Video games and economic development

There is an excellent article on the front page of the NY Times on the rise of these multi-player video games as a spectator sport.  From the article:

The video game Dota 2, like so many across the Internet, transports teams of players from their bedrooms to a verdant virtual world where they smite each other through keyboard and mouse clicks. Except on this sunny day in July, every attack and counterattack by a five-person team set off an eruption of cheers — from the more than 11,000 spectators crammed into this city’s basketball arena.

The contestants were gunning for a big piece of the $11 million in total prize money, the most ever at a games tournament. And the game’s developer, the Valve Corporation, moved another step closer to securing gaming’s legitimacy as a major-league spectator sport.

Theoretically a place like Moncton could be a centre for this type of entertainment pulling folks from across the Maritimes.  But it would be rare for New Brunswick to get out front of a trend like this.  It is more likely if this takes root it will start in Halifax and may eventually work its way up to New Brunswick.

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Was the New Brunswick journalist crap-o-meter broken last week?

Around the time of elections going back to 1999, I have been asked to provide input into various economic development-related party platforms and campaign ideas. In this election cycle, I was asked by the Liberals to conduct an independent economic assessment of several of the campaign’s proposed initiatives. The impact was estimated using Statistics Canada input-output multipliers and related CANSIM tables.

Anyone who follows this blog or reads my column or talks to me directly knows I support the Progressive Conservatives’ position on shale gas development. In addition, while like most people I struggle with the extent of austerity measures I think Blaine Higgs has done a fairly good job over at Finance. I have made very positive remarks about Dominic Cardy over the past six months on this blog and in my column.

I also like some of the ideas proposed by the Liberals. I think the idea to show the economic impact of their spending initiatives is an important contribution by the Liberals because they are showing the cost of their campaign promises but also letting people know the potential economic impacts.

Now the politicians need to have a fair and open debate about public spending and criticizing the $150 million spend on infrastructure is fair game. In an age of budget deficits and weak economic growth, the voters need to know where and how the various parties will spend the taxpayers’ money.

But ‘fair’ is a term that needs to be interpreted by journalists. The public relies on journalists to put claims and proposals into context. I think there was a failure this week by journalists to properly set the $150 million spending per year in context.

First, to the spending itself. We know that total provincial government capital expenditures in 2013-2014 were $448.5 million and are budgeted to be $555.2 million in 2014-2015. This is 39% below the average annual capital expenditures between the 2010-2011 and 2012-2013 budgets. The $150 million proposed by the Liberal would only bring spending back up to a level below the average for those three years.

Again this level of spending can and should be open for debate but journalists are the translators – the interpreters for the public. For example, does the public realize the provincial government has spent on average around $690 million per year on capital expenditures and the Liberal proposal would bring spending in 2015 back to a level below that average?

Sure it is certainly important to debate that. Maybe the government should cut capital spending further. Maybe it should drop to $400 million or $300 million. But that, too, would need justification and scrutiny by journalists.

But the strangest aspect of this story that was passed on almost completely by journalists was Dominic Cardy’s linking of the Liberal plan to boost spending on public infrastructure – schools, roads, bridges, etc. to Atcon. For effect, Cardy broke it down like this:

“It doesn’t make any sense. The province cannot afford this.” “It’s completely unacceptable that the vision for our province would be so poor, so feeble, that the best that we can hope for from our governments is subsidies for people so they can take part-time work for a few years so they can get on EI,” Cardy said. “Mr. Gallant’s suggestion this week is one of the most irresponsible things I’ve seen in my time politics.”

Now Mr. Cardy is free to say anything he likes. He could compare the spring flood on the St. John River to the great flood of Noah. It is the role of the journalist to put that into perspective for the public.

In what way is $150 million spent on public infrastructure comparable to Atcon? Would he get away with that statement if the Liberals were proposing to boost health care or education spending by $150 million?

Without journalists, how do we get perspective?

The only way – and the connective tissue is very loose – to connect the $150 million to Atcon is to say they were both bad decisions. But by that standard you could compare the $150 million to the assassination of Archduke Ferdinand or the war on Iraq. If a politician did that, surely journalists would not be happy.

Instead of journalists calling out the NDP for the strange comparison between public spending on roads and Atcon, they think it was a master stroke. At least, STU journalism prof Michael Camp thinks so. Although the piece is a political commentary not an article, it is clear he doesn’t feel the need to set any context either.  He praises Cardy’s use of this kind of analogy.

The final thing I would say is that politicians and journalists risk a lot by allow this kind of amped up rhetoric to go unchecked.

Cardy saying that a moderate increase in spending on public infrastructure was “one of the most irresponsible things I’ve seen in my time politics” ends up diluting the impact when he speaks about any serious issues. It’s like the boy who cried wolf. If a moderate increase in public spending on infrastructure sets a new low for irresponsibility what terms will he use when some serious issue – fraud, theft, bribery – Gomery – Rob Ford –  comes along?

Great journalists have a very sensitive nose.   They can smell b.s. coming a mile away.  Cardy’s comments should have set the crap-o-meter over the top.

 PS – I don’t read every single story or blog or commentary in the NB media.  If anyone can point me to a story where a journalist questions the use of Cardy’s Atcon analogy, post it here.  Thanks.

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Three cheers for free trade! Now let me see, do I actually have anything to trade?

Some of the Premiers – mostly the western Premiers – are pushing for more free trade between the provinces.  It’s outrageous we are told that it is easier to trade  with some other countries than between provinces.

I’m a believer in free trade.  Absolutely.  If you read Jarrod Diamond’s stuff he talks about how trade brought about the modern economy – coastal tribes traded fish for arrow heads with inland tribes.

But I always come back to this issue of mutual benefit. If only one party benefits from free trade, it could become unstable.

New Brunswick already has a $2.5 billion interprovincial trade deficit and if you took petroleum products out of the mix it would be billions more.  That means the GDP, jobs and tax benefits are skewed against us (I suspect some economists would argue this point).

I’m just saying that provinces like NB need to sharpen their pencils and think about how we could benefit from freer trade between the provinces.

Take the issue of government procurement.  The free traders would like zero restrictions.   If it costs one dollar less to buy a product or service from another province, that’s what provincial governments and agencies should be obliged to do.

But I allow some wiggle room for economic benefit.  If a company will do the work in New Brunswick for $1million and the guy outside NB will only charge $900k I might still go with the $1M guy because he is generated $150k in taxes within NB making the net cost to government -$50k.   In addition, some of the larger government service providers have been dangling more export-based jobs in return for favorable treatment (think IBM in Nova Scotia).

Now the purists will decry my perversion of Adam Smith but think about this logically.  It happens all the time in the private sector.  The legal firm for Apple could get Samsung phones for 10% less than iPhones but as a gesture of goodwill they pay the premium for iPhones.  Do the Smithians cry bloody murder?  No.  That is part of doing business.

The same with government procurement.

Now, there are absolutely limits.  We should never pay $2 million to a local provider when some external firm would charge $1 million.  We don’t want to use a local software developer in the place of Windows.    That kind of industrial policy doesn’t create champions – it creates losers.

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Who is telling the little, white lies?

We love to scrutinize the pols to see who is telling the truth and who, shall we say, is not telling the truth.  The media has ‘fact check’ initiatives.  The parties accuse each other of falsehoods.

I accuse us of telling little, white lies.

The latest poll out today (from the TJ online):

Job creation and the economy are by far the top issues in the campaign, according to the poll. A wide margin of respondents, 39 per cent, cited jobs/employment/unemployment as the dominant issue while an additional 18 per cent cited the economy. Health care came next among issues at 13 per cent while natural gas development and fracking was indicated by five per cent of voters. The debt and deficit also garnered five per cent of the mentions. Pensions were mentioned by only one per cent of respondents.

I’ve written about this before.  How many people do you know that will vote for the party that they think will be best on the jobs/employment/unemployment front?  Will you?

I think we tell pollsters the economy is our biggest issue and then we vote based on anything but.

It’s just a theory.  I have no real proof other than anecdote and hunch.

I may be wrong.  Maybe New Brunswickers really do care that the number of employed in the province was the same in July 2014 as way back in July 2004.

My colleague Richard Saillant will be bummed debt and deficit only got 5% of the mentions.

One of the problems is that jobs/employment/unemployment is an abstract concept.  Politician A says “we will create jobs”.  Politician B says “we will create more jobs” and Politician C says “we will create even more jobs”.

Tangible things that make voters angry?  Wait times.  Lack of nursing home beds.  Fracking.  Moving high schools 11 kms down the road.  Or how about I just don’t like that gal/guy?

I would be very, very surprised if more than a few voters actually sat around the kitchen table and said “which politician has the best economic development plan”?

In a historical context, the economy was never stronger than in 2003 and 2006 and Old Bernie nearly got creamed in 2003 and did get creamed in 2006.  If the economy was the most important issue, why?

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Let the games begin: Campbell versus Bruce Round One

Alec Bruce is one of my favourite NB writers on public policy issues.  He has been skewering politicians and bad ideas for over 20 years - part Fotheringham – part Wells – all relevant to our public debate.

But in his latest screed, he says:

Still, for now, stop talking about strategy. New Brunswickers have 30 days to make up their minds (if they haven’t already) about whom they’ll tolerate in elected office. The youthful and grizzled, alike, want to know what, precisely, are the tactics involved in the job creation juggernauts of this and, indeed, all political parties in this province.

This comes one day after I wrote this in the TJ:

But this election calls for more of a focus on the big picture. The question you should be asking the candidates as they come to your door should be: where do you want to take this province?

Who is right?  The estimable Alec Bruce or the upstart challenger Campbell?  Strategy or tactics?

I’m convinced that in the 2014 election, we need to have leaders emerge that understand the serious strategic problems of a stagnant economy, a rapidly declining population under the age of 55 (down 15% in 20 years) and a province that is the second oldest in the country.  Instead of collectively looking forward to a bright and growing future we seem to be hunkering down and waiting to spend five months a year in Florida.

If the prospective Premiers – Alward, Gallant or the wanna-be-king maker Cardy – don’t have a clear strategic understanding of these underlying challenges, we will get another round of tactics – think Benard Lord’s 200 days of change and the promise to put more pencils in NB classrooms – while ignoring the iceberg we have been grounded on for the last decade.

I understand Bruce’s frustration.  He wants clear and decipherable plans for job creation.  But if they don’t get the strategic realities right, we’ll be back here in four years still arguing the same things.

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Curious: CFIB election priorities do not include economic growth

It’s a bit counterintuitive that the CFIB’s six focus areas for the NB provincial election do not include anything about growth – economic growth, population growth, nothing. The six are:

1. Improving tax competitiveness
2. Reducing “red tape”
3. Achieving long-term fiscal sustainability
4. Improving local governance
5. Enhancing productivity, skills, and training
6. Stabilizing and lowering electricity costs

Maybe I am missing something but it seems to me the average CFIB member might put growth of the economy ahead of electricity costs.   If New Brunswick’s GDP had grown by a modest 2% per year between 2008 and 2013 it would have added another $3.3 billion to the GDP (compared to what really happened).  This $3.3 billion would have resulted in hundreds of millions per year in new revenue to New Brunswick’s SMEs.  Still think local governance is more important?

Who knows.  Maybe the CFIB doesn’t think the government can influence population or economic growth.  Maybe they see it as a side effect of reducing red tape.  Not sure.

I would be surprised if you asked NB SMEs would they rather have growing local markets or less red tape – I suspect the answer would be growing local markets.

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Voodoo job creation schemes: NDP edition

I have said before that I am a fan of Dominic Cardy.  He is a sharp guy.  Cut his teeth outside NB (always a good thing) and speaks with authority about his ideas.

But I worry he falls into the same old trap when it comes to government job creation efforts.

In the NDP plan, Cardy would scrap the Department of Economic Development and “introduce a New Jobs Tax Credit which economists predict will create 15,000 and 20,000 jobs in our first term”.  This pledge will cost $29.3 million per year for four years.

I’m not sure what economists predicted that but it seems a little fishy.  If $29.3 million/year gets you 20,000 jobs why not double it to $58 million and get 40,000 jobs?  No government in history has ever witnessed 40k new jobs in one term.  It would be a miracle.  All for less than what is currently spent by the Department of Economic Development.

The problem is that the Department of Economic Development already spends more than $29.3 million per year mostly as grants to small and medium sized businesses to convince them to create jobs.

What will be different under the NDP?

My fear is that a lot of government funding to companies is mostly just substituting for private market funding.  Some may not but many firms will say government money is to be had for much better terms than the private market so why not take it?

The other point is that if a job creation scheme such as proposed by the NDP is available to all firms, it could just end up distorting the playing field for local market economic activity.  If you give Firm X a grant and you do not give Firm Y a grant and they both are primarily generating business only in New Brunswick, you are just giving Firm X a leg up on Firm Y as they compete for local business.

This is why the vast majority of government funding programs are for exporters – with the notable exception of the CBDCs – to avoid using government money to give some firms preferential advantages over others in the local market.

Now the Cardy job grant plan may only be targeted to exporters.  I’m not sure.

Or they may think that giving NB firms job grants will help them compete against the big, evil multinationals but if it is not tied to growing the size of the economic pie, it is still just chopping up the local market in a different way and it is hard to see how it will lead to much net new economic growth.

In the end, we need to hear how each of the parties plans to grow the GDP.  The real NB GDP is about $30 billion today and to get to a solid growth rate of about 3% per year the GDP has to grow by about $900 million per year.  What’s the strategy to stimulate private sector investment, stimulate incremental consumer spending or federal transfers to reach $900 million?

Waiting for the pols to tell us.

 

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Truth in economic impact advertising

An organization called Resource Works tweeted today the image below.  I thought I would post it as an example of what not to do when messaging the economic value of a sector such as forest products.  The graphic says “Last year, the forestry sector contributed $5.9 billion to BC’s GDP.”  “That is equivalent to the salaries of 54,000 family doctors.”
Trouble is that doctors don’t get paid with GDP, they get paid with tax dollars.  This seems to be a way to take advantage of peoples’ lack of understanding (what is GDP).  This would be much more powerful if it was tied to tax dollars.  “Last year the forestry sector contributed over one billion dollars in taxes and royalties – which is enough to pay for the salaries of 9,000 family doctors”. Sure 9,000 is a much smaller number than 54,000 but if we want to have an honest conversation about the value of key industries we shouldn’t try and hoodwink people.
Saying that $5.9 billion is the same as 54,000 doctors is the same as saying $5.9 billion is equivalent to 15% of the provincial government revenues – loosely implying that the $5.9 billion is government revenue. It implies something that isn’t true.

BrAYN2OCAAEsQEr

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Should we tax the rich to help reduce the deficit?

Tax policy in New Brunswick is always interesting.   Because the New Brunswick economy is weaker than most, we have to carve off a greater share of our GDP to pay for public services.  These day’s provincial government spending is roughly equivalent to 24% of provincial GDP.  That is higher than all other provinces except PEI.

But what’s a poor government to do?  The feds are squeezing transfers.  The economy isn’t growing.  The masses are fighting against natural gas development which might bring in some of those royalty revenues that engorge the AB, SK and NL governments.

So we come to tax increases realizing that we already tax the economy more than all other provinces except PEI.

So where is the low hanging fruit?  The Libs are proposing an increased income tax rate for those folks earning $150k and up.  They expect it to bring in a modest $28.7 million in new revenue (or about $4,400 per Richie Rich).

Is this a good idea?  Sorry to say I won’t answer that question directly as I’m not sure myself but there are a few points for consideration.

First, there are only about 6,600 NBers that earn more than $150,000 per year.  That is only 1.1% of income earners in the province.  And the Liberal realize that many of these earners are what I would call a ‘captive’ audience.  They include senior public servants, doctors, lawyers and others that really can’t pick up and move – or if they did they would face a similar high tax rate in NS, PE, QC or if they moved to BC, AB or ON they would face the tax-housing cost arbitrage problem.   I guess they could move to Newfoundland and Labrador which still has relatively reasonable housing costs and a low top tax rate.

I’m a little more nervous about the non-captive market – senior managers in the big firms, etc.  It will make it harder for firms to recruit in leadership earning over $150k but hopefully they will also milk the tax-housing cost arbitrage issue.

The other segment of the $150k+ folks (a.k.a. the ‘rich’) tend to be successful entrepreneurs.  That is a group that all governments tend to romanticize and they will  not be happy with this tax increase.  I have no way of knowing how many there are but it is likely a couple of thousand people.  Business owners have ways of sheltering income but ultimately if they take it out as income they will face the higher  rate.

I have discussed this issue for some time with economists and other policy analysts.  When Victor Boudreau cut the top tax rate back in his time (seems like a long time ago, doesn’t  it?) I made the same argument that it would most benefit those in the ‘captive’ market but my colleagues were more concerned with the entrepreneurs and highly mobile professional workforce.  Some of them saw it as a long term drag on the knowledge economy.

But it does comes back to the issue of choices. As stated above, NBers earning middle and upper income face among the highest tax rates in the country but people still expect a certain quality of public services and infrastructure.

What would you do?  As I have written about before, New Brunswick already spends less than SK, MB, PE and NL per capita on public services and similar to AB, NS and BC.  Because of our lack of urban scale and rapidly aging population it is hard to see that there is significant room for dramatic spending cuts without impacting services.  If you introduce more “user pay” it becomes a tax by another name.

Folks like me argue for an aggressive pro-growth agenda but that is a longer term proposition.  In the short term governments do have to grapple with the cost side and the tax side.  We did get a boost from the Feds this year but I’m not sure if that will be replicated in the coming years (particularly with all the griping out of Ontario).

 

 

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Attracting Amazon women, and men, of course

I have read several articles recent about the increasing number of big e-commerce fulfillment centres popping up all across North America. In fact, this is becoming a serious real estate trend. Amazon.com alone has invested $14 billion in them since 2010.

Someone should be trying to attract this sector to New Brunswick – particularly Moncton.  I know the Maritimes population is stagnant and aging but there is still something like 1.8 million living in the three provinces.  Anyway, as online shopping starts to really take off we need to be thinking about how it impacts regional economic development.

Attracting the big fulfilment centres is one opportunity. Attracting back office and corporate support is another.  There should be potential for start-ups both on the product side and on the services side.

Someone in New Brunswick (a guy named Kevin Bulmer) spotted the 1-800 trend back in the late 1980s and that led to a pretty good story for New Brunswick.   Someone should call, tweet, poke or something – Jeff Bezos or whomever runs  his shop in Canada.

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