Wednesday, January 31, 2007

The Tourism Trap

A great deal of the Atlantic Canadian economy is now based on tourism. Tourism has been heralded by governments in the region as the next source of economic growth and prosperity now and in the future. This transcends political party and placement on the political spectrum.

The “now” part I can believe. When it comes to the future; we’ve been sold a bill of goods. Economic growth cannot come directly from tourism. It cannot come from any industry which relies on direct personal interaction or personal experience. Meaningful economic growth is an increase in the material standard of living. There only two potential sources for such growth. 1) An increase in the relative price of the output we produce. This would require the price of things we export to increase and the price of things we import to remain the same (this is a simplification but the idea is the same). 2) An increase in the amount we are able to produce with a given level of resources; ever increasing volume.

We can apply these facts to the tourism industry to understand how it is impossible for tourism to be a source of long term economic growth. Tourism is effectively an export. Consider the increase in relative price first. This would mean a continued increase in the price of tourism services. Assume it is now more expensive to vacation in Atlantic Canada than it has been in the past. Most tourism operators will tell you this means significantly fewer customers. Think about the increases in the value of the Canadian Dollar and the increase in the price of gas. Tourism is a highly competitive international industry. We are competing against areas all over the world. Dramatic increases in the relative price of tourism in Atlantic Canada would cause most tourists to vacation elsewhere. This is particularly true within the region. Increase the price of a Moncton vacation and people will go to Halifax instead. No source of growth there.

The other possible source of real economic growth is the ability to produce more with the same level of inputs. Now its time to think about what tourism is. We’re talking about people experiencing something. There are two way to increase productivity in tourism industries. First, increase the volume of people served at once without increasing other inputs – ie staff, displays, etc.(Disney is actually really good at this, but I can’t see it working for Fortress Louisburg – it is actually impossible if you’re talking about eco-tourism, you’ll destroy what people are coming to see) The other way is to bring people through faster. There is an upper limit to how quickly people can experience something and still be willing to pay for it. This will also mean ever increasing numbers of tourists.

Tourism is already a major industry in the region. People are making decent livings in this industry. Tourism has helped offset the economic losses of declining employment in natural resource extraction. No question. The problem is that we’ve gotten about as much out of tourism as we’re likely to get. The same applies to call centers. Given the nature of the industry, if we continue to invest in tourism as a source of economic growth we’ll be increasingly left behind the rest of the country in our economic standard of living.

We need to re-think most of our economic growth strategy in this part of the world.


Nessa said...

I don't get why that would not work at the Fortress. They have been working cutting back their output and expenses while increasing the amount of foot traffic, both publically and academically. The park has a good grip on ensuring cost effieicncy, not to increase profit margins, like Disney, but to ensure its survival in a financially fiscal world.
The Fortress has a huge amount of protected land, and literally dozens of archeological properties that need to be dug and protected. At the moment they have taken a strong stance on cost effective storage. Dig it up. Study and document it, and then reburry it. Cheaper than keeping it in an environmentally controlled room for the next one hundred years.

Anonymous said...

3 month tourist season.

Sorry nes, but I don't see how a 3 month tourist season could work. CB is great from june-aug but that's pretty well it. After aug people go back to work, and may is too cold for tourists. Even if hotel/restaurants are packed for 3 months solid you got your fixed costs. Now if there were opportunities from nov-april things would be different. Neither americans nor Ontarians like the cold.

The question I'd like to ask is why does the media and gov't spend so much time talking about it. I think we like catagories "the steel", "the auto", "the petrochemical", "the tourist" industry. These are large scale industries that employ many people.

The future for the maritimes is the light manufacturing stuff you see in Amherst. Yet each of these factories individually employs a few dozen people. Think about the optics of trying to market this as policy. "Nova Scotia is investing heavily into companies that produce a variety of STUFF" - would this sell politically?

People want to see progress NOW! Yet the reality is that progress occurs a few dozen jobs at a time. Hence lets throw dollars at festival x and milk those tourists!