The ostrich sticks his head out of the sand for a pronouncement

There is an article today in the TJ where a Fredericton businessman worries the “province risks losing its head offices as business leaders look abroad for companies to acquire their firms.”

This is not as cut and dry as some will say.  This paranoia over foreign ‘takeovers’ is much exaggerated.  Sure there is risk but there can be considerable reward from becoming part of a national or international firm.  GTech buys Speilo and grows it.  The former owner banks a couple of hundred million and sprinkles much of it around New Brunswick.  On the flip side, Oracle buys Whitehill and we are unsure of the final outcome.

The truth is that New Brunswick can’t try and insulate itself from the global economy.  We have tried this and how’s that working out?    I looked at this and by my calculation New Brunswick has the lowest percentage of firms either publicly traded or with non-bank capital sources from national or international sources.  We could use an infusion of cash and the kind of market development opportunities that come from being better connected internationally.

As usual the New Brunswick ‘thinkers’ get this wrong in this article but the expert from McMaster gets it bang on:

Benson Honig, an entrepreneurship professor at McMaster University’s DeGroote School of Business, agreed that encouraging startups is of greater concern to jurisdictions across Canada that lack the scale of investment available in the United States – over succession planning for existing firms. “In my view, the premier of New Brunswick should be thinking, ‘How come we don’t have 50 new startups in a year,’ instead of worrying about, ‘Who’s buying our old companies,'” Honig said.

This is the fundamental issue.  Not whether or not a few of the “old faithfuls” like Neill and Gunter get bought out.

And by the way Honig is not talking about mom and pop start ups. He is talking about 50 new Whitehills or Speilos.  That is what will drive the economy and if a few of them get bought out by global firms, clap clap.  Don’t spend it all in one place.

 

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19 Responses to The ostrich sticks his head out of the sand for a pronouncement

  1. Paul says:

    Why, with all this ED development discussion, does no one speak about the concentration of wealth in this province, and the lack of private investment in any of it.

    We had large businesses in NB, i.e. forestry industry, who were profiting handsomely in the late 1990’s early 2000’s and were not investing in either innovation or diversifying there products. It is a lost opportunity, and our successive passive, follow the business leader politicians did not have higher expectations from these businesses.

    What we get is more tax payer funded subsidies for these businesses with no hope of a real return. We may get some tax revenue for a few years, but ultimately the long term isn’t there.

    It was interesting to read the report for Northern New Brunswick authored by Mr. Campbell which regurgitated the same old “industry Development opportunities” that have been repeated for decades. The industry, which was given all out fiber by the McKenna clan, failed New Brunswick miserably because of the lack of investment and innovation when times were good, and then up and pull out when times changed.

    Pardon my cynicism, but the large entities that you are recommending to come in and buy or start ups only take and don’t give back.

    I believe that a big part of New Brunswick’s failure falls at the feet of the business community.

    Until the ED consultants chew on corporate responsibility and concentration of wealth in this province, ED will not ever develop much in New Brunswick unless there is new ore found or some other natural resource for businesses to take without any long term accountability.

    Forget the Universities and government, we should demand more from business.

  2. Anonymous says:

    Is there any New Brunswick companies not affiliated? What about Atlantic Hydrogen?= Emera?

  3. mikel says:

    That’s a separate issue Paul and one thats well discussed here over the years. The comment above has been said in one form or another by virtually everybody here, including Mr. Campbell.

    It is a mistake though to claim that businesses just take. They are businesses, not moral entitities. A province provides a service-labour force, environment, etc., and the business makes money. SOME companies are notorious ‘takers’, and the forestry industry is a good example of that. However, forestry companies operate in a political system-but this is an economic development blog.

    Irving, for example, isn’t ‘quite’ as bad as other forestry companies-who by the way have a ten year carry forward on losses so haven’t paid taxes in ages. If you watch ‘Forbidden Forest’ you will see that even UPM is quite a progressive company in their home in Norway-because Norway has the legislation. New Brunswick has always been the cheap date which has few restrictions-again, thats a PROVINCIAL problem, not a problem with foreign businesses. No doubt a business may try to lobby a position, but its the government that holds the cards (at least in resources).

    But resource industries are the problem that is trying to be addressed. Knowledge based industries can’t ‘take’ from a province because there is no ‘thing’ to ‘take’. They work with employees to build a better mousetrap (so to speak).

    But don’t worry, there is plenty of talk here about corporate responsibility. And its a constant refrain that the business community is not doing enough to attract NEW business opportunities. But its not exactly a socialist blog, we aren’t talking about the government taking over Irving and nationalizing it (I think that would be great by the way). There is a two pronged effort for dealing with that problem-Richard will say that there needs to be new industry players to combat the ‘old guard’, and I’d say there needs to be grassroots political support for changing the policies that favour the ‘old guard’ over progressive enterprises (the community forestry model is the one I keep mentioning with regard to the forestry problems).

  4. Anonymous says:

    While I generally agree with your post, as a taxpayer, I am troubled to see investments that I made (via government) transferring to ownership outside NB. What I mean by that, certain companies that have played the funding game well work the system so upwards of 75% of their development is funded by government programs. Should we not have some sort of strings attached to our investment? If I invest 20 million, 15 million of it government money,and sell my company for $100 million, should the taxpayers not share in that success? Maybe we should have a business sales tax that is waived if the new owner retains the jobs in NB for 5 years. I’d be interested in your views on this.

  5. There is some logic to that (#4) but it would almost require government taking an ownership stake as a result of their grant or investment in a specific company. I do believe we should be deliberate and intentional about working with the new owners to try and retain the jobs in New Brunswick – and expand. I hope that BNB is camped out at the Oracle head office working with them to try and get an expansion of their facility in Moncton.

  6. mikel says:

    Part of this problem is the media. In many cases government involvement is only a fraction of operating costs. To the first posters point, several critics pointed out that lowering taxes makes it harder to get back the money from an investment. But over at CBC the people there are lambasting the government for a measly 1 million investment over four years for a progressive company with over a hundred employees.

    The only time the media talks about things like this is when a company goes belly up or they make it sound they are ‘keeping tabs’ on an oppressive government. Government investment is simply the way things are done, and while there is a point to making sure business deals make sense, its a serious hampering to simply expect it to just stop.

  7. Anonymous says:

    It is not a fair evaluation to compare business investments with only dollar amounts and jobs.

    Capital requirements are a huge factor. Typically, I would need a lot more money to set up auto manufacturer or a brewery than say a software company or contact center. Sometimes, capital intensive operations can have more of a community spin off with servicing, parts supply etc.

    Not saying we should not consider knowledge industry jobs; just pointing out that they may need less government support than a more capital intense business.

  8. Anonymous says:

    Bang on re the media. The frenzy they attempt to crea(e around a failure promotes inaction.

    Looks to me like the Fatcat file was a good risk. I suspect that Atlantic Yarns and Atcon are a different story; not because of the absolute dollars but because they never made sense in the first place.

  9. mikel says:

    The problem with NON knowledge based jobs, which I guess is a bad phrase, but the result is that it creates a dependance no different than EI. Canada’s investment in research and education has been plummeting, and now we see the result, when the economy gets bad, it’s time to ramp up the blue collar jobs so that people don’t end up rioting in the streets.

    I’ll repeat my local example of our local conservative MP who brags about his government ‘putting people to work’. The example he cites is a local street that is going to be redone, even though it doesn’t need it. So the conservatives have been axing CBC jobs through big cuts, yet will be creating short term sign holding jobs which only delay the inevitable.

    As for the software comparison, I dont think thats true. The difference is that spending is in different areas. The molson factory only provides 40 jobs, the Irving gas terminal as few as 8. At its peak FatKat had over 100 jobs. While Irving gets gas elsewhere, it won’t help NB workers, and I’ve read about what little barley production there is in NB, so Molson isn’t providing other jobs there either.

    Manufacturing is highly automated, and often doesn’t provide nearly the level of jobs now that places like RIM provide. This has been well known and is why the OECD has been telling Canada its in big trouble if it doesn’t start sensible training programs.

    But again, in case thats a different anonymous poster, Atlantic yarns and Atcon make as much, or more sense ‘on paper’ than FatKat. To take David’s point, what you need is a group of companies, and then if one company closes then the industry doesn’t simply disappear. WIthout FatKat I suspect that like programmers, animators ‘couldn’t get out of NB fast enough’. And again, I like the idea of a public television station, if there were a local market, then a group of companies could grow out of that, expand outwards, and if one goes under then its not the end of an industry.

  10. Samonymous says:

    McCains has faired well in the takeover department.

  11. Anonymous says:

    I don’t think New Brunswick should be so quick to consider trades people second class citizens just because they don’t wear a tie to work.

    In Europe, tool and die makers and other trades people are highly regarded. Sure we don’t need more 12 week flag person jobs ( nor tourism, pavers, brush cutters etc) but I would be happy to see automation technologist positions, robotics techs, machine programers etc. For example, people are earning good wages at the tissue plant here and that is highly automated. I like the idea of exporting finished goods like paper towel and toilet paper rather than just chopping down trees and exporting them for someone else to have the good jobs.

    Yes,knowledge jobs are part of the new economy but we should not abandon modern manufacturing and processing opportunities.

  12. Anonymous says:

    McCain’s survives, because of emerging Countries. Visions of Harrison and Wallace. It is now run by Trontonians. Hang on!

  13. Anonymous says:

    Regarding r&d spending, OECD reports Canada’s r&d spend to be very good but the effectiveness of the spend to be poor. This year’s Federal budget had a record $5.1 billion allocation for science and technology adding to a succession of increases.

    Our poor research performance is attributed to where and how we spend the budget. Canada spends the third highest amount on academic research at 37% (going from memory on that figure, I will correct it if I am wrong; just need to dig out the paper). The US, who ranks high for research performance, spends 16% on academic research.

    Improving our research performance is not just whinning for more money and more time. We need more industrial influence on research areas and budgets. We need more efficient spending (far too much waste on administration). We need more comprehensive strategies and less duplication. The science and technology ministry ought to be one of the most significant after finance and health.

  14. mikel says:

    I didn’t want the post to go longer, but when I talk about ‘knowledge industry jobs’ I use the OECD definition, which includes skilled trades. In Switzerland, for example, many do not attend university, in high school they begin skills training. If you’ve ever been to switzerland then you’ve noticed that virtually every town has two stores-a watch store and a knife store. This isn’t a moral judgement on people, this is talking allocation of funding.

    A lot of Canada’s funding is included simply in the fact of funding post secondary education. To get into federal funding is a long issue. In agriculture the feds ‘fund research’ but its more like a simple subsidy to Monsanto and Pioneer. And numbers can SOMETIMES be misleading, sort of like in Port Hope where the feds brag about spending 5 million per year in research on the health effects of plutonium processing, and yet have never even done a simple blood test on any workers or residents. The government can be good at SAYING they are providing services that aren’t really there.

    The research funding simply isn’t there, and that can be found by looking at statscan figures of how few canadians actually work at researching. The whole point of the skills training is getting people to actually do work in the field, and that just isn’t happening on a large scale.

  15. A few points:

    Re: tradespeople. They add more value to the economy than many desk jockeys like myself. I’d love to see New Brunswick grow a large manufacturing sector – with good wages and benefits

    Re: Mikel. I have had three people today ask me if I know who Mikel is. To everyone out there who keeps asking, I don’t know. I think he lives in Ontario and he writes well thought out rebuttals to most of my posts. To the 50% that like Mike, maybe he will like his growing celebrity. To the 50% that don’t like Mike, you are free to post rebuttals of your own. Yes, it is about a 50/50 split.

    Re: Brookfield Asset Management. Look. I am not going to post all your comments here. They aren’t related at all to the content. I am just not into conspiracy theories. If it is the ‘end of the world as we know it’ as you attest – I guess I am not smart enough to grasp it. If a few evil corporate profitmongers are trying to bleed NB dry, I just don’t see it sorry. There must be some other blogs to post your stuff to.

    Re: “the report for Northern New Brunswick authored by Mr. Campbell which regurgitated the same old “industry Development opportunities” that have been repeated for decades”. We breathlessly await your workable solutions that lead to sustained economic growth in the province, the creation of good, high paying jobs and the generation of enough tax revenues to ween ourselves off Equalization. If you have such solutions, please replace my regurgitated opportunities.

  16. Anonymous says:

    I guess posting a blog and on something to do with NB and business, one gets the impression, one would be fairly bright, but when a mikel is one of your favorite to suck around,then someone like me , who is a little better at investigation, should stick with a superior brain, like Charles Leblanc, eh?
    You probably suffer from the bilingual affliction.Anyhow, now that you have been informed of Brookfield Asset Management, you might keep an eye open. Like its odd how stocks start falling when a certain , you know, becomes involved? MDI, BMA, etc?

  17. mikel says:

    Off topic, but I DO live in Waterloo, ontario. Its surprising that that many people have emailed with an opinion. I don’t think I ever even THOUGHT of emailing and saying “who is Richard? I don’t like his posts”.

    I think this stuff needs to be debated, and Mr. Campbell doesn’t have all day for debate so I like to add to it, partly out of enjoyment, partly because its important. I don’t ALWAYS rebut Mr. Campbell, like Richard and the blogger I’d like to see more foreign direct investment in NB as long as its GOOD investment that benefits NBers. That’s partly because its where I grew up, was (poorly) educated (much of it my fault), and recieved training. It’s partly because I have family and friends there, and other reasons.

    I have a website at http://www.tenantsact.org and yes, its (usually) the same mikel that posts at Charles Leblanc’s blog and occasionally at the CBC (more this week because my wife’s away). While I don’t like notoriety, it is important for reasons that will hopefully soon become apparant. Obviously I don’t like the ‘thumbs down’ and any time somebody has constructive criticism that I can take to change that I have no problem hearing it, and usually even try to adopt it (my posts now are MUCH shorter than they used to be). The ‘preachy’ quality is unintentional, and is not meant to be there, none of this is judgemental, it is simply criticism (in the original sense of the word). The caps are meant for enunciation, not ‘yelling’, and a few have made jokes about it, but I use it more sparingly than I used to and its more an affectation than anything else. And yes I know some will simply not like a person who uses words like ‘affectation’ in comments at a blog:)

    I am FAR less likely to post if others do so. On topics that seem to have quite a variety of opinions I see no need to add my own, usually somebody has already said it. So theres some motivation for that 50%.

  18. Anonymous says:

    Thanks for the clarification; I interpreted “blue collar” to be the opposite of white collar hence the misunderstanding.

    I totally agree that skilled manufacturing and trades jobs should be part of the economic development mix for New Brunswick.

  19. mikel says:

    Skilled trades jobs are actually the most important, the difference is how they are educated. In europe the ‘entrepreneurship’ factor is built in-partly by culture. In europe education is highly subsidized, when people are educated to develop new projects and initiatives its just as often for the ‘good of the community’. It’s not a socialist haven by any means, but I remember talking to a lot of Swiss and you wouldn’t believe how long they go on about how they love their educational system, how its one of the best in the world (which is close to true), and how they want to develop their skills in ways that make the community look good.

    We don’t have that culture anymore, perhaps due to our proximity to the states. So the alternative to that needs to be what we’d call ‘entrepreneurship’, since its a simple fact that in being honest most students should be told “its highly doubtful you’ll find a job in this field in this province”. That would mean a focus on export development, and at least a BASIC training in finding funding, tax credits, and the wide world about us. NONE of that is included in what we’d call ‘trades’, which is essentially ‘heres how you use this machine, now go out and find a job’. It’s pretty much expected in many cases that the student will simply leave to go where the jobs are.

    That could have been shorter since it comes down simply to starting to merge what we think of as white collar and blue collar. ACOA is actually pretty good with that, once you have the DESIRE to make a go, they will help point you in the right direction for training, etc. I know of several small businesspeople who have set up a shingle and gotten small grants, and with the grants comes ‘mandatory’ training in things like accounting. There should really be an equivalant focus that also says “look, if you want to progress you’ve got to look at concrete products and the wide world to export them to”. Because I know from experience that the day to day hassles of just getting things done means many simply don’t have time to THINK of developing their business model.

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