Retrospective Auditing of Economic Development

The TJ outlines their recommendations for a makeover of BNB.  I would offer one more piece of humble advice to the new Minister of BNB.

I think it is time for a retrospective audit of economic development outcomes in New Brunswick.  I don’t think this would be extremely difficult to do depending on how wide you cast the net (scope).

The idea is simple.  Look at all the agencies that are funded by government that have as a primary mandate economic development.  Think BNB, Enterprise Agencies, Innovation Foundation, IRAP, certain RDC programs, etc. (not to mention the federal organizations ACOA, Industry Canada, IRAP, CBDCs, etc.).  Do an audit of every single company that has received support (funding or otherwise) and conduct a simple ROI on the government economic development efforts.

The provincial government alone has spent easily over a billion dollars over the past 10 years directly on economic development (not including loans/loan guarantees and other funds it expects to get back).  The exact number would be easy to calculate.

You then conduct a full survey of all the companies that have recieved support to try and determine how many jobs, at what wages and how much tax revenue has been generated as a result of the government support (this is fairly easy to estimate if you ask the right questions).  That number over the 10 years should be far more than one billion dollars (or whatever the total spent was) or the economic development effort did not generate a positive return on investment.

Economic development is about the only government spending that can and should be tied directly to a tax generation ROI. 

There are those that say that tax generation lags economic develpoment effort (i.e. today’s efforts payoff in three years).  Fine.  Then add a lag time to your model.  There are others that say what about all the good work that doesn’t directly lead to new tax revenue (retention efforts, general promotion efforts, etc.). 

That doesn’t cut the mustard.  Even if you believe that things like retention are economic development, over time economic development spending by government must lead to a positive return on that investment or what is the point?

Then, after doing the first retrospective audit, I would conduct an annual survey of all companies touched by all economic development agencies in the province each year.  This might cost, on the outside $50k per year but it would be well worth it.  The IDA in Ireland tracks all of its companies and provides an updated total on job creation, taxes generated, etc. each year.  That is what we need because remember, the jobs created at UPS back in 1994 are still generating tax revenue for government.  For me, that is fair game to claim on an annual basis.  We need a rolling total.

This would achieve at least three powerful results:

1. It would shine a light directly on the system as a whole and help government understand if it is even working at all.  Because it is hard to deconstruct the component parts, a system-wide view would be the ultimate measure of success.

2. I think it would show what companies (or more accurately what type of companies) use government support to truly grow and what companies (or more accurately what type of companies) use government support to fund daily operations.  I have said here before that there are number of companies in the province that have been accessing various government funding programs for 20 years but are still about the same size they were 20 years ago.  We need to use government support as a catalyst for growth – not to help specific companies get through a cash flow crisis.

2.  It would clearly define deliverables for the leadership in these economic development groups.  If the heads of these organizations know that they will be held to that simple standard (for every million spent on economic development, we expect $1.5 million in new tax revenue) they would be laser focused on generating more tax revenue.

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9 Responses to Retrospective Auditing of Economic Development

  1. mikel says:

    Has anybody done such studies? Right wing think tanks are always making this complaint, so you’d THINK they’d have done similar things to say ‘see, I told you so’. That they HAVEN”T, and spend more time on social policies makes me wonder…

    The other side of that is that its the type of study put out by places like the Canadian Centre for Policy Alternatives, but they don’t have any contacts in NB.

    Federally, all the agencies go through ACOA. I did a quick search and found some things of interest. First, there are NO external audits that I can find. Although the information they provide they quote statistics canada data, so thats something.

    From their 2003 fact sheet they found that businesses recieving ACOA funding or expertise (clients), the ‘survival rate’ was two and a half times greater than other businesses in the area. The growth rate for clients was four times greater. Now, obviously that needs further study, but it certainly highlights the importance of the agency (which could be good or bad depending).

    The problem with such a study is that the only people who can do it is government, and they are the ones least likely to. WE could probably get part of the way there, at least getting some numbers, and some recipients should be available online (at least what happened to them).

  2. Anonymous says:

    I agree with you, but there is something that needs to be said yet one more time. We can reorganize BNB as much as we want but we will NEVER see results if we don’t give the guys/girls at BNB the tools to do their jobs, i.e. a province that is truly attractive for investment and that offers an environment conducive to business growth at all levels. For this to be achieved, ALL DEPARTMENTS, crown corporations and provincial government agencies need to have an economic development mandate. Otherwise, and I have said this many times here too, we are going to continue trying to sell snake oil.

  3. Samonymous says:

    I second that. Maybe they can make BNB contracts open to the public on a government website Let the citizens who fund them cast their judgments. Much like Paul Martin’s government did with Minister’s spending in 2004-05?

    Although, as that proved, it quickly was used as a political tool as opposition parties quickly made hay of the abuses in spending. But you can’t argue the final result, which was to embarrass the culprits and curb wasteful and useless spending. Taxpayers got their ultimate justice.

  4. Tristan says:

    This makes way too much sense for anyone to pay any attention to it. What are the chances that something like this will ever happen?

  5. Anonymous says:

    Good post but ÿou have partially answered the matter in question with your outline.
    With so much duplication and ovelap with the ED agencies you identified it would be impossible to be effective; by the time you add in municipal ED offices, CBDCs and others your list would triple.

    A more interesting experiment would be to gather the groups together, identify one of the rare successes and then ask which one agency led the effort. The resulting turf war would demonstrate part of the problem with the NB strategy (or you would get a self preserving answer like it was a team effort). Creating more ED agencies does not qualify as ED success.

    While BNB is generally the scape goat for ED failures, there are hundreds of people and millions of dollars allocated to other groups with little accountability. Attend a few trade missions and host the annual golf tournament and you’ve met expectations.

    The point is, the entire ED strategy needs review (not just BNB). We need to be more efficient. We need more focus. We need better Federal cooperation. We need to identify and exploit our strengths. We need to be proactive rather than reactive we need results.

  6. anonymoose says:

    Do they already do this internally and not release the info?

  7. Anonymous says:

    What we are all after is results. Strategies, analyses and catchy slogans will never substitute for effective, passionate economic development leadership.

    We have all run into the unmotivated ED staff that can write a book on why they cannot get anything done and what needs to change. Well, try as they may, they will not get anywhere until a leader, likely a Premier, steps in and. Shows determination to get some positive action with ED.

  8. richard says:

    “until a leader, likely a Premier, steps in ”

    You have identified the central problem; NB lacks a leader with the guts to make the changes NB needs. Thus no meaningful changes to BNB, thus the tendency to adopt unhelpful ‘solutions’ advocated by the AIMS Klowns.

  9. Samonymous says:

    I think the Canadian Taxpayers Federation published all the grants, loans, forgivable loans, etc. (using Access to info request) awarded through Technology Partnerships Canada. They also calculated amounts which still hadn’t been recouped by Industry Canada in regards to the Technology Partnerships Canada investment program.

    And as we know from Donald Savoie, obtaining info, like this, in New Brunswick is next to impossible.

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