You got to love academics

There is no doubt that university profs/Phds tend to be smarter than the average joes like the rest of us but when it comes to economic development even the profs show some sophomoric tendencies.  Consider Université de Moncton economist Pierre-Marcel Desjardins.  I have always said that the chasm between economists and economic developers is extremely wide.  Economists will talk about macroeconomic factors and input-output models to explain some economic finding and economic developers will say “golly gee, look what happens when you insert 7,000 customer contact centre jobs into a small urban market like Moncton”. 

Here are a few of the Professor’s comments in this article – just for fun:

Moncton is an anomaly, says Université de Moncton economist Pierre-Marcel Desjardins. It is doing well economically even though it is far from the main economic centres of the continent, and even though recent times have proved trying for many other parts of North America.

Oops.  The data shows that particularly in the US (but also Canada) many smaller urban areas far from the larger Metros out perform.  Boston, New York, Philadelphia, Chicago – all underperformed the smaller urbans like Reno, Phoenix (getting big now), etc.  He may be referring to the recent past (i.e. the past 12 months) but even at that there are many small urbans doing very well across North America.  The bulk of the economic pain is relatively concentrated.

“What is Moncton’s key to success?” will be the question Desjardins tries to answer more precisely as he goes on sabbatical later this year.

Imagine going on sabbatical to determine this.  It might, just might, have something to do with 7,000 call centre jobs, a growing ICT industry, a stable manufacturing sector and a consolidating/rebuilding retail sector.  Having said this, it would be interesting to determine the relative impact of entrepreneurial activity in the Moncton region compared to the national/multinational firms and the linkages between the two but something tells me the prof won’t be studying this issue.

Desjardins said the Moncton metropolitan area is unusually diversified for a city of its size and distance from major centres. Typically cities of Moncton’s size are classic mill towns or something similar, places dominated by one or two key employers.

This is a lovely myth.  Economists look at NAICS data and the call centre jobs are dispersed throughout the NAICS system (financial call centres are in the financial sector for example).  We have something like 7,000 people working in call centres in Greater Moncton.  That is about 15-17% of the private sector employment in the Moncton region – or well about the concentration of CN employees in the 1970s.  Now, these jobs are dispersed across many sectors but a rapid migration to Web-based customer service could and I emphasize could see a steep decline in these jobs over the next 10-15 years. 

As for his assertion that Typically cities of Moncton’s size are classic mill towns or something similar, places dominated by one or two key employers.  That’s not true either.  That may be true for CA areas that have 30,000 or so but those with 100,000 or more residents do not tend to have only one or two large employers (with the possible exception of Saint John).  Even a 2,000 person operation in Moncton would only represent less than 3% of the employment base in Moncton (and we have one – the Moncton Hospital and its affiliates).  You would need to have a single company with 5,000 or more employees to make it ‘dominated’ and we don’t see that in the vast majority of urban areas in Canada.

He challenged his audience to think of any other similar sized city that would be as immune to death of any one sector of economy as Moncton is.

Disruptive technologies, professor.  If the call centre sector went down (say lost half its employment), it would hurt.

The fastest growing centre in Atlantic Canada, Moncton is growing ahead of the national average.

I just took another look at the Census.  The Moncton CMA was the 37th fastest growing from 2001-2006 (out of 144).  Not too shabby but let’s keep things in perspective. Alberta had over a dozen CAs/CMAs that grew faster than Moncton.  Ontario had 10.  BC had 10.  Quebec had a bunch.    Moncton has been growing well – but only in the context of Atl. Canada.  In order for New Brunswick to have achieved a modest 2% growth in population – Moncton would have had to more than quadruple it’s growth rate.  In other words, if Moncton is to be the growth engine of the province, it is underperforming spectacularly.  Note that I prefer an economic development strategy that results in economic growth around the province rather than  single urban area (or two like the last 10 years).

The bottom line here is that we need to recast the discussion.  Desjardin and his researchers are ‘shocked, shocked to see real economic development in a peripheral area like Moncton’ (read the article).  I have a contrarian view.  I wonder why Moncton hasn’t become the U.S. version of Phoenix (inhospitable climate 600 miles from L.A. – Moncton inhospitable climate 600 miles from Boston and Montreal). 

Classic economic development theory suggests that capital investments agglomerates in hot, fast growing urban areas.  Then that urban area overheats (costs through the roof, oppressive government regulation, stifling unions, etc.) and then capital investment migrates to areas with lower costs, less regulation and more open labour markets.  Then the cycle repeats.  Places like New York cut taxes (I remember them talking about cutting 99 taxes – how could you even have 99 different taxes in the first place?), cut regulation and try to be more business friendly and they begin to attract investment back.

That is why just about every region of the U.S. had its turn at above average economic and population growth during the 20th Century.  In the past 10-15 years it has been the new southwest but the northwest, midwest, Florida, new south, Texas, etc. all saw periods of above average growth.  Even New England as a region took its turn.

Unfortunately, Atlantic Canada has not ‘had its turn’ and has underperformed the natioanl average population growth in Canada since Confederation.  That is what the Professor should turn that keen intellect toward solving.  Take Donald Savoie’s book about economic development in the Maritimes and try to explain why the region hasn’t attracted more investment over the decades.  Savoie makes good points about government policy and bias but there is more to the story.

Long rant today.  If you made it through, congratulations.

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15 Responses to You got to love academics

  1. I guess I shouldn’t be as hard on economists but I guess what generates this hostile response is the unidimensional thinking. These guys will look at historical data and then project out from there. Right now Moncton shouldn’t be talking about how immune it is from downturn or how diversified it is. Moncton should be figuring out where the next 7,000 jobs are coming from because they sure are not coming from call centres. Call centre employment accounted for something like 40% of all new private sector job growth from 1991 to 2006 (and if you like input-output models this economic activity likely induced another 10%-15% of the job growth. That means over half of Moncton’s economic growth came from a sector that just about everyone thinks has topped out.

    So the real issue is this. If you want Moncton to continue to grow at around 6% per census period where are those jobs going to come from? We are now in this mode that there is some type of auto-job creation going on (i.e organic growth) and there is some truth to that but the retail sector growth will stop soon. Manufacturing in the past few years is actually shrinking in Moncton. There is some growth in personal and business services but that is mostly reacting to the strong economy. Where are those primary drivers of economic growth for the next 15-20 years?

    I fear that 20 years from now we will be in a room and an old, wizened Professor Desjardin will be putting up Powerpoint slides detailing Moncton’s slow decline from 2006 to 2031 and asking inverse questions compared to his current view about economic immunity.

    I think City Hall and the Centennial Building in Fredericton should be concerned that a new growth engine is not emerging in Moncton. I think it could be life sciences but….

  2. mikel says:

    Dude, calm down. Why would you expect that to be an economists job? An economist is not an ED officer. Everything the guy says is true, depending how you look at it. Moncton IS a success story by most standards except the obvious ones, and even in poverty statistics isn’t much different than many other cities.

    Actually, go google this guy and check out his many publications. Many of them will definitely be of interest to you, and should generate some good comments and criticisms. We discussed this a thread or two down, economists-GOOD economists don’t project the future. The data simply isn’t available.

    I read the article and saw nothing about ‘economic immunity’, in fact he states that Moncton faces the same challenges that virtually every city faces. IF Moncton declines then he WILL be putting up slides showing that, thats his JOB.

    This is unfortunate because while there are VERY serious economic and social problems in the province, this is just more fluff to try to pacify people into thinking there are no problems. You missed a big point-IRVING employs almost as many people in Moncton as ALL the call centres put together. So what about the problems if the government ever pisses off Irving?

    Moncton really doesn’t have the problems that ‘New Brunswick’ has, at least not northern NB. You mention that your view is provincial, well this guys isn’t. Yes, ‘many’ cities are doing well, but yes, many are not. I did a search of all canadian cities with over 100,000 and found many (Guelph, Kingston, Sudbury) WERE dependant on either government or single industries.

  3. Anonymous says:

    A few posts ago you talked about the cheer leading , rah rah efforts. That is exactly what this is; a bit of feel good. Right up there with the top 7 intelligent cities, top 10 places to do business in Canada etc.

    Such hollow accolades have its postive effects;as long as we don’t start to beleive our own BS. Case in point with the province; they actually beleive things are great despite the net outmigration, low wage averages and poor literacy rates.

    McKenna retired from the Province in 1987; if my math is correct that is 12 years ago and we are still coasting on his conntact center initiative (hatched with the leadership of NB Tel). Can you imagine if each premier since that time Frenette, Theriault, Lord, Graham) had one such initiative to claim as their legacy? Our province would be in much better shape.

    The point is, it is nice to celebrate our successes for the benefit of thee outside world, but we need to keep a grip on reality internally.

  4. You guys are right. This guy was speaking to a group of shopping centre executives. The message should have been all sweetness and apple pie. My bad. I guess I didn’t obey my own rules on this stuff.

  5. Anonymous says:

    @mikel

    “GOOD economists don’t project the future”
    > There is plenty of examples of GOOD economists that project the future. The difference between a GOOD economist and THE REST is that GOOD economists don’t use only economics and statistics tools to make their projections (they use sociology, history, psychology, etc.). Remember, there is a reason why economics departments belong in faculties of arts, not in faculties of sciences.

  6. Interesting post and well argued. I take the point about 5000 call centre jobs – that does represent a concentration, and a source of economic activity over and above the retail sector. That said, as you suggest, the next 5000 jobs will not come from call centres.

    That said, I’m not sure we should stake our future on “classical economics”. You suggest, “capital investment migrates to areas with lower costs, less regulation and more open labour markets. Then the cycle repeats.” This can be seen as a call for lower taxes, less powerful unions, fewer regulations, etc.

    It may be the case that these other centres “overheat”. It may also be the case that economic activity produced by lower costs, less regulation and more open labour markets is unsustainable. business may be attracted to such areas, but *people* want higher wages, protection from poor environmental and other practices, and job stability.

  7. Samonymous says:

    I still don’t think Moncton has tapped into (or connected to) surrounding areas (urban fringe, rural fringe, etc.) through increased infrastructure (better train and bus services). The retail sector has done well in attracting people who migrate to the city on a part-time basis (say a couple of days), but it must do better to attract a stronger workforce via high paying positions like RIM.

  8. Certainly what I described above as a classical economic development timeline doesn’t always apply and has less relevance in a knowledge-based economy.

    I know that when everyone got together in Moncton in the late 1980s and did their ‘plan’ – no one mentioned call centres. The term telemarketing centres appears in the 1995 strategic plan and by the latter part of the 1990s it was all over the place.

    The call centre bubble was an economic development anomoly. Now this community is moving out of that bubble and needs to think about what’s next.

  9. mikel says:

    Sorry, GOOD economists don’t project the future and pretend its reliable. As mentioned, economics belongs in the ‘arts’ catagory, not science. Science is ‘somewhat’ predictable but with caveats. Any economist ‘predicting the future’ always ends with the caveat “depending on public policy or consumers”. What if Shawn Graham suddenly got a backbone and told Irving that there was no more subsidies, and an international environmental organization was going to be doing the EIA on the new refinery. The first thing Irving would do is pull all its head offices out of Moncton and St. John. There goes all that ‘growth’.

    As for classical economics, IF that were its suggestion then the reason to do the opposite is right in the definition. It’s basically a theorem for making life bad: “get all kinds of congestion and traffic, make you pay more for property taxes with fewer services, then when all the companies leave your city is devastated”. Wow, where do we sign up?

  10. Samonymous says:

    “What if Shawn Graham suddenly got a backbone and told Irving that there was no more subsidies, and an international environmental organization was going to be doing the EIA on the new refinery.”

    So even more regulation in a statist mecca, and less corporate welfare for multi-nationals. That’s not good if you always want a business to have a stake in the process. Cutting Irving off would entice them to seek greener pastures as they aren’t staying in the province because it’s a heavenly business climate. That I can say with confidence.

  11. mikel says:

    I think that’s also what I said. However, for readers to be clear, there is currently NO independant environmental review of the new Irving refinery. The ‘statist mecca’ in New Brunswick is hardly ‘anti business’, as we’ve discussed before, there are virtually NO serious environmental regulations in the province of New Brunswick. It is a ‘corporate mecca’. Business not only ‘has a stake’, they have the ONLY stake in the province. The government has literally said “whatever you guys want to do is fine with us”.

  12. Samonymous says:

    The ’statist mecca’ in New Brunswick is hardly ‘anti business’, as we’ve discussed before, there are virtually NO serious environmental regulations in the province of New Brunswick. It is a ‘corporate mecca’.

    True. As I’ve always said, corporate welfare is bad for the environment because government continues to prop up business that continue to break environment laws. Just google AV Cell Inc. + polluters. And they aren’t even one of the worst in NB:

    http://www.cela.ca/files/uploads/NB_mr.pdf

    http://nbtaxpayers.blogspot.com/2008/03/should-taxpayers-be-funding-known.html

  13. Samonymous says:

    It really is hard to fathom this practice ever stopping in NB (corporate welfare that is) as the two governing parties have said nothing on this issue. Although, I believe the spectre of forgivable loans and grants to big business was raised by the aTLANTICA PARTY in the Nova Scotia election and also by Roger Duguay right after he became leader of the NDP:

    “What will become of the latest $100 million dollar Northern New Brunswick Initiative? Rather than attracting outside firms with forgivable loans and grants, it is time to start investing in New Brunswickers.”

  14. Samonymous says:

    Oh, I know Richard will like this video since he thinks all Libertarians are swayed (brainwashed) by right-wing “think tanks.” Enjoy:

    http://www.fraserinstitute.org/newsandevents/frasertv/Tax-Freedom-Day-Canada-2009.htm

    Sorry for all the clutter in the post/comment David, I really gotta get my own blog. lol

  15. richard says:

    “Remember, there is a reason why economics departments belong in faculties of arts, not in faculties of sciences.”

    Data points are data points, regardless of where they come from. Economics are often in arts faculties, not because they utilize philosophy or other ‘arty’ notions, but because they confuse their opinions with facts. We don’t get anywhere by confusing what we might want with what the data say. We’d all be better off if our educational system put more emphasis on developing good skills in observation, hypothesis generation, data collection and data testing. Many benefits would flow from that – for one, we wouldn’t have to listen to the libertarians anymore. Perhaps they could turn to poetry.

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