New Brunswick’s IT hot tub time machine

July 19th, 2014 No comments

There is an excellent article in The Economist this week about the sometimes counterintuitive effects of infrastructure investment.  The article cited areas in China where GDP declined when they were connected to excellent highway infrastructure.   If you think beyond one level deep on this stuff you can see how this happens.  Great four-lane highways make it much easier to bring in imported goods to displace locally produced goods.  Economists might argue that in the long run this infrastructure leads to greater productivity and better overall outcomes but that is not always the case.

Think about New Brunswick.  We spent billions on four lane highways over the past 15 years and the value of our exported goods has gone down (excluding oil and gas).  Even the number of tourists has stagnated despite all the great highways.  A cynic might say the only real advantage from all those brand spanking new highways has been to the outward migrants as they drive away.

The same argument applies to broadband infrastructure.  The billions government has invested in the infrastructure has been in the name of making it easier for rural residents to participate in the wired economy.  True enough but it also makes it real easy for residents to buy products from Amazon.com displacing local retailors (the FedEx folks benefit from the shiny new highways too).

We can’t always boil problems or solutions down to one thing.  Broadband won’t solve rural economic decline and brand spanking new highways won’t arrest the decline in manufacturing.    They may be necessary but not sufficient conditions to sustain economic growth.

This was the point in my column today about the new documentary CODE KIDS airing on CBC, July 26 at 8 pm.

I talk about a speech Premier Jean Chrétien made in the mid-1990s about the Internet and his government’s investment in broadband infrastructure. He said the computer technology revolution enabled by the Internet would be the great equalizer and that communities from coast to coast would be able to use this new technology to foster strong local economies.

I then say that for Atlantic Canada, at least, it hasn’t turned out to be much of an equalizer. Since Chrétien’s speech, across Canada the population has increased by nearly six million people. Atlantic Canada, by contrast, has seen a decline in its population.

I conclude in the column that we need to put David Alston in a plutonium-powered Bricklin and zoom back to 1995 like Michael J. Fox in Back to the Future.  Alston could jump up on the platform after Chrétien’s speech and warn that we need to invest in more than the pipes.  He could make his case for introducing computer coding in our elementary and secondary schools.  If he had made this case back in 1995, think about the competitive advantage it might have been by 2014.

Upon reflection, I think we would need more folks in that Bricklin.  In fact, I think one car is not enough.  We need a hot tub time machine that holds a lot more people.  Along with Alston, we would need Trevor MacAusland or Karina LeBlanc warning that along with the pipes and the people, we need an infrastructure to support startups and Nancy Mathis to intone on the importance of mentorship.  Also in the hot tub time machine we would need Gerry Pond or Dhirendra Shukla advocating for the development of a proper capital infrastructure for IT startups.  Alongside Pond would be Calvin Milbury warning that pipes, people, incubation and capital need to be supported by significant investments in R&D and innovation.    We would need Dan Martell in the hot tub to make the case for building strong linkages been the NB IT cluster and the other established clusters from Silicon Valley to Bangalore.   Finally, we would need to crowd Louis-Phillippe Gauthier into the hot tub to go back to 1995 and ensure that people understand the importance of attracting high quality IT firms to the province to augment the startup environment.

If we want to build a strong and dynamic industry of any sort, we need to understand the different elements of a successful ecosystem and work to connect the dots.

This isn’t a plea for a heavy handed, Chinese-style government mandated industrial growth strategy.  It’s a summation of my view that successful economic development is fundamentally based on private sector investment and on efforts – from a wide variety of interested actors – to make the environment conducive for that private sector investment.

So get your bathing suits on and take a ride on the hot tub time machine back to 1995.  Imagine the depth and breadth of New Brunswick’s IT sector in 2014.

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Planes, trains and automobiles: Which one of these is not like the others?

July 16th, 2014 No comments

No sooner had the feds announced they were investing $58 million over two years to support ferry services between Saint John, NB, and Digby, NS; between Wood Islands, PEI and Caribou, NS; and between Iles-de-la-Madeleine, QC and Souris, PEI; than I got an email asking for my opinion.  Why should the government bail out these money losing ferry services?

If you search this blog you will find a number of posts over the years discussing my views on this subject.  The government spends hundreds of millions each year on roads but then many bureaucrats and pundits chafe at the idea of investing in other types of transportation infrastructure such as ferries, airports and even rail infrastructure.  Those, it seems, must be self-funded.  If there is no ‘market’ for the service, government shouldn’t ‘bail’ them out.

I believe we need to have a strategic view of our transportation infrastructure and invest accordingly.

As I have said I am not opposed to tolls on the  highways but these tolls never come close to raising enough money to fund the infrastructure.

The reality that government spends 97% (made up number but I’ll bet its close) of its transportation infrastructure on roads should be a red flag.  Air travel is key to successful modern economies.  Rail transportation can be very important to certain industries.  Ferries – where there is a clearly demonstrated need – are also important.

 

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Economic development agencies: At least a few shades of grey

July 14th, 2014 No comments

One of the meta-trends I think has been rising in force over the past decade has been the push to ram stuff into ‘right’ and ‘wrong’ or ‘good’ versus ‘evil’ categories – the rush to eliminate grey.  I see this with natural resources development and other economic development topics but also with larger policy questions.  And this trend is certainly not restricted to New Brunswick.  It is pervasive.

Let me be clear.  Protagonists and antagonists have always tried to simplify their arguments into simple binary choices but in general everybody else could see that there were various shades of grey. Now, because we are crumbling under the weight of information coming at us from all sides, we are ever more likely to rush to a quick judgement on an issue and them move on.

On this blog for a decade now we have debated and discussed the role of regional economic development agencies.  Most people  that think about these things agree there is ‘a’ role – but they rightly disagree on what that role is and what is the role of government versus the private sector, etc.

Then someone sends me an email from Tim Bousquet, Editor of the Halifax Examiner (it looks like this is Mr. Bousquet’s blog).  Mr. Bousquet says:

This morning the province released a damning 700-page audit of the Cumberland Regional Development Authority, and says it will call in the RCMP to investigate. I’ve reviewed the audit, and detail some of specifics, but I say there’s a larger point to be made: Because of the nature of the enterprise, pretty much all economic development agencies are going to be corrupt.

I’ve gone through this report – quickly – and the one in Yarmouth – and dozens of other reports over the past 20 years related to the operations and governance of regional development agencies and certainly there are examples of bad governance and outright fraud and theft – just like every other sector of the economy – public or private.

It is intellectually lazy to read the CREDA report and say something generic like “because of the nature of the enterprise, pretty much all economic development agencies are going to be corrupt”.

That is the equivalent of saying “because a few finance firms on Wall Street were corrupt, all banks are corrupt” or because certain newspaper editors are corrupt, all newspaper editors are corrupt.

The reality is that the problems with regional economic development agencies over the past 20 years have been more to do with functions and outcomes than fraud or corruption and all across the region thoughtful, local community leaders are trying to build more accountable and relevant local economic development efforts.   This kind of vitriol with not even the slightest attempt to make the argument beyond “because of the nature….” is not helpful at all.

I don’t know who Mr. Bousquet is but if he wants to be credible he should focus on facts and build a rigorous argument rather than taking one case like CREDA and intoning that every economic development effort is ‘corrupt’.  That’s just plain lazy.

Now, as for the CREDA report itself (they use the acronym CRDA), the executive summary is well worth the read.  It provides a laundry list of things a good board will do and how to have effective internal controls over an organization such as this.

I would be surprised if anyone other than Mr. Bousquet will read this and conclude that all economic development agencies are corrupt.  But they will/should read this and see a very clear example of how not to govern such an organization.

 

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Good news on the NB jobs front

July 12th, 2014 No comments

Is the employment picture finally starting to improve in New Brunswick in a substantive way?  It could be but I think it is too early to tell.  As you will see in the first chart below, total employment in June is up 5,600 in New Brunswick – a solid increase of 1.6 percent.  However, on a seasonally adjusted basis, that still only brings us back to slightly more jobs than in June 2006.  In June 2006, there were 351,400 working and in June 2014 there were 352,800 working.  In June 2010, there were 354,300 working.

You should avoid comparing October to June or November to March employment numbers – even on a seasonally adjusted basis.  Even with the smoothing there are big variances from month to month (see the chart).  So, you are still better off comparing the same month each year if you want a more accurate picture of what is going on.

2014

 

 

1992

 

 

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Free traders need something to trade

July 12th, 2014 No comments

Somebody took issue with my TJ column this morning indicating surprise that I’m against breaking down the barriers between interprovincial trade.  I asked them to read it again.  I specifically say I am not against free trade but I think this is a good time to look at how we win/lose from interprovincial trade and think about how we can bolster certain opportunities.

As you can see below, we have a $2.5 billion interprovincial trade deficit every year (this is only trade between provinces) – we import all our cars, electronics, etc. from international trade).   For most goods and services, we have a trade deficit with other provinces.  We have a surplus on wood products and refined petroleum but we have a deficit on the vast majority of services.  In fact, as I point on in the column if it wasn’t for call centres (Administrative and support services), New Brunswick would have an even more pronounced deficit in services.

I also say in the column that NS does not have nearly as bad an interprovincial trade deficit as NB so it is not an issue of size.

The point is that traders need something to trade.  If we are importing specialized financial services, we should be exporting engineering services (i.e. like the SJ oil and gas engineers).  If we are importing marketing and communications services, we should be exporting software development.

Or we can settle for exporting wood and oil and importing all our high value services.

The other point I was making is that these big deficits should be a wake up call for local service providers.  Why do we have a $481 million deficit in other finance and insurance services?  Why do we have a $1.1 billion deficit in wholesale margins?  Is that an opportunity for local firms?

Finally, I say that if we are importing hundreds of millions worth of services, we may want to look at importing the firms that go with that economic activity.  If a firm in Toronto is doing $10 million worth of business in New Brunswick, that may be enough impetus for them to set up an office here, focus on a niche market and become a service export from here.

That’s all.   I’m not anti-free trade.

Interprovincial trade position – New Brunswick (2010)


interprov

Source: Statistics Canada CANSIM Table 386-0003.

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Hello, my name is David, and I’m an intellectual orphan

July 3rd, 2014 No comments

There are a number of people that I admire – writers, pundits, professors, thinkers – folks that I take what they say very seriously.    I don’t always agree with them but I appreciate their world view and how they frame and communicate issues.

In recent years, I have come to realize that in my core area of interest – what is the best way to foster economic growth in relatively weak and peripheral jurisdictions within advanced economies, there are very few big brains working to solve the challenge.

Donald Savoie is one exception of course.  He is a big brain and he has tackled this subject but he is an intellectual packrat – delving into areas that pique his interest.  He has only written 2-3 books that were serious attempts at addressing mycore area of interest.

Part of the problem is one of scope.  The problems of Wyoming or New Brunswick are small potatoes compared to the big issues of urban growth.

The second issue is that most people hear the topic “foster economic growth in relatively weak and peripheral jurisdictions” and automatically think “big government intervention”.   In fact, my work is fundamentally premised on sustainable, private sector-led economic growth.   Of course there are things that governments can do to help foster a positive investment environment but to think that economic development in a place like New Brunswick must involve government distorting markets makes no sense.

The other issue that concerns me is that I don’t have any intellectual giants in my circle that push my thought to new frontiers.   This is not a small thing.  I read 10-15 biographies per year and all of the really interesting people that I read about had personal mentors or people of influence in their lives pushing them.

In summary, I’m an intellectual orphan.  There are few big brains nationally or internationally looking at the thing that absorbs my thinking on a daily basis and there are few people directly in my network that are challenging my view of the world.

I’m not even sure why I wrote this blog.  It’s a bit off the beaten track.  I have built some expertise and have a pretty good consulting practice around the subject of regional economic development.  The topic has served me will but I still come back to that chart showing New Brunswick’s stagnation really started about the time I came back to New Brunswick in 1992 (at least that is the timeframe for the start of the population stagnation).

I’m not suggesting I had anything to do with that stagnation.  In fact, I have one immigrant and three kids added to the total.  But it is a simple truth that I have written over 3,000 blogs, over 1,200 columns and articles and hundreds of reports over 20+ years and you could easily make the case that not much has fundamentally changed in those two decades.  Sure, we have made some gains in household income levels and the employment rate is up fairly strongly in that timeframe.  But Canada added 7.2 million people from 1992 to 2013.  New Brunswick added a few thousand.

Now we are faced with some big challenges but there isn’t much public appetite for change.   The politician who went door-to-door in rural New Brunswick and was told “we just want to be left alone” is a pretty apt metaphor.

So, calling all intellectual giants.  Bring a little of your thinking to our little neck of the woods.

 

 

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Transforming New Brunswick one young leader at a time: The role of 21Inc.

June 27th, 2014 No comments

From a recent column in the TJ:

The 18th Century German writer and statesman Johann Wolfgang von Goethe once wrote “the destiny of any nation, at any given time, depends on the opinions of its young men”.

A decade or so ago, a few visionaries such as John McLaughlin, past president of the University of New Brunswick, had a collective light bulb moment. They realized that if this province was ever to fundamentally change its destiny, it would need to focus more on youth leadership. If the destiny of New Brunswick was in their hands, we had an opportunity to shape them and in doing so shape our destiny.

In 2014, New Brunswick boasts a growing infrastructure mandated to support and mentor young leaders across the province and beyond. The Wallace McCain Institute at the University of New Brunswick targets high potential young entrepreneurs with a variety of leadership programs. Organizations such as PropelICT and Planet Hatch help young entrepreneurs transform good ideas into ambitious startup companies.

Another strategic young leaders program is 21inc. Launched in 2007, 21inc. was set up to provide an opportunity for high impact young people in Atlantic Canada to foster leadership skills, expand networks, engage with their local communities and help them achieve their career goals. The 21inc. leadership experiences is meant to provide participants with the tools, networks and confidence to become effective 21st Century leaders.

21inc. started in New Brunswick and has now grown to encompass all four Atlantic Provinces. It has also evolved as a platform for two other strategic youth leadership events: The 21inc. Ideas Festival and the Emerging Leaders Summit.

I recently had the opportunity to work with 21inc. on an alumni survey to evaluate the impact of the program across Atlantic Canada. Over one hundred 21inc. alumni filled out the survey and the findings highlight a portrait of impact, community engagement and ambitious entrepreneurship.

The 21inc. alumni are building successful careers. There are five times as many of them earning $100,000 or more per year compared to the population in that age group as a whole across Atlantic Canada.

However, the alumni are not exclusively in corporate environments. Over 40 per cent of them are employed in social enterprises, education or government.

They are locally based but globally connected. More than a third of them do at least some work in international markets. Of the entrepreneurs in the group, 65 per cent of their firms serve markets outside their home province.

The 21inc. alumni are embedded in their communities. Seventy-five per cent of them active on at least one volunteer board or committee and there are 16 super-volunteers active on at least four boards or committees. When asked to comment on the benefits of the 21inc. program, one of the top responses was that it helped them expand their perceived role in their local communities.

One of the most exciting attributes of the 21inc alumni is their entrepreneurial spirit. Forty-one of the survey respondents founded one or more businesses or social enterprises. In total, the forty 21inc. alumni-founded entrepreneurial ventures located in Atlantic Canada employ 475 people and generate an estimated $74 million worth of annual revenue.

While most of the startup firms are relatively new, the ones that have been in business for several years reported an annual average revenue growth rate of over 100 per cent per year.

We need some of our ambitious young people to raise up the entrepreneurial banner. Only 4.6 out of every 100 workers in the age group 25-34 in New Brunswick are self-employed. This is the second lowest self-employment rate in Canada among the 10 provinces.

Goethe was wrong about one thing. Nearly half of all 21inc. alumni across Atlantic Canada are women including the organization’s dynamic Executive Director, Nadine Duguay.

Herself a 21inc. alumnus, Duguay has a vision to expand the reach of 21inc. even further while creating a stable, long term financial model for the organization. She also hopes to strengthen the network effect arising from the interaction of the 200+ alumni across the region.

McLaughlin and others lit the fire. It’s now starting to burn across Atlantic Canada.

I am hopeful this emerging generation of leaders will not settle for the results of the past. I trust they will envision a dynamic and growing region full of ambitious entrepreneurs that is attracting immigrants and investment from around the world.

 

David Campbell
davidwcampbell.com
An economic development consultant based in Moncton

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The sources of community pride: Three recent examples

June 21st, 2014 No comments

Many people will say they are proud of their community or province or country for very specific reasons but it is rare to see almost universal pride over anything.  One guy who watched Paul Henderson score in the 1972 Summit series talked about how people pulled their cars off the road and got out and hugged each other.

I have witnessed three recent examples of this kind of pride of place.  The first involves Brazilians and soccer.  I got married in 1994 to a Brazilian a couple of days before the World Cup final.  Her family and I watched the final match against Italy in my little Fredericton apartment on Biggs Street.  They were overcome with emotion – so much so that my brother-in-law had to leave watching the game in overtime and he went out on the street and cried.  When it came to the penalty kicks, my father-in-law also vacated the premises leaving my mother-in-law to shout out the scoring from the apartment window.  After the final penalty kick and the Brazilian victory, there was an overflow of emotion like I had never seen.

I saw a pretty similar version of this recently in Moncton.  People were stopping police officers on the street to give them hugs.  There was a massive makeshift memorial.  7,000 people joined a run to show their support.  It was visceral and highly emotional.

The third example was more isolated but an interesting example.  A young lady 20-something from Saskatchewan came to New Brunswick a couple of years ago as part of group and was asked to speak briefly on the economic resurgence of Saskatchewan.  Her voice wavered and she was emotional talking about the province’s revival – about young people moving back, about immigrants flocking in.  She was very specific about the role of natural resources development in her province’s economic revival.  She didn’t equivocate.  She didn’t parse words.   She was very clear – oil, potash, uranium, etc. had helped the province get back its sense of pride.

Obviously this third example is different than the first two.  There were no massive displays of emotion in Saskatchewan when big industrial companies announced they would be investing billions in the province.  No one set up makeshift shrines in honor of industry.  But I have talked to dozens of folks in that province and they have been changed as province – I suspect you could find some folks who don’t like all the new immigration.  Others who dislike resource development.  No doubt.  But overall the province is a very positive place – as evidenced by the sky high approval of their Premier.

I just find the concept of community pride interesting.  Brazil has lots of problems but this one relatively trivial thing – kicking a ball around – can bring them together more than any politician or celebrity ever could.   The events in Moncton unlocked emotion and love of community that many probably never knew was there in the first place.

I go around Atlantic Canada and talk about people fighting for their communities – it mostly falls flat.  The idea of promoting business and big, evil corporations doesn’t lend itself to outbursts of positive emotion (in fact in many cases quite the opposite).  But the economic foundation – that most of us take for granted – doesn’t just happen.  The weakness of the NB economy over the past six years didn’t just happen.  We can and should do better.

But it’s a weak message.  I suspect it will be a very long time indeed before a young 20 something New Brunswicker goes out to Saskatchewan and makes a speech about how proud they are of the NB economy resurgence.

 

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Instanbul’s not Constantinople: Focused economic development is not industrial policy

June 20th, 2014 No comments

People seem to confuse my thinking about economic development.  I get the charge that I am advocating ‘picking winners’ or old school ‘industrial policy’ that are ‘known to be a complete failure’, etc.

Sometimes people see what they want to see when they read my writing.  That’s fair – I guess that is what happens with all writing.

So in the interest in absolute clarity, here is my view.

First, old school industrial policy as the term has been used refers to governments using tariffs, large subsidies, big contracts and limited competition to allow industrial champions and sectors to emerge.  This was fairly common in the 50s and 60s but its roots go back to the 19th Century when steel fabrication and other big industries in North America were getting started and were undercut by British producers.  The argument was that we need to see a local industry take root so we put huge barriers on the imported goods.

I am certainly not advocating that.

In my view, focusing economic development around potential opportunities is no different than a business doing the same thing.   In my view, in Atlantic Canada we have structured economic development mostly around programs for certain kinds of businesses (mostly funding program by government).

By contrast, I would put folks in a room and have them work on opportunities – where goals can be identified and progress can be tracked and where there is accountability for results and results are more business investment, more jobs and more tax revenue for governments.  I advocate a team-based approach to economic development at the provincial or regional level supported by a strong team of professionals in local communities.

These teams can be made up of private sector and public sector people – dedicated seconded staff – they need the tools to do their job (think PEI Bioalliance or PropelICT) and it doesn’t have to be all public sector funding.  In fact, there would be more legitimacy if there was private sector funding support – although the revenue model can get complicated).  The revenue model for the public sector investment should be straight forward.  I put in $$ in tax dollars and I get $$$ worth of incremental tax dollars.

To me this is not industrial policy – by any stretch.  It’s what I call opportunities based economic development and it is building on perceived strengths – industrial Internet in Fredericton, energy in Saint John, gaming in Moncton.   It doesn’t preclude working on other sectors and it doesn’t exclude any projects that make sense for the community and its strategy.

At a core level, we need to elevate the size of the economic pie in this region.  That means more investment, more entrepreneurship, more immigration.  Saying we shouldn’t be ‘focused’ because we might ‘exclude opportunities’ or we might ‘favour one industry over another’ makes no sense to me.  If we have strengths – geographic, natural resource, industrial, workforce, educational, supply chain, etc. why wouldn’t we want to leverage those for additional opportunity?

Now, when you get into specific actions – you have to think about consequences.  So advocating a huge tax cut – targeted or not – needs to be thought through.  Where we strategically invest public sector R&D spending needs to be thought through, etc.

In the end, when you look at successful economies around the world, they have a few key sectors that are the main economic base.  The role of government to foster growth in those sectors should not be heavy-handed (i.e. big tariffs or other market distorting interventions) but it can fine tune existing efforts to support development (education, R&D, infrastructure, etc.).

Of course, the biggest reaction to my approach is that the private sector in New Brunswick is not interested.   Some people think the private sector only wants government as a bank and that is all.  This may or may not be true – I have seem mixed results in my work – but in the end leadership has to come from somewhere.  If the private sector doesn’t want to pursue an opportunities-based model, then maybe the public sector will have to lead the way.

 

 

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On population growth, fiscal stability and quality of life

June 19th, 2014 No comments

I had an excellent conversation with a gentleman yesterday who was pretty vigorous in his view that I shouldn’t be talking about Saskatchewan – contrasting the economic situation out there to New Brunswick.  We need to get used to very low growth in this province, he said.  Why are we obsessed with growth?

I am hearing this more and more lately so I will just make a simple point on this.  Whether you agree with me or not, I have studied this as much as anyone in New Brunswick over the past 15-20 years and in my considered opinion, New Brunswick needs at least a moderate level of GDP growth and population growth (younger imports) in order to have a stable fiscal situation over the next 20 years.  We may not need to grow like Saskatchewan or Alberta but the current path we are on – I don’t see how it is sustainable without a radically reduced set of expectations around health care, education, etc.

I know we live in Canada and I know all about the principle of equalization.  I also know reality.  We are looking at 20 years of pretty tough slogging if we can’t find a way to get the economy moving again.
nbskcapex
Q22014pop

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