It's The Economy, Stupid

From somewhere off in the distance…

“Mr. Prime Minister, it’s New Brunswick Premier David Alward on the telephone”.

PM: Groan.  Put him through.

Alward: Hello, Mr, Prime Minister.  Thanks for taking my call.

PM:  Hey, David, do you want my help selling shale gas to your citizens? I think with my charm and wit, I could convince them…

Alward (interrupting): NO, I mean no, Mr. Prime Minister, I know you are busy and shale gas really isn’t our top concern these days.

PM:  You’re telling me.  Geez, David, I see you only mustered a 0.1% GDP growth last year and no net new employment growth since 2006!  If Alberta had those numbers I’d be back living in Calgary talking about firewalls.  Is there anything I can do to help?

Alward:  That’s why I am calling.  A number of your plans are going to hurt…..

PM: Alward, let me stop you right there.  I know, I know.  A distant cousin of mine from Dorchester sent me a long list – hundreds of federal jobs cut, zero increase in transfer payments, millions cut out of other programs, proposed changes to EI and Equalization that will hit NB harder than most.  I heard it all.

Alward:  Exactly, but we have a new plan in New Brunswick for economic development centered on innovation.  You spend billions each year on R&D and virtually nothing in New Brunswick.  Think you might be able to direct a little more down here?

PM: Whoa there Davey boy, I just cut the main program that was used for health research in New Brunswick and we are cutting the NRC down there – so don’t expect much help from us on the innovation file.  You gotta pull yourselves up by the bootstraps.  All this cutting of federal spending will be good for you.  Haven’t you read all the good work from the boys at Frontier and Fraser?  I can’t get enough of that stuff.

Alward:  Errrr, okay.  We have this new agency, Invest NB, and we are really serious about attracting more international investment to the province.  Can you instruct the hundreds of international trade and investment officers to work with our folks at Invest NB?

PM: Ooops.  Another problem, there.  We just closed our DFAIT office in New Brunswick and moved it to Halifax.  In addition, our guys in the foreign offices like to sell our biggest assets – you know, Toronto, etc.  Besides, we have ACOA down there giving money to small and medium sized businesses. What more do you want?

Alward (exasperated): Mr. Prime Minister, New Brunswick is heading into a major economic crisis.  We need the federal government to partner with us to work our way out of this.  You are championing Alberta oil around the world.  You are relaxing environmental assessment to expedite Alberta pipelines – why cant you see your way clear to help us work on a New Brunswick economic development plan?

PM: Look, we put a billion into Hibernia and guess how that worked out (voice from somewhere is heard saying “Psst, Mr. Prime Minister, Newfoundland is now a ‘have’ province”).  Harrumph, Alward check that last statement.  Look at all the help we are giving to Newfoundland.  We’ve even agreed to pony up for the Muskrat Falls project.  Some of that should spill over to New Brunswick.  Hey, and how about that shipbuilding in Nova Scotia – just send your surplus workers to Halifax.  Problem solved.  Aren’t you glad you called?

Alward:  Mr. Prime Minister.  Canada is a vast country and each of its provinces have very different economies and are facing different challenges.  Why can’t your government tailor its support to our focus areas?  If you really want us off Equalization and EI, shouldn’t we work together on a solution that leads to greater economic prosperity here?

PM:  Look Alward, you have lots of people sitting around on EI.  When we bring down the hammer, they will move to Fort McMurray.  Problem solved.  Aren’t you glad you called?  By the way, I’ll send you the list of 718 reports provided to me by think tanks telling me that if we scrap EI and Equalization New Brunswick will flourish.  Isn’t that what we both want?

Alward (resigned): Thanks for your help, Mr. Prime Minister.  Long live the Queen.

PM: Cheer up, Alward.  I have a Senate seat with your name on it should the unfortunate happen in two years….

Alward:  Gee, thanks.

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Some interesting drama on election night.  Saint Johners voted for change in a big way.  I think Mel Norton will be a good leader in the Port City.   I have always felt that cities take on the persona of their mayor – I know that sounds kind of strange but when Brian Murphy was mayor of Moncton the city got a reputation for being a brash, confident – even an arrogant place (i.e. Brian Murphy) and now the city has a kind of firm but nice persona – a gentle giant – sounds like George Leblanc.  Saint John under Elsie – it seemed to me – kind of took on an Elsie Wayne kind of persona.  Brad Woodside, in many ways, is Fredericton.  He will continue to be elected as long as he wants the job.

Based on my superficial logic, I think under Norton Saint John will emerge as more confident, youthful and optimistic.

Shelley Rinehart is a Saint John institution.  She won councillor at large by the combined votes of the second and third place candidates.  She will be a good addition to City Hall.

In Fredericton, Leah Levac beat out my old colleague Steve Kelly.   Andy Scott tells me Leah is one of the brightest people he knows.  Sounds like a good addition to City Hall as well.

Dawn Arnold, the brains behind the Northrup Frye Festival in Moncton, also won by a landslide in the Councillor at Large race.  She paid for billboard advertising around the city and I kept getting Facebook ads with her picture on them and she crafted a manifesto.   I suspect she could have won the race for Queen of the Universe if that was her goal.  It will be interesting to see her career trajectory – I suspect she has higher office in view.

Only about 40 percent of those eligible to vote actually voted.

Followers of this blog will know of my belief that local politics matters.  Because NB is a small province and because of decisions made decades ago, cities have limited political power.   It seems they don’t even have much influence on the location of schools and other provincial government buildings within the city limits.

However, people do not live in ‘provinces’ or ‘countries’.  They live in neighbourhoods – inside cities, towns and villages.  Just about everything that impacts their lives happens close to home – work, school, health care, shopping, parks, services, etc.

This reality matters now more than ever.  If people don’t like their city, they will leave.  Skilled workers have never been more mobile.  Nearly 13,000 people moved out of New Brunswick in 2010/2011.  The Moncton CMA lost 4,500 people to out-migration in 2009 (that’s over three percent of its population) – although it made up for the out-migration with an even larger in-migration.

The point is that cities need to be places that are attractive to live (as well as work) and that is where City Hall comes in.

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99% of the space in the public square allocated for debate about shale gas development in New Brunswick has been used up by debate about the environmental concerns raised by the extraction technology.   As I have said before, if this industry is to go ahead (as it is across North America – shale gas is dominating all new extraction in recent years – it’s now 50% in BC), the people will have to support it – or at least tolerate it  A vast majority against shale gas – no matter how it develops elsewhere – will bring it down here as a development opportunity.

But public concerns are only one of the problems.  The other is the lack of markets for new gas.    With the rapid expansion in the USA – they are now looking at LNG terminals for exporting US gas.   In BC, the new energy plan calls for a dramatic increase in shale gas development – but the markets are Asia.   As discussed in The Economist, in February Mitsubishi struck its biggest energy deal yet, with Encana, agreeing to pay C$2.9 billion to develop shale gas in British Columbia. The reserves, it said, may be enough to satisfy Japanese demand for nine years.

I’d like to see a little more of horsepower dedicated to thinking about potential markets for NB shale gas.  This is not a 12-24 month issue.   This is about 10-20 years out.  No energy firm makes huge investments without a long term time horizon and right now the market outlook for NB gas seems murky.

It is true that Sable gas is running out but the NS government is putting significant efforts into developing its offshore gas industry – the challenge, of course, is the price of extraction compared to onshore shale gas.  However, offshore gas doesn’t have the same NIMBY worries – with the exception of fishermen.

I don’t know a lot about it but the LNG infrastructure in Saint John complicates matters as that facility can serve local markets with imports of LNG.  The economics are complicated.

In the end, it would be nice to have a medium term plan to build local market demand for our own gas.

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A few of us have been chatting about the limited mention of the role of the private sector in the government’s new economic development plan. There seems to be a lot more alignment and focus on government efforts but the only reference to the private sector involves something called ‘advisory forums’. This might just be an oversight as the plan was meant to lay out the case for action and the efforts of government but I think we need more private sector involvement not less in the coming years.

What’s that look like? I have written about this in the past in numerous columns and blogs but essentially my proposed model would be a hybrid where regional economic development strategies would be led by private and public sector leaders around the province and sector-specific growth opportunities would be championed by teams of private and public sector leaders.

For example, I would like to see industry leaders stepping up to identify sector growth opportunities and working with public sector partners to assess potential and map a plan for growth. This was the thinking behind Future NB, if you will recall and I don’t limit this to the standard basket of industries (ICT, aerospace, etc.) that we have been talking about for 20 years.

I’d like to see a few leaders in the legal services industry get together and assess the potential of New Brunswick becoming a national back office for legal services. I’d like to see leaders in the health care space get together to determine if there are niche segments of the industry where New Brunswick could provide services across North America. Right now radiologists in Ontario are assessing test results for the Government of Newfoundland and Labrador. I’d like to see our language translation sector get together to determine if there are opportunities to attract more of that high value, good wage sector to New Brunswick.

There are about 900 six-digit NAICS industries in Canada from soybean farming (NAICS 111111) to International and Other Extra-Territorial Public Administration (NAICS 919110).  I wouldn’t rest until every single industry group was assessed for potential opportunities.

I tell you this because some people think ‘private sector involvement’ in economic development has been superficial at best in recent years and that it is time for government to step up and take control.   They see the private sector as only wanting handouts form government.  They cite the resistance of many NB businesses to efforts meant to attract investment to the province as proof that local firms are only focused on ‘looking out for themselves’ and not on growing the economy.

I think this is too cynical (although there are grains of truth).  In my view, effective economic development – forgive the cliche – rises all boats.  Attracting Google to New Brunswick would be good for the SMEs in ICT.  Attracting a few larger multinational life sciences research firms would bolster the potential of entrepreneurs in that sector.

I admit my model requires a greater commitment from the private sector – a commitment that may not be there in all sectors and regions of New Brunswick.

In the end, if firms are going to put valuable staff time and financial resources into ‘economic development’ it can’t be for philanthropy.   They have to see what is in it for them and that is okay with me.    NBTel spent a pile of money and assigned senior people to the efforts to attract customer contact centres and back offices back in the 1990s but they reaped a substantial reward from that investment.  I am not saying all opportunities will have such a well-defined case for private sector involvement but we need to frame the conversation in terms of mutual benefit.

Let’s pencil the private sector back into the economic development plans for New Brunswick.

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Here we go again. It seems funny to me that we can’t have discussion about this stuff without name calling. Just for the record I looked at the 2007 and 2006 I-O tables and the subsidy to GDP ratios were high so the argument that 2008 was an outlier doesn’t wash. We don’t have the data for 2009 because Statistics Canada’s I-O tables lag by several years.

As for folks who don’t like the Statistics Canada data or say it is ‘doctored’, I guess anything is possible but really if we can’t use Statistics Canada as a credible source of data – what can we use?

If I was a promoter of the film production sector in this region, I would want to do deeper research into these numbers rather than just sending a columnist nasty emails. Statistics Canada could be retained to do a broader output shock on the industry to trace where industry output is going by province and by industry sector. This data could be used to develop a broader understanding of the industry. A direct industry survey could be done to assess the extent of industry leakage – how much activity is leaving the province? Not a rah rah survey but an honest one. My point is that maybe some of the leakage could be curtailed and remain in the province.

In my view (I could be wrong), this industry eventually will need a far lower subsidy to GDP ratio in order to be sustainable. Instead of just crapping all over me why not spend some time trying to figure out how to have a sustainable industry long term?

Just my thoughts.

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The following table shows the economic impacts of one dollar’s worth of exogenous industry output shock in the motion picture and related industries (employment effects are per $1 million worth of output).  The latest data we have for this is from 2008.  In that year, New Brunswick and Nova Scotia’s industry actually generated a negative direct GDP.  For every dollar of output, the GDP of the province declined.  This was primarily driven by huge subsidies – 76 cents per dollar of output in New Brunswick and Nova Scotia.

GDP Components: Motion Picture and Video Production, Distribution, Post-Production and Other Motion Picture and Video Industries (2008)*

Source: Statistics Canada.

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The Europeans are having an old fashioned battle over the extent of public austerity but I don’t get the sense it is some kind of existential battle.  Most Europeans don’t have a hostile view of the state they just haggle on the margins.  The Yanks, on the other hand, seem to be going through one of their generational crises.

Take Julia, Barack Obama’s sample lady and her progression through life with a government there to support her all the way.    Within hours of Julia’s debut, there was a massive social media backlash and the Heritage Foundation had “A Better Life for Julia” online and its proponents are saying it has had more traffic than the original Julia.

For the Americans, then, it’s not just a question of degrees (i.e. how much austerity, what types of tax increases, etc.) but a fight for the soul of America.

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My column today, entitled “Still bullish on NB”  is somewhat inspired by John Oxner, who works for the provincial government, and has been reminding me of the importance of carrots versus sticks when trying to convince people of your point of view.

What I didn’t say in the column, but have said before here many times, is that on this issue New Brunswick’s small scale should be to our advantage.  In addition, the Canadian arrangement does act as a safety net – however wobbly – to ensure we do not become ‘Greece’.

It shouldn’t be that hard to get the private investment tap turned up a notch in New Brunswick.

It shouldn’t be that hard to foster an environment and create the infrastructure where entrepreneurship will thrive.  PropelICT has been specifically designed to convince folks with good tech-based ideas to go through their boot camp and put those ideas to the test.  We need more.

It shouldn’t be hard to attract thousands of immigrants over the next decade and flood the place with new talent and ideas.

It shouldn’t be that hard to attract more good quality multinational firms to the province given we have attracted firms like Thomson Reuters, Salesforce.com, Xerox, UPS, etc. in the past.

It shouldn’t be that hard to responsibly develop our natural resources over the next couple of decades.  We have a large reservoir of natural gas and other minerals and we should be able to develop them without negatively impacting our quality of life.

Having said all that, we need to debate and discuss our challenges and I will not shy away from that.   Burying our heads in the sand is not the answer.

We can get this done and even if we don’t, there is no doubt in my mind that in 50 years from now there will still be a ‘Moncton’ and a ‘Fredericton’ and a ‘Miramichi’.  There may not be a ‘New Brunswick’ as a provincial entity but people will still live here and call this place home.

The debate now is about what that place will look like.

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My favourite NB economist (turned court reporter?), Kurt Peacock, mentioned my blog “It’s the economy, stupid” in his TJ column yesterday.  I presented to a group in Halifax yesterday where the person who introduced me made some nice comments about the blog and its reach in Atlantic Canada – although he deduced from the blog that I would be a supporter of Mitt Romney – an observation that, upon reflection, is probably true.  I really like Obama – but probably lean towards Mass. Governor version of Mitt Romney.  But I digress.

When I google the term “It’s the economy, stupid”, I get the Wikipedia entry and then my blog.

So, does James Carville own the phrase because he said it way back when or do I own it because I have used it every day since October 2004?  If there was a big copyright battle over this, would I win?

I am not sure I have actually convinced many New Brunswickers that it is, indeed, the economy, stupid.  In fact, I probably should rework the term “It’s about a lot of things, but not the economy, stupid”.    I had hoped to move the needle on raising public awareness about the importance of the economic and economic development but after eight years of plugging away – there seems to be less interest than ever.  How many times has it come up during this municipal election cycle?  I mean beyond the boilerplate rhetoric.  How many municipal politicians will get elected because people think they have the strongest economic development platform?

Think back to recent provincial elections.  In the U.S. researchers now say there are only two measures that best predict the ability of a President to get re-elected: GDP growth and the unemployment rate.

In New Brunswick, re-election is based on not touching sacred cows or really annoying one of the special interest groups.

I’ll soldier on.  It puts food on the table and is certainly an interesting way to earn a living.

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One of my favourite Stats Can surveys is the household spending survey because you get the minutiae of how the average household spends its money and the results can be kind of interesting.

Only one province spends less of its avg. household income on shelter (mortgage, maintenance, utilities, etc.) than New Brunswick.   This province spends 23.7% of its avg. household expenditures on shelter compared to 30.4% in Ontario.  This is one reason why a lot of folks that earn a good income here resist moving to Ontario unless they get a $20k or $30k raise.

Just a few highlights.  New Brunswick households spend much less of their income (per $1,000 worth of spending) on income taxes than Alberta and Ontario – because those provinces have much higher income levels and therefore pay higher relative taxes.  In other words, if there was rate parity, paying more would be a direct sign of higher income levels.    The Nova Scotia and Manitoba higher taxes paid have to do with higher rates (and a little higher income).    But there is clustering between NS and NB on the chart – only a $14.50 spread between six provinces on this measure (taxes per $1,000 of expenditures).  BC is the outlier – it has higher incomes and lower avg. household taxes.  Again, don’t forget that this is relative.  On absolute terms, the average household in Alberta pays over $16,000 in income taxes compared to $10,076 in New Brunswick.

For those of you who chuckle when politicians wave credit cards and talk about not paying for health care – they should look at this survey.  The average household pays thousands per year through taxes for health care and then pays another $2,200 per year directly out of pocket for health care.  Adjusted for income level, New Brunswick households pay the third highest in Canada out of pocket – I suspect drugs are a culprit.

And for those who would suggest NBers pay less for utilities – nope – at least as a percentage of our household expenditures.   The average NB household allocates 80% more of its income to water, fuel and electricity compared to the average BC household.

Avg. Household Income Spent on Income Taxes (per $1,000 total expenditures)

Avg. Household Income Spent on Health Care (per $1,000 total expenditures)

Avg. Household Income Spent on Water, fuel and electricity for principal accommodation (per $1,000 total expenditures)

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