Throw this one in the trash

Once and a while you read a good theory that seems to make good sense but then the author uses examples that actually disprove the theory.  Such is the case with the commentary today from a Canada West Foundation editorial in the TJ.

He writes:

Governments in Canada routinely seek to lure economic development away from other Canadian jurisdictions by offering subsidies and tax breaks. The end result is a race to outbid one another for something that should not be bought in the first place.

See, that sounds like a good idea.  But then the example:

The latest example comes courtesy of the Ontario government, which is offering subsidies to video game developers and publishers to move to Toronto, likely at the expense of the existing video-game industry in Vancouver and Montreal.

Oops.  Mr. Roach forgets to mention that Vancouver and Montreal built their large video game industries on subsidies – lucrative subsidies.  Ask any NB company in this biz (the few) and they will say that we can’t compete with either Vancouver or Montreal (let alone Toronto).  So all Ontario was doing was leveling the playing field – something that Mr. Roach forgets to mention.

 As businesses are lured from one part of the country to another, the national economy becomes less competitive and resources are wasted as governments compete against one another.

Again, another good and realistic point.  But without total subsidy and tax break disarmament, why should one jursidiction let another one get ahead?  What if the business being ‘lured’ was initially ‘lured’ by huge subsidies?

Ultimately this kind of stuff leads places like New Brunswick not be competitive because subsidies and tax incentives are built right into the competitiveness of a jurisdiction. 

I have pointed out on many occasions that subsidies are not a critical part of attracting investment but they are a small part and if other jursidictions are way out front on tax incentives or subsidies, they will win the business and New Brunswick will lose.

Until all provinces and states stop offering tax breaks and subsidies, New Brunswick should be in the game.  Unilaterally disarming will end up costing us much needed investment.  We will hold are heads above the fray while we sink in the quicksand of not enough economic development.

The last point here is that agriculture is the most subsidized industry in Canada – by a wide margin and we don’t hear the Canada West Foundation talking about that.

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3 Responses to Throw this one in the trash

  1. Samonymous says:

    The federal subsidy game is a dangerous game to play if your competition is other Canadian jurisdiction. Even more so if you are a so-called small “have not” with a declining population. The odds have never been, and probably never will be in your favour:

    http://www.theglobeandmail.com/news/politics/ottawa-moves-to-reshape-the-house/article1300709/

  2. Anonymous says:

    Totally agree. Tough to beat out guys with deeper pockets but we have to have something on the table just to be in the game.

    And a key point here is that the prospect needs to be a well researched, quality company with a good fit for the province. Lund’s comment about seeking out the winners else the losers will find you is so true. We need companies that are stable and expanding not ones that are starting up and have no resourcees (we have lots of those opportunities here within the province). We need companies that will increase our net exports (not displace existing exporters or merely sell to the NB markets). We need companies that have a busness case that shows NB has something to offer for them to exceed (i.e. not just the incentives).

    We are all sick of using the contact center example, but the reason we go back to that is it is about the only major success story we have in recent history. In that case we had a technically advanced telco (fiber lines, digital switches etc) and a readily available bilingual workforce. The incentives inched interested parties over the decision line and the rest is history. Yes there were some dud companies but there were far more winners like UPS, Purolator, Royal Bank, Monnex Insurance etc. These companies are still successfully operating in the province; do you think a tiger team of senior government staff has been pursung their exectives to consider expanding in NB with more than just a contact center? Wouldn’t they be good prospects? There is about 2 dozen of them; I’d like to see our Premier personally pitch 2 a month for the rest of his term and see if we can reel in a winner.

    I am very concerned that our ED people spend far too much time with the losers. They are easy to find since they find you. We have to be sure to seek out the winners and then I am all for incentives. Much rather see $50M committed to a company creating 5000 jobs (using the $10K per job model) than bailing out a poorly managed company or worse yet a corrupt bank. There is not a legitimate arguement that we cannot afford to be in the incentive game when we can afford $50M and $60M thrown away for nothing.

  3. mikel says:

    Just to play devil’s advocate, any suggestions on what a couple of these ‘good fit’ companies would be?

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