Don’t fall into the trap, Fowler

David Shipley in the TJ has a story entitled “Fearing for FatKat’s future” in which the company’s CEO says New Brunswick’s tax incentives are not competitive with other provinces. But there is another line in the piece that caught my eye:

“From what I hear, they’re trying to lure big studios to the province,” he said. “But we have a studio here that’s bringing in millions of dollars.”

Gene Fowler shouldn’t fall into the trap fell into by a pile of other technology firms in New Brunswick. A lot of eLearning firms complained that the province was trying to bring in the big guys as well.

New Brunswick needs to get some critical mass in the animation biz and that will take a mix of big studios and local firms. Orphaned animation studios in the Miramichi is not a recipe for economic development success.

Fowler should be arguing that a more competitive tax credit program would be advantageous for both local and national/international firms. He should be out helping sell the province. That “rising tide rises all boats” thing.

Cloistering away in the ‘Chi and hoping for the best is not an effective way to promote economic development.

The province needs to decide if we are to have an animation cluster or not. If so, it needs to align its investment attraction, trade development, entrepreneurial development, training/education, R&D and related service development activity.

That’s our biggest problem. We have way too many onesy and twosy industries. A chocolates plant here, an animation studio there, a cancer research organization here, an eLearning firm over there. We need to get some clustering happening.

I have talked with a number of firms that have candidly told me they don’t want the province attracting competitors. They intuitively understand the importance of clustering but they worry about employee raiding and upward pressure on wages. I understand this and don’t want to be to judgemental. But at the same time, all of the evidence shows that FatKat would have far more chance of success – long term – in the middle of a well formed animation cluster than an orphan on the periphery.

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0 Responses to Don’t fall into the trap, Fowler

  1. Entreprenuer says:

    I hope you don’t forget that bringing another company in, without the ready availability of adequately trained specialized man-power would suddenly cause wage inflation for the local company, especially if the local company is export driven (generating revenue from outside N.B.). The macro free market theories are good but have very adverse affect when applied on extremely small sample base. In such a “small technical pool” of expertise, it will be ironic if an effort driven by N.B. Govt. Tax dollar can create wage-inflation for the existing company which is contributing to the Govt. tax base through various means.

    In the past, I have seen this happen when in their infinite wisdom, NB Government embarks and Awards large IT Capital projects. The organizations which spent the the time going after the Contract, suddenly have the $$ to go after the the readily trained and experienced workforce in the local vicinity.

    Of course if there was a critical mass of companies and labor pool, we won’t see such abberrations.

  2. mikel says:

    Clustering virtually never means a company wants competition in the area. What they want is associate and affilated industries. If you want FatKat to support ‘clustering’ then you talk about a ‘cluster’ of animation distribution, programming, and cultural industries-namely, television stations, etc. Places where they can SELL their product, perhaps get contracts with, and grow.

    Virtually no company is going to say “boy I’d love it if we had more competition here”. Don’t mean to sound like a strident capitalist but that’s just crazy. Talk to RIM and they are gung ho on ‘technology industries’, but you saw what happened when a competitor made a product that LOOKED a little bit like a blackberry with a ‘sort of similar name’. They aren’t stupid, neither is FatKat. Why would they want wages driven up? Plus, he MAY well be right, the province gets a couple of big studios with a huge cash subsidy, FatKat can’t compete, pulls a Simpsons and moves to Korea or someplace, the subsidies dry up or the big studios get a better offer, then suddenly there is ZERO animation in NB.

    Again, its not up to company heads to sell the province. That’s not their function, never has been, never will be. THey may say something nice about the area, but its not their job. It’s a global marketplace, they have a hard enough time SURVIVING.

    For Fatkat his reasoning makes perfect sense, that of course is why a diverse economy and diverse political voices are necessary. Irving calls the shots in the gas sector, and for that the province loses out on tens of millions of dollars they could make on the ‘free market’. That Irving does that makes perfect sense, because business does what it can to succeed, the problem is not with them, but with the political system.

    Of course this is an old story, its almost two years ago that Nova Scotia made serious tax policy for cultural industries. Irving likes this sort of stuff because they’ve got a big push on for lower corporate tax rates and this adds to it.

    However, there is the other side of that, which is make sure the right hand knows what the left is doing. THe province just gave them a pile of cash, the feds just gave them a pile of cash. WHen taxpayers help foot the bill, they shouldn’t even be ALLOWED to consider leaving, or else they should pay it back. Of course it wasn’t the three quarters of a million that Irving got, but it was still a pile.

    But this is where economists and ED guys part ways with ‘average folks’. Who really cares WHAT industries the jobs are in if it creates a vibrant economy with more people coming to it? If every person in the province could make a high wage by selling, I don’t know, homemade jam, then what difference does it make? (the point not meaning to debate the market for jam but to point out the means don’t justify the end)

  3. nbt says:

    Fowler should be arguing that a more competitive tax credit program would be advantageous for both local and national/international firms. He should be out helping sell the province. That “rising tide rises all boats” thing.

    Yeah, tax credits. Still picking winners and losers. You should reword the last part to “falling tide rises selected boats and sinks all others.”

  4. David Campbell says:

    Mikel, most times your posts are well thought out (even if I disagree) but this time I think you are wrong. I have personally witnessed companies involved in a community sales pitch that would have bought in a direct competitor. You can’t have the wider elements of a cluster (up and down the ecosystem) without a critical mass of animation firms. Now, Entreprenuer (check your spelling!) said “Of course if there was a critical mass of companies and labor pool, we won’t see such abberrations.” In order to get to critical mass, you need more firms. I’d like to see the government double or triple the animator seats at the community college but only if there was a clear plan to grow the sector.

  5. Anonymous says:

    Porter’s cluster concept was promising but ruined by misinformed government donkeys who turned it into a buzz word and meaningless, unsupported strategy (aka a clusterf*c*)

    Nonetheless, there is benefit in having a sector focus; it helps with marketing, designing incentives, developing suppliers etc.

    A weakness of IT is evident here; IT does not need a major supply chain and support structure. Other sectors (manufacturing, energy, aquaculture) have far greater need for support functions creating more of a multiplier effect.

    I fully support targeting a sector and developing a focus if proper research is completed and appropriate strategy developed.

  6. Geeks on Ice says:

    NBT, I didn’t hear Gene say he wants goverment to pick winners and losers. I heard an entrepreneur who is trying to get people who have no clue about the sector or the provinces animation ecosystem to become aware of the fact that he is not competing on a level playing field. Is it not the responsibility of our government to build an ecosystem that allows them to compete in a flat world?

    Otherwise, is it not like showing up to a gun fight with a knife?

  7. mikel says:

    Personally witnessing doesn’t cut it, nobody here takes anything on faith-let’s see (or hear) the examples. Even IF that were true, to argue that Fowler should adopt that position doesn’t make sense. I could MAYBE imagine a case where a large company was making lots of money, couldn’t somehow supply enough product, and welcomed a smaller company-that’s hypothetical though. But that’s not the case.

    As you said on your city blog, FIRST you have the industry, then other things grow. Like RIM or the auto companies, as Fatkat grows, it will branch out, employees will leave and start their own firm. FatKat doesn’t do CGI, a company could set up to work WITH them and grow in that sector.

    But for them to say what your suggesting goes against the very definition of capitalism and common business sense. If I open a convenience store do I go to government and try to get them to open more convenience stores on my street? You COULD argue that more convenience stores ‘in the city’ or province would make sense-then they could form a lobby association. It may have a benefit that FatKat could get a benefit by having allies pushing public policies. However, that’s only one ‘maybe’ in a field of higher wages, less clout at the animation school, local council, etc.

    That’s all hypothetical, I’d just add that I wouldn’t hold my breath for Fowler to adopt that line, and personally don’t fault him for saying it. It would be NICE, but I’d be more worried about the Irving effect than the Fatkat effect.

  8. nbt says:

    First of all, my statement was directed at David because he’s the one suggesting the “tax credit” route, not Fowler.

    Secondly, it’s fine to tout credits and subsidies, but if you play that game in a small province like NB, be prepared to get continuously burned by Quebec, Ontario and BC. Which is what has happened for years (although, it happened more so when the federal Liberal caucus was bloated in central Canada and TPC grants were a dime a dozen for Ontario and Quebec companies).

    Anyway, where I disagree with David, and anyone who touts the government as the primary vehicle for economic development for that matter, is that in the end, putting so much weight in trying to lure firms here with subsidies without addressing the longtime problems that have historically prevented us from attracting companies and investment in the first place is a recipe for further failure (and failures).

    It does not matter how the package is wrapped, it’s what’s inside the package. And that’s what Enterprise NB, ACOA, and DREE (and many of the consultants who have tried to solve the puzzle) never took into consideration. Yes, there is a definite a strong need for some critical mass in the animation biz in NB, but it won’t happen unless the fundamentals are addressed.

    In other words, until the Liberals address their spending habits and the debt (which is 7 cents of every dollar we send to freddy), then not much will change, especially if they maintain incentives for big business, such as a $1-million deal with Rogers for call-centre jobs and training.

    From a New Brunswick perspective, it’s actually quite simple. We have had a long history of being in bed with business and add to this the insidious activities of the federally funded Atlantic Canada Opportunities Agency (ACOA) in the economy and you can see why several NB businesses and politicians alike are hooked on corporate welfare.

    I don’t know guys, as I see it, we can continue going down the traditional path of reliance on the Government of Canada which has created tremendously negative economic legacy of dependency or, alternatively, we can embark on a new road towards self-sufficiency.

    We need to address the (at least) three decades of grants and make-work programs which have created enormous distortions and roadblocks to a healthy and competitive economy. Or we can continue on our marry way of hoping that maybe this time (after thousands of tries) the old formula will work.

    You know what they say, “insanity is doing the same thing over and over again hoping for a different result.”

    Anyway, looking at the experiences of other countries and their successes, I can honestly tell you that the global jurisdictions which
    address their historical failures and move forward with passion and commonsense, are the ones who prosper. And not just in the short-term but in the long-term wherein they have a much better environment for business to invest in. Btw, this will be my last comment here as I don’t see the point of repeating the same thing over and over again. Anyway, happy blogging David, it’s been a blast while it lasted!

  9. mikel says:

    Yes, Lord knows that kids aren’t starting animation companies in Miramichi and I heard that one large animation studio said specifically: “I wouldn’t set up in New Brunswick because of their historical reliance on regional development programs”. Not like, say, Montreal or Toronto, sure, no tax credits or subsidies there!

    That whole argument makes zero sense. A tax credit by definition lowers corporate tax payable, which supposedly is what NBT is always talking about-less taxes on corporations. Well, here is a corporation that ‘would’ have lower corporate income tax than it does now-I thought that was always NBT’s POINT.

    It picks winners and losers because of how it operates NOW. The feds just cut them a cheque for over a hundred grand, the province cut them a cheque as well. THAT is picking winners and losers-so, I might add, is giving Irving three quarters of a million dollars to their trucking firm. There are OTHER trucking firms you know.

    By having tax credits for ALL animation companies you certainly aren’t picking winners and losers. You could argue that the animation industry is being picked as a winner over, say, well-I was almost going to say oil and gas, but they pay almost no tax anyway, so let’s make it a hypothetical ‘poison manufacturing industry’. IF animation gets a tax credit that ‘poison manufacturers’ don’t get then you could say that the animation sector is the ‘winner’, and that’s exactly the point. If you want GOOD corporate investment, that’s where the tax credit goes. And again, thats why there is ZERO interest in tax credits here, but all KINDS of interest, tax credits, royalty handouts, etc., when it comes to energy and mining.

    Of course its better to do like Nova Scotia, and tie the credits in with workers, that way it actually creates jobs. Anybody that says that the NB government is actually interested in creating jobs need go no further than that policy. They virtually NEVER tie credits to jobs. They and the feds gave FatKat money with no regard to jobs whatsoever-the fed money was just to buy more computers.

    It IS somewhat hypocritical for a guy who just got a bunch of taxpayer dollars to gripe about NB not being friendly enough. Of course from a business point of view a tax credit can be relied on year in and out, whereas he keeps having to knock on doors and fill out forms and check the prevailing political winds before getting a government cheque.

    But I am thankful I won’t have to keep making THAT argument over and over.

  10. Anonymous says:

    Much of this uncertainty and flawed incentive policy would be resolved if the target was wealth creation rather than job creation.

    In other words; quality rather than quantity

  11. Anonymous says:

    Are you kidding?

  12. Gene Fowler says:

    Glad to see the article has stirred up a conversation.

    Just for the record, the province has been great to me. So have the feds. Many grants, loans etc. tied to job creation, equipment etc. There’s no way I would have been as successful if it wasn’t for them.

    The tax credits however allow us to keep all that we’ve achieved. It’s the big one. The mother of all subsidies and the only reason why Canada has a film and television industry at all.

    I need the tax credit to be on par with other provinces, as it makes it much harder otherwise to win gigs.

    As for the comment regarding bringing big studios in. I’m all about it. It’ll raise the bar for everyone in the province. Sure it might increase wages, I’m not afraid of that. Fatkat offers values to employees that are to some, more precious than cashola.

    We need to grow gaming and animation in this region. So by all means, bring them in. Just don’t forget about the ones you already have is what I hinted at.

    I’ve been waiting for almost 2 years to go to the press about this story. The tax credit expired in december of 2006 and they have just been keeping it alive until they decide on whether or not they want such an industry in the province.

    I know they do, they’d be silly not to. However this doesn’t help me win gigs. I’ve had to do it in other ways that have made it very hard to operate.

    Thanks for all the comments folks.


  13. David Campbell says:

    Good luck, Gene. In many ways you are a trailblazer. Every successful cluster development starts with a few leading companies. We wish you well.

  14. mikel says:

    Well, you don’t get any straighter from the horses mouth than that. It does come down to what David says about ‘the province needing to decide’.

    This is where it gets strange. IF the province ‘would be crazy’ to not want a successful animation firm in Miramichi and IF they are looking at big studio’s, then why in heaven’s name would the tax credit issue be in limbo since 2006?

    Why, when Nova Scotia announced their huge package didn’t the next day the NB government announce they’d at least match it? You HAVE to know that people are going to drive an hour to take advantage of a better financial offer.

    That comes down again to public policy. Why wasn’t this tax credit mentioned by the Miramichi politicians during the election? (if it wasn’t). Why isn’t the Miramichi city council raising bloody hell about it? I posted before about an employee who went to Sheridan College and moved from Toronto to the Miramichi to work at FatKat and loves it. Yet look at all the fuss that’s made when Irving blackmails the province to pay up or they move to Quebec (although I notice now that NB has been ‘good’ to them they are announcing a headquarters-‘as long as people don’t object’).

    The tax credit thing is a good example that proves David’s point, if there WAS more of an industry there then perhaps this tax credit thing wouldn’t have dragged on so long.

    However, I just want to reiterate that we live in a global market, there is no reason a COMPANY can’t be FROM the area and get financing internationally. That comes from connections. Flash is dirt easy to use, animation is literally in anybody’s power, and you can tell from the comment above what the benefit of having control in the hands of local people means-corporations tend to think ‘handouts’ are DUE to them, they don’t think like the above that ‘governments have been good to us’. Like Ganong and others, people FROM an area tend to want to STAY there, if at all possible. I’d echo the comment above, don’t forget about the companies there-and get busy building more-at least while looking to bribe other big studios.

  15. Anonymous says:

    Absolutely serious. How many people are leaving NB for $9 per hour jobs?

    The focus needs to be on the creation of quality jobs, not quantity.