It’s The Economy, Stupid

I used to think that politicians shouldn’t spend too much time worrying about their legacy and, in fact, when I would mention this to the few that I have known over the years they would say something rhetorical like “I’m just doing the people’s business and I will let the legacy thing take care of itself”.

But reflecting on Romeo Leblanc this week, I am reminded of my evolving position on this issue.  I now believe that politicians (and other leaders) should be very concerned about their legacy and from day one should be working towards building it.

It seems to me that if a person has their legacy in mind they will be focused on the bigger picture.  On achieving something that will last through time.  Of not being one of those Premiers or Cabinet Ministers or business leaders that just fades into history.

I think the “people’s business” all too often becomes about signing cheques and making sure the day to day stuff gets done.  But what is really needed is for leaders to step up and address the big issues of the day be that war or economic crisis or some serious social justice issue.

In New Brunswick these days our leaders should be focused on legacy.  Will this be the generation of leaders that turns NB around or not?

As one example, in 50 years will they rename the Moncton airport the Shawn Graham International Airport?  Will the four lane highway from Moncton to Campbellton to connect the booming south to the emerging north be the Graham Memorial Highway?

Or will he leave government in relative obscurity, go on to run an industry association and become a footnote among the history of New Brunswick politicians?

Obviously, I am joking in the sense I don’t expect a Premier to think about having his or her name on a building somewhere in 50 years but I do expect him or her to clearly see the big challenges of the day and try to wrestle them to the ground.

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Browsing through the local bookstore here is Sao Paulo today and randomly came across Michael Ignatieff’s Blood and Belonging.  Looked for Stephen Harper’s book…..

I bought it.  I didn’t have much interest in the past but figured this was some kind of ‘moment’. 

I read the few 20 pages or so.  I have to say I am starting to understand why he has become such a parser of words.  When you have written thousands of pages in books and articles - much of it on fairly controversial topics - as a politician you have to run every comment through this massive library in your mind to make sure you aren’t serving up some contradictory statement to a position you held 15-25 years ago.  It must be tiring.

I talked with a guy one tim who was conducting a fairly detailed search to try and find PM Harper’s graduate thesis to try and figure out the non-political person.

I am sure that all of Ignatieff’s writings will be cut up and served up in bite sized, out of context pieces to shock the populace come election time.

I don’t care too much for that stuff.  I have over 3,500 pages of my writing into this blog on a vast list of topics.  It is likely I have changed my mind on certain issues 3-4 times.   People that think tend to be those that have the ability to change their mind in light of new information.

But that seems to be a bit of a liability in politics.

I’ll let you know if I like the book.

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Here’s a slightly modified version of a recent blog published on The Mark.

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The TJ outlines their recommendations for a makeover of BNB.  I would offer one more piece of humble advice to the new Minister of BNB.

I think it is time for a retrospective audit of economic development outcomes in New Brunswick.  I don’t think this would be extremely difficult to do depending on how wide you cast the net (scope).

The idea is simple.  Look at all the agencies that are funded by government that have as a primary mandate economic development.  Think BNB, Enterprise Agencies, Innovation Foundation, IRAP, certain RDC programs, etc. (not to mention the federal organizations ACOA, Industry Canada, IRAP, CBDCs, etc.).  Do an audit of every single company that has received support (funding or otherwise) and conduct a simple ROI on the government economic development efforts.

The provincial government alone has spent easily over a billion dollars over the past 10 years directly on economic development (not including loans/loan guarantees and other funds it expects to get back).  The exact number would be easy to calculate.

You then conduct a full survey of all the companies that have recieved support to try and determine how many jobs, at what wages and how much tax revenue has been generated as a result of the government support (this is fairly easy to estimate if you ask the right questions).  That number over the 10 years should be far more than one billion dollars (or whatever the total spent was) or the economic development effort did not generate a positive return on investment.

Economic development is about the only government spending that can and should be tied directly to a tax generation ROI. 

There are those that say that tax generation lags economic develpoment effort (i.e. today’s efforts payoff in three years).  Fine.  Then add a lag time to your model.  There are others that say what about all the good work that doesn’t directly lead to new tax revenue (retention efforts, general promotion efforts, etc.). 

That doesn’t cut the mustard.  Even if you believe that things like retention are economic development, over time economic development spending by government must lead to a positive return on that investment or what is the point?

Then, after doing the first retrospective audit, I would conduct an annual survey of all companies touched by all economic development agencies in the province each year.  This might cost, on the outside $50k per year but it would be well worth it.  The IDA in Ireland tracks all of its companies and provides an updated total on job creation, taxes generated, etc. each year.  That is what we need because remember, the jobs created at UPS back in 1994 are still generating tax revenue for government.  For me, that is fair game to claim on an annual basis.  We need a rolling total.

This would achieve at least three powerful results:

1. It would shine a light directly on the system as a whole and help government understand if it is even working at all.  Because it is hard to deconstruct the component parts, a system-wide view would be the ultimate measure of success.

2. I think it would show what companies (or more accurately what type of companies) use government support to truly grow and what companies (or more accurately what type of companies) use government support to fund daily operations.  I have said here before that there are number of companies in the province that have been accessing various government funding programs for 20 years but are still about the same size they were 20 years ago.  We need to use government support as a catalyst for growth - not to help specific companies get through a cash flow crisis.

2.  It would clearly define deliverables for the leadership in these economic development groups.  If the heads of these organizations know that they will be held to that simple standard (for every million spent on economic development, we expect $1.5 million in new tax revenue) they would be laser focused on generating more tax revenue.

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I’m convinced more than ever in the importance of good economic development policy and efforts.  Brazil is one huge test market for such things and some have been successful and some have failed spectacularly.

The fundamentals are the fundamentals.  Education matters.  Transportation and communications infrastructure matters.  The rule of law and good government matters. 

Beyond that, there are basically only two ways that places like New Brunswick can be economically successful (defined as moderate population growth and that generate enough own source tax revenue to pay for government services).  Either you hit oil or some other high royalty natural resource and you milk that (i.e. Alberta, Saskatchewan and Newfoundland) or you create through good economic development policy and efforts the means by which it is attractive for other non-location specific industries to grow and thrive.  This is the Ontario way.  That province generates very little from natural resources relative to its overall budget.  It generates massive tax revenue and wealth from non-location specific industries such as auto manufacturing, aerospace, ICT, pharma/biotech, film/animation, head offices, etc.  None of these industries have any natural reason to be in Ontario.  They are there because over time it became a great place to be.

That must be New Brunswick’s path.  I have chatted with folks involved in the early stages of a number of Ontario’s growth industries and I continue to be amazed at how much government was involved.  Through direct grants and tax incentives through to R&D funding onto targeted industry specific workforce development efforts, Ontario has been a model for government-supported economic development.  Going back to C.D. Howe and before.

But now we are told by the experts that New Brunswick should cut taxes, cut regulation and cross our fingers.

I don’t agree.  That is not how Alabama built its auto mobile manufacturing sector from nothing to over 100,000 direct and indirect jobs in 20 years.  That is not how British Columbia built one of the most successful film/animation clusters in North America and it will not be a recipe for economic development success in New Brunswick.

10,000 kms away from New Brunswick but never far from thinking about economic development.

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The NB Securities Commission has a survey they would like interested folks to fill out on investor information in New Brunswick.  I think this is important and if you are interested in such things, I encourage you to fill it out.

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Premier Shawn Graham has decided to save money rather than replace the provincial government’s representative in Ottawa.  Cutting the Ottawa office will save $150,000 a year, the cost of rent, phone, supplies and salary and expenses. New Brunswick had shared space in a downtown office tower with the representative for Manitoba.

Quite frankly, I never really understood the importance of having a lobbyist type person in Ottawa when there is a whole department of Intergovernmental Affairs and established relationships at the political level.

Notice Donald Savoie’s comments in the article.

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Quebec Premier Jean Charest and New Brunswick Premier Shawn Graham today announced their desire to step up their discussions with a view to developing partnerships in the energy sector. The premiers have directed their energy officials, as well as representatives of NB Power and Hydro-Québec, to explore opportunities for co-operation, particularly in the areas of accessibility, supply, transmission, market opportunities, and greenhouse-gas reduction.

Quebec has lots of cheap power.  Hopefully this new agreement will lead to lower power rates here.  I am not an energy expert but weening off the high cost and polluting coal/oil power and using hydro power from Quebec might make good sense.

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22 hours from leaving Moncton to arriving at my destination here in Sao Paulo, Brazil.  11 million people in the city.  20+ million in the metro area.  Wall to wall traffic.  The recession doesn’t seem to have had much impact here yet.

I see Victor Boudreau is the new Minister of BNB.  I think this was a good move.  It’s time to have a good navel gazing session over there and a new Minister and potentially new DM will help.

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I just wanted to follow up quickly on one more point relating to my previous mini-rant. 

These guys at AIMS and Fraser, et. al. are now constantly talking about how we need workers to move from areas where there are no jobs (i.e. here) to areas where there are lots of jobs (i.e. Alberta, Ontario when there is no recession, etc.).  When I quiz them (as I have) up on this they will say that it is only natural.  Canada is one big happy country and people should move freely around from places where there is limited or no work to places where there is lots of work.  Government, they say, shouldn’t try and impede this free flow of labour in any way.

When I respond by saying how come the same principle doesn’t apply to tax revenue, natural resources royalty revenue, investment, etc.  they response is someone different.  In that case, we are told, provinces need to jealously guard their revenue/royalties, etc. from those pikers down in the Maritimes.

This doesn’t make sense to me.  Policies and efforts that lead to even faster depopulation in this region will only exacerbate the need for more Equalization and transfer payments.  Shouldn’t these think tanks be advocating for a beefed up Equalization program to offset?

No, this isn’t about one big happy family at all.  This is is about emptying out our population and cutting off any efforts to transfer wealth from strong economies within the country. 

It’s a bit hard edged but maybe that’s what happens when economists get to run the place. 

If AIMS issued a 10 point policy paper tomorrow that advocated everything they stand for (cutting equalization and EI, forced migration of those from weak economies to strong ones, etc.) but also turned their intellectual horsepower towards a serious economic development solution in the weaker economies, we would have the basis for a serious conversation.  As it is right now, to misquote Captain Renault in Casablanca “the conversation is a trifle onesided”.

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