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)
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.