Small business creation

Nothing like Fraser coming along and telling you what I have been saying for years. But than again, I don’t have the brand of Fraser, now do I?

A Fraser Institute report recently ranked New Brunswick’s small business creation rate the second worst in North America. Only P.E.I.’s record is more dismal. The leaders of the pack were Alberta (nationally) and Nevada (continentally).

But the TJ story on this is so right on the mark. I could have written this myself. In fact, I wish I had:

Some have taken this as an indication that the provincial government should be pulling out all the stops to create a business environment more favourable to small operations. They’ve suggested measures that range from lowering the small business tax rate to reducing the interest on and increasing the availability of loans for small business startups.

We believe the statistics send a very different message. What Alberta and Nevada have demonstrated is not that small businesses thrive on government subsidies, but that growth in the small business sector follows growth in big business. New Brunswick will be further ahead in a decade if it can attract major employers and spur concentrated technological and industrial development, injecting tremendous amounts of cash into the provincial economy.

This is a hallelujah moment. I don’t think I have ever seen the media talk about the symbiotic relationship between small and large businesses. Never. The true is that everywhere you see successful small business growth, you see strong large business growth and investment.

Small businesses emerge to support the economic activity generated by large businesses – through supply chains but also to support the new employment base. If you have 1000 new workers at an IBM facility, you need new restaurants, new retail stores, etc.

Large businesses spin out disaffected staff who then become the entrepreneurs (look at Ottawa and the Nortel downsize – it led to dozens of successful small firms and look at Saint John and Aliant’s downsize to see a similar thing).

And we have a real live example in New Brunswick of what not to do. Former Premier Lord cut small biz taxes to the bone. He eliminated ‘red tape’. He made small businesses key to his ‘made in New Brunswick’ solution – and was rewarded with the second worst rate of small business creation in North America.

Thanks a heap, CFIB.

I am starting to like the TJ more and more each day. I might just go and work for them :-)

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0 Responses to Small business creation

  1. mikel says:

    Well, not exactly, since of course IRving and McCain are BIG businesses right? However,in Alberta if all the oil companies were forced to be small there would still be small business growth. And of course it depends how things are measured-are we talking about new startups? Number of employees? Growth into medium sized businesses? Plus, of course, this is far different than what Fraser was saying five years ago, which was taxes taxes taxes.
    But again, we get back to how to get big businesses to NB. Venezuela has seen far more economic growth by small entrepreneurs by doing the opposite, limiting big players. So only if you have the particular economic model in place does the result fit. Simply put, Alberta has resources, simple as that, nobody should pretend its anything other than that. Governments aren’t completely stupid, there’s a reason Graham keeps talking about energy and resources-thats all there is (I haven’t seen a few billion laying around to bribe an auto manufacturer, hell, people freak out when Atlantic Yarns gets money).

  2. Trevor says:

    I agree with you David that most small businesses benefit from the spin-off of larger companies setting up shop. For proof just go to any large financial center and see how many small biz deli’s and business centers that open around these companies. Or see the positive economic benefit that Hub Meat, Midland, Majesta, McCains, Assomption Vie have had on our local economy.

    One thing that I can’t understand is why we have not created a better private investment infrastructure for small biz in this province? We could follow the KIVA micro loan model as an example to follow(http://www.kiva.org/app.php).

    Many small biz in this province and aspiring entrepreneurs, like the gent in the TJ yesterday with the environmental wood lot cutting plan, must spend a lot of time to go begging to large banks and BNB for cash to capitalize their venture. Of course most get swallowed up in the process, lose time that could be spent selling and marketing their business or are deemed too little of a ROI for investment by taxpayers.

    Shouldn’t we shift focus of BNB as a recruitment and investment vehicule for R&D, Export Growth and attraction of outside investment rather then jerk around the smaller guys and ladies trying to make a living? Am I off base?

  3. NB taxpayer says:

    Mikel is right, Big Business may take on a different meaning from province to province. Which is why I think you were a bit joyful when you heard the Irving empire was contemplating splitting it assets. Can you say monopoly???

    Anyway, getting back on topic here, most New Brunswick governments have had very weak policies when it comes to small biz. As I’ve said before, you are not going to have a positive outcome if you keep plunking down millions in corporate welfare $$$ to government friendly firms, companies that don’t need cash injections and declining industries.

    Because in the end, this creates an inherently unfair business environment. Why? Well, for starters, credit and capital are diverted from successful firms to less successful, politically connected firms.

    Furthermore, firms that do not receive government assistance subsidize their government-supported competition through their corporate taxes.

    As well, it is not a secret that many firms in NB (who have become reliant on government handouts/bailouts) build such expectations into their financial plans for ventures, which has the perverse of effect of slowing the growth of other non-institutional sources of financing, including venture capital funds and a critical mass of angel investors.

    I guess what I’m saying is that this ethos has not only eroded the entreprenurial spirit of many in NB, it has created a roadblock for those that have or want to create a successful start up. In other words, the excessive practice of corporate welfare in NB has lead to high taxes (someone has to pay the bill), a weaker and less competitive economy, not to mention, a culture of dependency.

    So when the Fraser institute make claims such as this: “small businesses thrive on government subsidies, but that growth in the small business sector follows growth in big business. New Brunswick will be further ahead in a decade if it can attract major employers and spur concentrated technological and industrial development, injecting tremendous amounts of cash into the provincial economy.”

    They fail to see the obvious here, or what Basiat calls the Unseen, in that, there is no solid evidence that such subsidies or corporate welfare programs actually promote economic development. It was just over ten years ago that the Auditor General examined the issue of regional economic development programs. In it, the Auditor found that there was no “appropriate accountability information about the results achieved”. So for the Fraser institute to make such a claim for small business is way off base in my opinion. Plus, as mikel says, it is not a cookie cutter formula for all provinces. We have our issues.

  4. richard says:

    “I don’t think I have ever seen the media talk about the symbiotic relationship between small and large businesses.”

    Once they connect up the last dot (university research), perhaps the lights will come on in SJ and they will start to wonder about the value of the mediocre UNBSJ ‘brand’.