Small biz policy

 We continue the debate about the role of small business and economic development.  I suspect we will not come to a consensus any time soon.  On the one hand, we have those who say “small business is the engine of the economy” and “most new jobs are created by small business”, and so on.  These folks believe the way to fix the New Brunswick economy is to lower small business taxes, reduce red tape, provide more capital sources for small business and then watch the economy boom.

I have a different view.  I see the small business segment of the economy as fundamental to the success of a healthy and dynamic economy.  An effective small businesses environment creates competitive markets – keeping prices stable and forcing continuous improvement and better outcomes for consumers.  If there are 25 architects in Moncton that variety should create better ‘markets’ for the consumer.

It would be crazy to imagine a world where there were 2-3 Walmarts in every sector of the economy and they dominated things.  We would be back to Ma Bell – high prices, low productivity and very little innovation. 

In a healthy, functioning market easy entry allows small, niche players to come in and challenge the bigger, complacent guys.

And I would argue that is what 95% of New Brunswick’s small businesses do.  They are janitors, plumbers, convenience stores, coffee shops, consultants, architects, dentists, hair dressers, electricians and 700+ other categories of business.

I just don’t think the way to significant economic growth is to focus on how to grow these businesses.  The number of janitors in a market will sort itself out.  There may be a role in government to monitor local markets to make sure there are functioning in a competitive fashion – a sort of Sherman Anti-trust act at the local level.   I know that creeps some folks out but I believe that monopoly and even oligopoloy in many cases is not good for the consumer in a local market.

So, with that as a long winded lead in, I was surprised to find out that food and clothing (in particular) is so much more expensive here.

In developing low income measures for local markets, Statistics Canada uses what they call the Market Basket.  The MBM attempts to measure a standard of living that is a compromise between subsistence and social inclusion. It also reflects differences in living costs across regions. The MBM represents the cost of a basket that includes: a nutritious diet, clothing and footwear, shelter, transportation, and other necessary goods and services (such as personal care items or household supplies).

The following table shows some benchmark cities compared to Moncton against two of the main components – food and clothing.  According to this analysis, it is 25.8% cheaper to purchase your basic clothing needs in Quebec City than it is in Moncton.  It’s 11% cheaper to buy basic food needs.

While there may be a lot of things going on here, this could indicate we don’t have particularly competitive markets in the area of clothing.  Maybe there are a few large players that are keeping prices up.  I know that folks will be laughing by now because there seems to be a clothing store on every corner in Moncton but the data is what it is.

Market Basket Measure Thresholds (2008 base) for reference family (Variance from Moncton)

  Total threshold Food Clothing
Halifax 4.2% 2.1% 2.3%
Fredericton 4.1% 4.9% 0.0%
Saint John -0.8% 4.2% 0.0%
Quebec -5.2% -2.2% -25.8%
Hamilton -3.3% -11.0% -24.2%
Winnipeg -4.9% -4.3% -17.4%
Regina -3.0% -4.4% -17.6%
Calgary 7.5% -0.3% -17.8%
Kelowna 0.3% 4.2% -11.4%

For 2008.  Source: Statistics Canada. Table 202-0809.

My point is that government policy towards small business (those working in local markets) should be to foster competitive local markets.  

The monkey wrench, of course, is that small business for the most part (just like large business) doesn’t like competition.  Some (many) would like to have a little cornered market for some profit cream skimming. 

But in the end, places like New Brunswick need to have well functioning local markets.  The consumer’s cost for electricity/water/fuel in New Brunswick has gone up much faster than the Canadian average in the last five years.  Prima facie that would indicate we may have some dysfunction in those markets that is adversely impacting consumers.

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One Response to Small biz policy

  1. mikel says:

    That really should be two different blogs. Small business policy is a big topic, and to go from that to the prices of food and clothing-neither of which has ANYTHING to do with small business, and competition policy? WHew.

    I think the discussions here have pretty much sorted out the ‘lower tax’ and small business policy debate. Just the fact that most small businesses don’t make any money in their first 3 years says it all (actually in the states they have changed that and accountants are asking if people can handle no income for FIVE years).

    And its an important debate to have, what with Alward promising the sky and seeming to have no idea what is actually going on with regards to economics and politics in the province. It really says something when the NDP is the most fiscally conservative party in the election!

    As for competition policy, thats something the entire country has a problem with, and canadians pay higher telecom prices because of it (by the way, there was TONS of innovation from ‘ma bell’ before privatization, it could even be argued there was more than from ‘mr. bell’). The Green Party is the only one that has broached that topic, with some comments on the Irving monopoly. It’s ironic that rules and regulations were an integral party of any capitalist economy to Adam Smith, people seem to think ‘the invisible hand’ is God or something who will make everything right as long as government stays out of the way.

    Finally, thats interesting on prices because I usually do my own basket survey whenever I go home. There’s no doubt you always pay more for beer, and there isn’t anywhere near the selection of local produce (its getting better though), but the prices I’ve found to be remarkably similar. However, I should stress that my family is a member of the Co-op, and if you don’t have a co-op then I have no idea what may be going on. One thing I do know is that Loblaws has typically had much lower prices than Sobeys, so if you only have a sobeys…

    Sobeys has better sales, but grocery is another item where Canada suffers from a lack of anti competition policy. I seem to recall a study from years ago that said that canadians overpay for groceries something like 40%. It’s not a coincidence that the richest family in Canada now is the Westons.

    On the subject of competition I’d point out that here in a city of over 100,000 we essentially only have TWO grocery stores to choose from. I have to drive out to a neighbouring village, which has more choice in grocery than here in the city. I’d point out too that thanks to buyouts, there are only three gas stations left-Canadian Tire, Petro Canada, and Shell. Pretty soon we’ll be back to ‘ma bell’ in a lot of industries, and I suspect we’ll see a LOT less innovation.

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