The cost and consequences of subsidy policies: The case of the Cape Breton Development Corporation (Nova Scotia)

This paper examines the negative costs and consequences of subsidy policies through the case of the Cape Breton Development Corporation (CBDC), a coal mining company located on Cape Breton Island in Nova Scotia. The Canadian federal government created CBDC in 1967 when it took over Cape Breton's coal industry in order to protect the jobs of miners. Because of the weak state of the island's economy, the aim was to steadily downsize and eventually close the coal industry as replacement ‘non-coal’ jobs were created. In the 1970s, however, as world coal demand rose, the goal of closing CBDC was replaced by plans for expansion. Despite the high hopes for coal which persisted through the 1970s and early 1980s, factors such as an unanticipated decline in oil prices, high production costs, low levels of efficiency, poor geological circumstances, and the impact of economic recession eventually led to the realization that earlier optimism over the future of Cape Breton coal has been misguided. Thus, at the end of 2001, 34 years after its creation, CBDC is finally being shut down. (Abstract shortened by UMI.)...