I’ll take ‘labour market distortions’ if it means saving our communities

If you want another reason why individual provinces need more flexibility around who they can bring in as temporary foreign workers (or immigrants) take a look at this Calgary Herald letter to the editor penned by Alexis Conrad, director general, Temporary Foreign Worker Program, Employment and Social Development Canada.

Conrad says the TFW program has led to a drag on wage growth in Alberta’s food services sector. This type of labour market ‘distortions’ is why the government had to make the changes to the program.

This proves my point to a tee.  In Alberta they are worried about low wage growth in the fast food sector. In New Brunswick I am worried about the very economic viability of many communities around the province.  If you design a program to address the former and it results in harming the latter – how’s that for good policy?

Now I know that all the think tanks are saying that if the government restricts TFWs in rural New Brunswick thousands of lazy, EI offenders will come out of the woodwork and rush into these manufacturing and processing jobs with gusto.  Or, like their counterparts in Alberta, the firms involved well jack up wages to attract them in.

It looks like many of them will downsize and may eventually close their NB operations – a fate that is unlikely in Lethbridge’s McDonald’s restaurant.

There is a lot of strange thinking around this file.  The only real solution, IMO, is to allow the provinces to determine what industries and workers are ‘strategic’ and allow them to bring in workers in support of their growth.  If the feds want to crack down on the burger flippers, fine.  But when they start to implement policies that hurt our export sectors such as manufacturing and tourism – that’s a problem.  I will remind the feds that immigrant workers are critical for manufacturing in places like Toronto, Vancouver and even Winnipeg – and I would wager the majority are earning below the median wage in these communities.  If you don’t want manufacturing workers coming to NB via the TFWP, then let them come in via PNP or some other stream.

immstoronto

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Is equalization a disincentive to growth?

AIMS and Fraser think so.

“Equalization makes it easier for political actors to turn their backs on national resource development even though it is a potential source of jobs, revenue and economic growth,” said Ben Eisen, director of research at the Atlantic institute. “Economic incentives to move forward are weakened by the fact that when you do so, a large chunk of the money is clawed back through reduced equalization payments. So that is one of the ways equalization creates a disincentive to pro-growth economic policies in recipient provinces.”

If you search this blog for the word ‘equalization’ you will find dozens of blogs dealing with the subject of equalization and I am not, in general, disagreeing with AIMS and Fraser on this.

But I think there is a lot more going on here than just equalization.  Saskatchewan was an equalization receiving province in the early to mid 1990s (remember that?) and that didn’t stop it from implementing the largest resources development expansion in the country – oil, potash, uranium, etc. Much of this expansion, by the way, was initiated under an NDP government.  Saskatchewan is now the leading fracking jurisdiction in Canada.

I haven’t read the full AIMS report so they may have already pointed this out but to hang the reluctance to pursue natural gas development on equalization would be too simplistic.

There is also the issue of age.  The median age in the area is now pushing 45 years compared to the early 20s in the 1970s.  Public interest in development of any kind looks different when you have a young population looking for careers and opportunities compared to when the majority are either retired or so to be.

The lobbying efforts – public opinion – are stronger now than even a decade ago.  It doesn’t seem to matter that virtually all of the anti-shale gas propaganda is coming out of the US and doesn’t reflect the Canadian experience.  It’s powerful stuff.  Take another look at Gasland – the slickly produced movie or search for ‘fracking’ on Amazon.ca – you will see multiple books on why fracking is going to destroy our world as we know it.

And I would say New Brunswickers – even more so than Nova Scotians – have a greater suspicion of big, evil corporations – particularly from the USA.  The protests I have seen focused on this fact – “they come here – destroy the land, leave us nothing and take all the economic benefits away – leaving us with nothing but an environmental mess to clean up”.

The question is how to get New Brunswickers to take a look at this issue afresh.  To study the experience in Saskatchewan and elsewhere in Canada. To think about practical development issues.  To study the set of rules which are among the most stringent in North America.

I don’t think the equalization argument will work.  It feeds long term stereotypes about lazy, entitled Maritimers sitting around sucking the hind teat.

If Maritimers could be convinced that natural gas development will not destroy the environment or despoil the water and will bring economic benefits they might come around to the idea.  If they are convinced the industry can be properly managed and that gas wells at the end of their lives will be properly sealed and brought back to the land’s original state they may be convinced. If they can be assured their quality of life will not be significantly impacted (negatively) beyond the normal impacts of natural resources development (i.e trucks on the roads,   etc.), they may come around.  If they can be convinced we need the gas – and if we don’t develop it New Brunswick homes and firms will face big increases in costs – they might come around.

As John Herron used to say, “You can’t address an environmental question with an economic response”.  This axiom will hold, IMO, until people’s basic living standards come into question – which in a country such as Canada is not likely at least in the next 20 year time frame.

 

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The myth of corporate welfare in New Brunswick?

From a recent column in the Telegraph-Journal.
Kevin Lacey, protector of the sacred taxpayer, recently intoned in a Telegraph-Journal commentary that instead of setting up a new model for economic development, the New Brunswick government should “chart a new path” without “government-led regional development schemes”.

Lacey, the Atlantic Director for the Canadian Taxpayers Federation, uses just about every opportunity to rail against the widespread use of government subsidies to business, or corporate welfare, in New Brunswick.

He will be happy to see the latest data from Statistics Canada on provincial government subsidization of private industry. The statistics agency released provisional data for 2008 to 2012 on the amount of money that was provided to private enterprises by provincial governments across the country.

Guess which province had the lowest amount of business subsidization in the country in 2012? I’ll give you a hint. It’s known for maple syrup, rolling hills and untapped shale gas resources.

In fact, New Brunswick had the second lowest rate of business subsidization as a percentage of gross domestic product (GDP) of any province across Canada over the five-year period except Ontario. In an average year, the New Brunswick government transferred $72 million as “subsidies to private enterprises” or $2.75 per $1,000 worth of real GDP.

Prince Edward Island, Quebec and Saskatchewan had the highest rates of subsidization with over $15 worth of subsidies for every $1,000 worth of GDP. Even that bastion of private enterprise, Alberta, doled out nearly twice as much business subsidies as a percentage of GDP compared to New Brunswick.

The astute reader will remark that the bulk of subsidies in western Canada go to the agriculture sector. This is true but agriculture is a ‘sector’ just like any other. It has profit-seeking private enterprises that face a variety of competitive and technical challenges. Just like most other industries.

But even removing subsidies to the agriculture sector, New Brunswick doles less money than all other provinces except Alberta.

A decade ago, I looked at this issue and found the same trend. New Brunswick just doesn’t dole out as much money to industry as we are told.

So how come the corporate welfare reputation continues to stick?

Firstly, there are a few high profile cases that continue to surface in the media. Opponents of government-led economic development will reach back into ancient history and dust of Bricklin or point to the more recent Atcon as egregious examples of corporate welfare.
Second, while the total amount of money doled out by government is relatively small, the total number of firms receiving government support is much higher than the national average.

A 2009 study published by Industry Canada found that 13.6 per cent of small and medium-sized enterprises (SMEs) in Atlantic Canada received funding from government lending agencies compared to seven per cent among SMEs across the country.

This would seem to indicate New Brunswick gives out less money overall but spreads it around in smaller chunks to to a broader base of smaller and medium-sized firms.

Unlike Kevin Lacey, for me the issue is not ideological. It is more pragmatic. Under what circumstances should the government be a bank for industry and how do we determine if this is a good use of taxpayer dollars?

This is why I fully endorse the government’s move to an ‘opportunities-based’ approach to economic development. New Brunswick has specific assets, infrastructure and competitive strengths that should be catalysts for private sector investment and new entrepreneurial activity.

There is a role for government, working with community and business leaders, to determine what these opportunities are and how we can best exploit them to strengthen the economic foundation under communities across the province.

This doesn’t necessarily require a lot of ‘corporate welfare’ but it does require identifying and bolstering the value proposition for investment into those opportunities. If there is a good case for investment, private industry will come.

There is a public interest in economic development. I reject the idea that government should just stand back and hope for the best.

But effective and accountable economic development has been elusive in New Brunswick.

Let’s hope this time things really will be different.

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Inspired by the NB Youth Orchestra

From a recent column in the Telegraph-Journal.

If you want an aspirational vision for our future as a province look no further than the New Brunswick Youth Orchestra.

I had the opportunity to watch the New Brunswick Youth Orchestra perform this weekend in Bathurst. My daughter is one of the four young musicians who play the clarinet so I get the chance to attend several performances during the course of the year. While analyzing the artists and the repertoire, I can’t help but think the youth orchestra represents a microcosm of a future prosperous and vibrant New Brunswick.

First, the orchestra represents where we will need to be demographically over the next 20 years. By my count, the orchestra is made up of about one-third new immigrants or the Canada-born children of first generation immigrants. This impressive cultural dynamic is a demonstration of how immigration will enrich our society and strengthen economic opportunity.

Second, even as it embraces multiculturalism the youth orchestra shows a strong commitment to New Brunswick’s two language heritage. The orchestra is made up of a good mix of young people with English or French as their mother tongue. During the performance the microphone was passed from one young person to another and each spoke in fluent French. This also should be our aspiration for the future.

Third, the youth orchestra is globally-oriented. The leadership brought in a rising star, Antonio Delgado, from Venezuela as Musical Director and Conductor. His unique style weaves a variety of influences including Latin American music which brings a little flair to the performance. As Delgado conducted Mexican composer Arturo Márquez’s Danzón No.2 in Bathurst, I glanced around the audience to see more than a few normally reserved New Brunswickers tapping their feet.

Fourth, the youth orchestra is focused on excellence. These young women and men are impressive. They individually work hard at their craft and come together under Delgado with beautiful and inspirational performances.

Fifth, the young musicians come from across the province. A prosperous future New Brunswick will similarly need to build on strengths and economic opportunities from one end of the province to the other.

Finally, the leadership is ambitious. The kind of ambition we need across our society in business and government. President and CEO Ken MacLeod wanted to project the youth orchestra on the world stage. They periodically tour through Europe and have played in world famous venues such as Carnegie Hall in New York City.

MacLeod’s ambition for the youth orchestra took a big leap forward several years ago when he brought the El Sistema program to the province. Sistema NB is an after school orchestral music program meant to “inspire children and youth to achieve their full potential and to acquire values that favour their growth and have a positive impact on their lives and society”. Sistema NB now operates four centres, in Moncton, Saint John, Richibucto and the Tobique First Nation, and engages more than 600 children daily.

Dynamic, ambitious, multicultural, focused on excellence, growth-oriented and globally connected. To me that sounds like the kind of New Brunswick I could get excited about.

If you get a chance to go see the New Brunswick Youth Orchestra you are in for a treat. They will be playing in Saint John on January 25th, Moncton and Sussex in February and the season finale will be held in Fredericton on March 29th.

You will witness young talent at its finest. You might also get a glimpse of the New Brunswick that could be waiting for us just over the horizon.

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Taking full advantage of our R&D assets

From a recent column in the Telegraph-Journal.

Why is research and development spending in New Brunswick on the decline?

Between 2001 and 2007 New Brunswick led the country among the 10 provinces in the growth of R&D spending (public and private). Between 2007 and 2012, total R&D spending in the province dropped by 19 per cent.

One reason has been the decline in government-funded research. Statistics Canada tracks annual spending on research and development by science, source of funding and by sector. Between 2001 and 2007 federal government spending on R&D in New Brunswick nearly doubled from $43 million to $84 million. Provincial spending increased from $5 million to $17 million.

However, since then government-funded R&D has dropped off the radar. Federal spending declined by eight per cent between 2007 and 2012 while provincial investment in R&D dropped back down to just $7 million in 2012.

I have asked a few people who should know why R&D spending has dropped since 2007 and I get a range of answers from “Statistics Canada isn’t properly tracking the spending” to “there just aren’t a lot of interesting R&D opportunities down here”.

One thing most people agree on is that we don’t have many public or privately funded research organizations that have the scale to compete for big national and international R&D projects.

One of the province’s long standing marine-related research organizations, the Huntsman Marine Science Centre in St. Andrews, has been involved in a variety of important research efforts over the years including an important role in the development of the aquaculture industry.

If we were ever going to be a world leader in some area of research it should naturally have something to do with the Bay of Fundy.

Jamey Smith, the Executive Director at the Huntsman, believes there are a wide variety of opportunities for more research that leverages both the physical and research ecosystems in the area.

He believes the expertise they have built working with the aquaculture industry could be used to tap international markets.

He also believes there is considerable opportunity to conduct more research into the medicinal properties of the fish and plants in the Bay of Fundy. The Huntsman already has one pharmaceutical industry client and is in discussions with another.

Smith says the Huntsman should be able to expand its research activities into the energy industry including the oil and gas development sector.

In recent years, entrepreneur incubation centres have been popping up all over the province. Beyond providing generic business support for start-ups, it would be interesting to align our entrepreneur incubation efforts with research and development opportunities.

For example, the Huntsman could become a global centre for marine-related research-based entrepreneurship. Entrepreneurs with interesting research ideas could be attracted from around the world to conduct their research in New Brunswick and also start their new business ventures here. We could match the researchers with capital and the business skills needed to effectively turn new ideas into business opportunities.

But this brings the conversation back to scale. There are few research organizations in New Brunswick, if any, with the scale to promote themselves in any serious way beyond the borders of the province.

We need to go back to the drawing board and think about how small provinces can effectively compete for research and innovation spending.

I would like to see us focus on the research organization that have enough scale or could build enough scale in short order to compete for global research opportunities. We need to focus in areas where we have an advantage although I am not necessarily making the case for research into the medicinal properties of dulse or periwinkles.

Finally, we need to think about how we can effectively collaborate to simulate scale. Maybe we should think about aligning all the federal and provincial trade development resources in New Brunswick with our research organizations to promote R&D opportunities far and wide.

We spend a lot of time and effort promoting New Brunswick seafood and other industries. R&D opportunities should be treated in the same way.

Former Premier Bernard Lord’s goal of becoming one of the top provinces in Canada for R&D spending per capita has long since been relegated to the dustbin. As of 2012, we are still dead last among the 10 provinces.

If we are going to make any real headway, we will need our research organizations such as the Huntsman Marine Science Centre to lead the way.

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Federal transfer payments to NB: Declining influence

Shawn Graham was in the news last week waxing about a variety of subjects but silent on maybe the most prescient aspect of the self-sufficiency agenda – the need to wean the province off its relatively high dependency on federal transfers.

Turns out Stephen Harper has the same vision for New Brunswick.  Between the 2005-2006 budget years per capita federal transfers to NB as a percentage of per capita program spending dropped from 37.2% to 32.8% in 2013-2014.  To put that in perspective if NB was still receiving 37.2% of its revenue needs from the feds – it would almost wipe out the current year deficit.

Between the 2009-2010 ad 2014-2015 fiscal years per capita federal transfers to all provinces rose by 17%.  To NB they rose by 4% – or an amount well below the rate of inflation.  As shown in the chart, Alberta and Ontario have run away with the lion’s share of increases.  Ontario is up nearly $5 billion and Alberta is up over $2 billion.

We have talked about the reasons for this before. The two big issues have been Ontario falling into the need for Equalization and the per capita funding formulas themselves which heavily favour Alberta, SK, etc. which are rapidly growing.

The bottom line is that Graham was right to worry about dependency on federal transfers.  He had an ally in Ottawa.  The big difference, of course, was that Graham wanted to reduce dependency as a consequence of economic growth.


 

Percentage change in per capita federal support 2009-2010 to 2014-2015

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Source: http://www.fin.gc.ca/fedprov/mtp-eng.asp. Includes Equalization CHT and CST.

 

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Alberta and income inequality: A second look

This is, of course, a no-win blog post.  Anything even remotely related to attempting to justify income inequality is like a red flag to the bulls of Pamplona.

But…  just because I love taking a punch.

This is in response to new data suggesting that Alberta has become a place where the top income earners are hoarding all the income.

In many ways the Soviet Union was the most equal society in history.  You had a tiny cohort at the top and everyone else scraping around at the bottom.  But they were equal at the bottom. I realize that is a cliche but it remains mostly true.

Guess which province has the lowest percentage of taxfilers reporting income under $15,000 per year?  Alberta.

Guess which province has the lowest percentage of taxfilers reporting income under $50,000 per year?  Alberta.

Guess which province has the lowest personal tax burden? Alberta.

Of course if you live in the big city you will have to allocate more to housing and I am not suggesting for a moment there are no ‘poor’ folks in Alberta.

Guess which province spends nearly $11,000 per capita on provincial government services? Well, lots. But Alberta is one of them although it is projected to drop somewhat in the coming years.  On a per capita basis in 2013-2014 Alberta will spend more on provincial government services than BC, Ontario, Quebec, NB, NS and PEI.

I guess my point is that it is true that in a Piketty sense the owners of capital and highly specialized skills do better in a boom economy (SK is facing similar issues) but if the rest of people on the income spectrum are doing better their their peers in the rest of Canada (higher incomes/lower taxes) and the government is spending as much or more on public services – it becomes pretty hard to argue we moved back to feudal England or Russia.


Percentage of taxfilers reporting income less than $15,000 per year and $50,000 per year

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For 2012. Source: Statistics Canada CANSIM Table 111-0008.


 

PS – guess which province is most ‘equal’ as measured by the lowest percentage of folks earning over over $50k per year?  PEI with NB as a close second.  If you look at the percentage at the top of the income scale $250k or higher, same thing. PEI and NB.  New Brunswick has 28 people earning $250k out of every 10,000 taxfilers (0.28%) compared to 151 per 1,000 in Alberta (5.4 times as many).

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The ‘real’ real unemployment rate in New Brunswick

There was a good article in the TJ over the weekend about the ‘real’ unemployment rate in New Brunswick.  UNB economist Constantine Passaris postulates the real unemployment rate is much higher than 9.3 percent because people are responding to the Stats Can Labour Market Survey by saying the are not looking for work because in many small communities there are no jobs to look for.  That puts them out of the labour market altogether and drives down the unemployment rate.

It is a fair point.  A person that lives in a small town that doesn’t have many jobs may want to work but may not be looking (in the Stats Can definition of that term) and therefore be excluded from the formal data.

The broader point that neither expert addressed however was the ‘real’ real unemployment rate.

I estimate that somewhere around 35,000 to 40,000 New Brunswickers collect EI at some point every year.  They work a certain number of weeks and then ‘quit’ or are ‘laid off’ and start collecting EI. Again, by definition, these people must be ‘looking for work’ in the Statistics Canada definition of that term and therefore must be included in the formal unemployment statistics.

But are they really available for work?  By all technical definitions – Stats Can and Employment and Social Development Canada – they must be ready and willing to take work – and some do.  But a large number do not.

The other issue relates to the skills and mobility of the unemployed.  If a call centre in Moncton is hiring, it is realistic to think a former mill worker in northern NB will be a candidate for that job?

What is the ‘real’ real unemployment rate?  The formal data is therefore a very crude metric to assess the state of the labour market.  But it is used by the feds for example to establish various policies from EI eligibility to TFW programming.

The ‘real’ real unemployment rate should be measured by the ability of firms to find workers.  In a ‘high’ unemployment area it should be easy to find workers (think Moncton circa 1992 when firms would get 200 qualified applicants for each available job – this was almost completely independent of the headline unemployment rate).

If you go around New Brunswick and talk with business people you will find them saying it is getting harder and harder to find workers – in low, semi- and high skilled occupations.

That is the best indication of the ‘real’ real unemployment rate.

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It’s time to have a conversation about tourism development

The new Minister for tourism, Bill Fraser, has a good commentary in the TJ today talking about how the new government is “ready to invest in tourism”.

It’s  nice to see they are now using the right return on the taxpayer investment language.  They used to talk about how the millions of government spending on tourism would generate new ‘revenue’ for the tourism industry and come up with some multiple.  That is the wrong numerator.  If the denominator is the tax dollars invested in tourism marketing, the numerator is incremental tax dollars generated as a result of that marketing – not general revenue to the industry.

But the main issue remains.  As I wrote about a few weeks ago, tourism industry revenue has been flat for years.  Despite a massively ambitious new tourism strategy in 2010 that was focused entirely on growing revenue, industry revenue declined (based on the most recent data we have access to).

I think we need to have an honest conversation about the tourism industry and its ‘growth’ potential given the local,  national and international context.

Again, I like tourism.  What I don’t like is our tendency to talk loosely about ‘growth’ potential without any serious analysis.  It would be okay for me if the tourism folks said “we don’t expect much growth in the coming years because of conditions x and y but we still see value in investing $13 million in tourism marketing to keep the industry from declining further”.

It just raises even more cynicism when you throw out all those rosy growth forecasts and it doesn’t happen.

In addition, an honest appraisal of the situation may lead to changes in approach.  Maybe we need to link tourism more closely to immigration.  Maybe we need to spend more time trying to attract tourism-related infrastructure investment rather than on marketing what we currently have.

Every time I work with local communities on economic development strategies I ask the question “who is out promoting the community for tourism infrastructure investment?” – new hotels, new tourism attractions, etc.  The answer is always no one.

In a business setting if the product isn’t selling, maybe you need to work on the product. I think it is a good idea to blend different tourism assets and experiences into themes but maybe we could use a few new tourism assets.

Anyway, I wish the new Minister well.

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Boosting population: Echos of the self-sufficiency agenda

According to the latest Labour Force Survey there were 487,500 people in New Brunswick aged 15-64 – the population that feeds the labour market.   Here is a question for you.  What do you think the population in this age group was back in October 1990?

488,600.

Twenty-four years later and the population in New Brunswick between the age of 15-64 had declined marginally.

Across Canada?

The population in this age group is up by 5.4 million.

If New Brunswick had seen its population in this age group grow by just the national rate of growth over this period, there would be 143,000 more people in New Brunswick. With an employment rate of around 65% in this age group that would mean 93,000 more people working in New Brunswick.

At an average level of income, that would translate into roughly $4.2 billion worth of incremental labour income.

Which would result in roughly $6 billion worth of increased GDP.

Which would mean just about $1 billion in tax revenue for the provincial government.

Would we be having the demography, economy, fiscal health – etc. debate right now?

Unlikely.

 

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