Beware the vested interests

Every night is a different game
We gotta work for our fortune and fame
Success is a ladder take a step at a time
And the people will remember your name

Yes I found out all the tricks of the trade
And that there’s only one way
That you’re gonna get things done
I found out the only way to the top
Is looking out for number one
And that’s me
I’m looking out for number one

Looking Out For Number One
Bachman-Turner Overdrive

I will stay away from subject matter on which I have an opinion but very little expertise (like the mind of Paul Wells and the merits of Ronald McDonald). So today, we transition every so smoothly away from one kind of vested interest to another.

I am talking about the story yesterday that Premier Graham is ‘enlisting’ the help of the New Brunswick Business Council.

As I said in winded detailed when this council was formed, politicians and economic developers need to be wary of groups like this. Not because they aren’t not well intended. They are. Not because they are not smart and business savvy – most of them have done more in their careers than I ever will. It’s because their vision of growing the economy may not be in alignment with global best practices in growing an economy such as New Brunswick.

Here’s my logic on this – for what it’s worth.

I believe that the #1 reason for New Brunswick’s lackluster economic performance since Confederation (New Brunswick has not outpaced the national average for population growth from Census to Census since the founding of Canada and in recent years this gap has widened and has now become inverted curves – Canada’s population going up and NB’s going down) is a structural lack of investment. Of not being on the route of global business investment. Other than large infrastructure projects, New Brunswick suffers from a chronic lack of investment – from Canadian sources, from global sources – cripes from our own pockets (99.8% of the pension funds of New Brunswick government workers fund companies outside New Brunswick).

This investment can come in the form of greenfield projects – global or national companies setting up here (manufacturing, IT studios, distribution hubs, etc.) or investment into our local SMEs. As we all know, other than call centres we have had very little greenfield investment and almost no investment in our SMEs. New Brunswick has the lowest percentage of publicly traded companies of any province in Canada (you can count them on one hand) and almost no equity investment from abroad in our SMEs (lack of interest from the sources but equally the SMEs who have shown a reluctance to give up even a portion of ownership to secure outside investment capital).

So for me, most of the economic problems flow from the lack of investment or money required to get things done. Labour shortages come as a result. Lack of public funding to key infrastructure, R&D and education is a result. Chronic regional unemployment is a result. The perceived need for governments to build large worker social safety nets such as EI is a result. Chronically low wages can be a result.

Now, of course these things are all intertwined. Investment doesn’t come to underperforming regions and regions underperform as a result of the lack of investment, etc. However, fundamentally, as Donald Savoie has so eloquently stated, economic development is about money and people.

So, come full circle to the NB Business Council.

They are among the only firms in New Brunswick that don’t have a problem attracting investment capital and many of them have little interest in seeing external firms set up here and steal their labour and raise wage rates.

Now, please, I am not broad-brushing all members of this Council but I know of at least two that have made public comments to this effect: “Why should the government go out and attract companies when they should be supporting those that are here” and other such comments. And, as I have said, another example where an external firm came and and raided IT workers from a local firm because the local firm was only paying $35k for highly talented programmers – who wanted to stay in New Brunswick. The firm coming in was paying (it was in the 1990s) $45k and thought they were getting staff at a real bargain.

The truth of the matter is that some – not all – but some local businesses (and I am not talking about the NBBC here at all) have benefitted from New Brunswick’s weak economy. They export their products abroad. They don’t rely on local markets so the cheaper the wages the better. The higher the unemployment the better. The cheaper the land the better.

Look at Calgary. A growing economy will push up wages, land costs, availability of labour, etc. – all annoying to local business.

Some local business leaders can rise above this. They can see that a strong economic is good for all even if it causes them short term heartburn. Some, not all.

I am about (hopefully) to work with an economic development agency in one of the fastest growing regions of Canada. They are suffering labour shortages, increasing costs, etc. and yet the business community funds this organization to go out and attract more investment into the region. More companies to compete directly with them for staff.

Now, that’s leadership.

And I hope the NBBC has the same approach but I would be wary.

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0 Responses to Beware the vested interests

  1. Anonymous says:

    I would say the same to you, beware the vested interests. How will you know the difference between working for ‘investment’ vs. looking for labour. It seems odd that a group in one of the fastest growing economies would think ‘let’s hire somebody who lives in one of the slowest’.

    However, let’s split some hairs. We KNOW for a fact that you are wrong when you say that NB’s problem “since confederation” has been lack of global investment. The decade after confederation saw MASSIVE global investment, primarily from central canada but much of that was money that came from the states.

    THAT of course was the problem. Industries that were centered here became ‘branch plants’, and when industries consolidate, get sold, hit bankruptcy or hard times, guess who’s first for the chop? Right on.

    And we know that there is no way to say that ‘global investment’ is the ‘structural problem’, that’s just plain wrong. Money is money. If more NB money stayed here that would be billions per year. If Irving and McCains weren’t given carte blanche that would be billions more. Add in some actual federal investment like we see in the auto sector, and that’s billions more. Can you honestly say that if that happens you’d be griping “yes its investment but its not coming from multinational corporations!”

  2. David Campbell says:

    I appreciate your knowledge of history, but you, respectfully, are wrong. CD Howe built an entire industrial complex in Ontario during and after WWII and almost none of that came here. The Auto Pact lead to tens of thousand of auto jobs and none here. The Canadian government poured billions into the aerospace sector and none of that came here. The incentives to develop the oil sands in Alberta are some of the most aggressive in the world. You are correct that there were more branch plants here in the 1960s and 1970s but many of them did close due to downsizing, union demands for natioanl wage rates, cutting off transportation subsidies, etc. Local investment, in my parlance, is global investment. Investment is investment or as you say money is money. A big step would be to try and repatriate hundreds of millions of government pension monies into local firms. However, that would have to be done smartly. I continue to disagree with your abject disregard for the need to attract investment from outside the province’s borders. There is only so much that can be done with the very limited capital pool in NB.

  3. scott says:

    You’re right, David. The domestic interests of specific local industries “may” take precedent over what “may” be best for the province’s economic future if Premier Graham gets too close to their [NBBC] advice.

    But if their can be anything said in the defense of the Mr. Graham, it’s that this situation is a tough juggle for him considering the local media was a help to the Premier in getting him elected. As well, I hate to speculate, but I’m certain that many of those businesses donated generously to his campaign. So ignoring their interests and standing firm on a new approach “may” not be the best thing for the province, but at this point, what other option does Graham have? Much like Lord, he is caught between a rock and a hard place. (i.e. LNG) However, our economic woes go much further than a few domestic spats between the government and New Brunswick’s leading local energy firm.

    Another big factor that adds to all this is the parliamentary press gallery’s [national media] pandering to the interests of central Canada.

    You only have to look at today’s national newspapers [Citizen, Star, Post and the Globe] to see that issues related to central Canada take precedent over the rest of the country. For instance, their has been a burst of articles referring to the motion on “Deux Nations” by Harper and the possibility of more constitutional wranglings down the road. Why? Because changing the constitution has huge implications to the economic future of Canada, in particular, the two provinces in Quebec and Ontario.

    The same goes for economic development as the national media always refers to the Ontario’s auto industry and Quebec’s aerospace industry as vital national policies and the interests of Atlantic Canada as regional.

    If we are to move forward successfully with a solid economic plan, then the two issues I mentioned above must be addressed before anything more is discussed on the file.

  4. Anonymous says:

    You misread. YOU said ‘since confederation’, you didn’t say ‘since world war 2′. Thats a difference of a century. After confederation was when those local industries got bought out or put out of business by foreign investment (something rarely discussed is that foreign investment frequently flows quickest to where it can buy up firms, not start up firms) By world war two all financial industries were already long since gone to central canada.

    So when the depression hit, branch plants lost out. You are quite correct about CD Howe, in fact I’m pretty sure I’ve been posting that for quite awhile, but that’s LONG after confederation. If you MEANT world war 2 you should say that, because people aren’t mind readers.

    However, I’m as happy as anybody that Burnbrae will employ 20 people in Sackville. But again, its hard to convince companies to invest in a province where a province won’t invest itself. Looking at the province a company’s first thought would be “whats wrong with this place?” If you owned a home and wanted to rent it out and wanted another investor to invest in it as well, what do you think that person’s response would be to find out that the house is barely standing and that you are investing most of your money elsewhere?

    You’re damn right, if they had a brain they’d say “oh, well not interested, but what other companies are you investing in?” In fact, as I posted the other day, the NBIF makes a point of bragging its investment in QVision or something like that. Its based in the states, so investors look at NB they’ll see, ‘gee, here’s a nice company and look at all the public money invested in it-what a great investment-for Atlanta!”.

    My point is simply you clean up your own house FIRST. Then when people see that, they think ‘gee, maybe there is something to this place’. Again, you’d have to have a screw loose not to notice the province is run by two huge corporations, what kind of investor wants to invest in a place like that? Hell, even Irving has’nt found a partner to help it print money, er, refine oil.

    Politically, that’s something people can change, but it takes work. That’s why I always say to look at the political system-NOT the economic one. It’s a grim prospect but on your dying day you’ll still be posting a blog about how empty most of NB is, and how little investment it gets.

    Of course as I’ve also said, the blog goes a step toward changing that, but its still just a blog and only reaches X number of people. YOU can’t make foreign investment come here, but YOU can get politically active to get YOUR government to invest its money here (and thats a generic ‘you’)

  5. David Campbell says:

    Not to put too fine a point on it, I used subpar population growth as a proxy for economic growth since Confederation. My examples were post WW2 but my theory of underinvestment does stretch back to Confederation. You may argue that population growth is not a good proxy for economic growth but when we are talking about 1870, I doubt Stats Canada kept good records on FDI and GDP data.

  6. Anonymous says:

    Uh, good enough, about as good as population data. I like you know how tenuous a comparison that is.

    However, although general population didn’t compare, the population of industrial workers was increasing at an equavalent rate. For example, the data I have in front of me is this:

    difference between 1880-1890

    Population:
    St. John -3%
    Hamilton 34%

    Industrial workers:
    St. John 118%
    Hamilton 48%

    Industrial Capital:
    St. John 125%
    Hamilton 69%

    Average Annual Wage
    St. John 12%
    Hamilton 2%

    Value of Output
    St. John 98%
    Hamilton 71%

    Moncton

    population in 1880 5000
    in 1890 8700

    Industrial Capital
    1880 530,000
    1890 1.1 million

    Fredericton
    1880 population 7200
    1890 8400

    Industrial Capital
    1880 1.1 million
    1890 2.1 million

  7. David Campbell says:

    OK. You win. I will yield. I have never seen economic data pre-1900. I know when I’m in over my head.

  8. Anonymous says:

    It’s a rare blogger who will say that.