A series of conversations recently have convinced me that my messaging needs to be even more plain and to the point. My aunt told me she reads my column every week and enjoys it but “can’t understand a word I am saying”.
New Brunswick basically has a long standing private capital investment problem. I know that sounds clunky but nevertheless I can’t find a better term. Call it business investment. The point is that the province hasn’t generated enough investment to fuel an economy that creates enough tax base and jobs to sustain the public services we want or the population for our communities that we need. There are certainly areas of NB that are doing fine – I just spend a couple of days in Fredericton – but on the whole, the province is not generating enough investment to sustain the economy and population and that leads to more and more transfers from the Feds and out-migration of the population.
If you believe the premise – and I would say the majority do not – they think that in Canada you will always have rich areas (i.e. Alberta) and poor areas (i.e. NB) and excess taxes from the rich should pay for the poor. I had this articulated to me nicely this week by a person with zero involvement in any kind of economic development or public policy thinking. Just a neat, crisp, position on the issue – that kind of resonates.
However, if you do believe my premise, turning to solutions is exposing the extent of the challenge to addressing it. Will it take a low tax environment to attract this investment? No, we have the lowest tax environment (business, property and payroll taxes) in North America according to KPMG and that hasn’t led to a flood of new investment.
Will it take low business costs? We are already among the lowest cost locations in North America for most business activities – but not by a wide margin. A company might shave off 10% here ont the raw cost elements versus Michigican or some place but they could make that up in productivity. Besides, if a company really wants to cut costs to the bone – they will go offshore.
I say we need competitive tax rates and a competitive business cost environment (it should be cheaper here than urban Toronto for example) but there has to be more. History tells us that the most expensive places to have a business tend to massively outperform the cheapest (Silicon Valley versus New Brunswick).
This is where the ‘hands off’ crowd comes in. They say we shouldn’t pick ‘winners’ or ‘losers’. Just cut taxes to the bone and cross your fingers.
I’m a hands on guy. It’s not about the grants or loans – that’s been oversold as the main driver of new business investment. Long term, sustainable industries are built around regions that have a very strong business case for investing there. Tax incentives and other government may be part of that but, again history tells us, there must be more.
So without oil to attract the investment (apologies to Cecil Freeman), how else is it done? Across North America and Europe there are only about 10% of jurisdictions (states, provinces, local regions) that generate a large part of their tax revenue from royalties off natural resources. It sure helps but there are other ways.
Effective economic development has something to do with entrepreneurship. How come we are not creating a new class of high growth, global firms based here? Where are the new John Manships? If we had just 100 new entrepreneurs who were able to build 100 companies with $100 million in annual revenue (mostly from markets outside NB) – we wouldn’t be having this discussion.
It has something to do with attracting investment. It has something to do with energy. It has something to do with R&D. It has a lot to do with our universities.
But it starts with a shared idea – that we need this build up of the private economy in the first place.