Columbians on vacation in the province and 70% spending by visitors from elsewhere, is a large industry in BC, directly accounting for about two-thirds as much GDP as the forest industry. Other efforts to find an export base in the service sector have centred on financial services and the high-technology sector. While the statistical FIRE ("finance, insurance and real estate") classification is the largest single sector in provincial GDP, its employment share of about 5% is a more useful measure of its importance. Also, despite efforts to make VANCOUVER an "international financial centre," Canada already has one (Toronto) and the emergence of a second will be a slow process. As of the year 2000, most economic activity in the FIRE sector is directed at the provincial economy, not on export markets. BC's exports of transportation services, such as those provided by the Port of Vancouver, are 4 times larger than its exports of financial services. High technology, which involves the application of knowledge-intensive processes to the production of goods or the delivery of services, may offer more potential. Computers are an important sign of high technology, but not all high tech is based on computers; BIOTECHNOLOGY and pharmaceuticals are counter-examples. BC's interest in promoting this sector is shared by every other jurisdiction in N America, however. Everyone would like to have BC's low pollution, high wages and growth potential. Our neighbours to the south in California, Oregon and Washington have been much more successful than BC in developing this sector but the attraction of natural and civic amenities which have been important there should be within the reach of BC. As the century ended, high tech was about half the size of tourism, but its recent growth was much faster.

In BC, preoccupation with government politics and policies often seem to swamp consideration of the economy. Government is important: total spending by all 3 levels of government accounts directly for about 25% of GDP; government directly accounts for 5% of provincial employment; and taxation and general policies are important across all other sectors, particularly for the resource sector. Nevertheless, many major influences on provincial economic activity are beyond the purview of the 3 levels of government. The largest and most important level is provincial: federal government policies are rarely determined with an eye to their effects on BC (our 13% share of Canada's population ensures that) and many municipal government policy areas are strongly influenced, if not controlled, by provincial decisions. In the provincial economic accounts, government appears in 3 categories: health and welfare, education and government services. Spending on health has been growing more rapidly than population, while spending on education has matched increases in population and government services spending has, at least since 1993, been decreasing in relation to population (see also EDUCATION, PUBLIC). Government is also important through the provincial government's role as the owner of CROWN CORPS. There are dozens of provincially owned Crown corps, and annual revenues of the 8 largest totalled about $10 billion in 1998. Debt of Crown corps and similar agencies used to finance investment in ROADS AND HWYS and public buildings amounted in 1998 to about two-thirds of the total provincial debt of $32 billion.

The role of the federal government includes policy responsibility for areas of direct provincial interest, such as oceans and ocean fisheries, areas such as defence and foreign affairs in which British Columbians share a common interest with other Canadians, and TRANSFER PAYMENTS to individuals, such as old age security and employment insurance. In 1997 transfers to the provincial government through the Canada Health and Social Transfer (see HEALTH POLICY) returned to the provincial government about $1.6 billion of the $19 billion in federal revenues collected in BC.

Conclusion

As the 20th century ended, popular conversation about the BC economy usually focussed on the difficulty of present economic times. It seemed many years since British Columbians exuded much optimism or satisfaction with the way the economy was functioning. Yet over the long sweep of history, the economy is much better than it was. Not only is it larger in absolute terms (simple evidence is the quadrupling through migration of BC's population in barely 50 years), but the spending power of per capita income has grown even faster: the "average" British Columbian has 2.5 times as much to spend as he or she would have had in 1948. Admittedly, during the 1990s this economic progress stalled. Many wondered whether the province had reached the limits of desirable or sustainable economic growth. Others blamed the slowdown on misguided government policies, or temporary economic setbacks in the economies of overseas trading partners. Certainly the provincial economy has been experiencing a restructuring. Whether or not that process will result in a return to stable, sustainable economic growth, the 21st century will reveal.

by John M. Munro
Readings: Ministry of Finance and Corporate Affairs, British Columbia Financial and Economic Review, published annually.