If you don’t like the word cluster, scrap it but….

I have been arguing we need a more coordinated sector-based approach to economic development.   Even as I argue this, new research is emerging that suggests a ‘cluster-based’ approach to economic development may not be as effective as fostering a more international approach – more international partnerships – not a regional approach – may be a better way particularly for smaller jurisdictions.  That is the argument put forward by my good friend Peter Lindfield in his column today.

I don’t have a problem with this thinking in theory but I still maintain that competitive advantage is an industry thing – not an economy wide thing.   There may be some attributes of competitive advantage that are common to all industries (say a low Canadian dollar or a low cost operating environment) but when you look at the things that make an industry competitive- its management talent, its workforce, its innovative capacity, its access to infrastructure, its ability to develop markets, build international partnership, access VC, etc. that tends to be quite industry specific.

So when people talk about policies that create competitiveness – and at the same time eschew sector focus, I don’t understand the thinking.  Bernard Lord cut small business taxes to the bone – a classic example the thinking that you create ‘general conditions’ and the investment will flow in.  It didn’t.  Shawn Graham cut personal and corporate income taxes and the investment was supposed to pour in.  It didn’t.    Lord had some vague ‘innovation’ agenda – not even as vague as Graham’s – and where did it get us?

If you don’t like the word ‘cluster’ then scrap it.    If you want your firms to look outside your borders to connect into some kind of ‘international’ cluster and build partnerships with companies and institutions abroad, fine.  But the idea of sector focus is not incompatible with that.

What I am saying is that the leaders of our key growth sectors and the various government and educational institutions that impact their potential growth should get together and map the conditions under which that sector could be successful and achieve significant growth for the New Brunswick economy.  I am saying that has been done very weakly in the past usually with no accountability or even rudimentary measurement of what is success or failure.

I firmly believe the old model is failing or has failed.  I am told weekly by economic developers at all levels that with some exceptions such as shale gas ‘we have nothing to sell’.  They will tell me the high value of the Canadian dollar, the increasing pressure on costs and a tightening labour pool is eroding any advantage they had in the past.  This is forcing many of them to invest outside NB and others to drive a productivity agenda to get more efficient.   Others are holding on hoping for 75 cent Canadian dollars again but I don’t think that day is coming.

I say we need to answer that question ‘we have nothing to sell’ and answer it head on.  If we think there is potential to grow the ICT sector, then let’s have a clear plan with a well defined path to get us there.  If we need a special tax break for that sector, bring it on.  If we need to pump up a certain type of graduates, bring it on.  If we need to set up research chairs at the university in specific ICT disciplines bring it on.  If we need to set up an ICT partnership with Bangalore, bring it on.  If we need to have ‘sales staff’ in Israel trying to bring investment and partnerships, bring it on.  If we need to have a government as model user, bring it on.

But do this as part of a plan that at least most of the key stakeholders can agree with.  Because very little of what I describe in that paragraph can be done by one organization.

If you don’t like my approach, by all means, bring on alternatives.  I’m all ears.    But back it up with evidence.   Just cutting taxes and crossing our fingers won’t work – it’s been tried.

By the way, for those of you who think I am some kind of big government guy picking winners and losers, remember the core of my approach has the private sector leading and the government and education institutions supporting industry growth strategies.    Let’s just to be clear about that.    In my Pollyanna-ish world there would be a private sector funded industry group – maybe even on a regional basis – with funding from government and other stakeholders that would develop a growth plan for their sector and government and education would plug in where there is a fit but industry itself would lead.

My economic development colleagues are rolling their eyes but I still think in the longer term that is the best model.

This entry was posted in Uncategorized. Bookmark the permalink.

12 Responses to If you don’t like the word cluster, scrap it but….

  1. Tim Coates says:

    If it’s true that your colleagues are rolling their eyes, please post their alternatives are. Otherwise, it’s shameful. Your approach is a solid strategy.

  2. richard says:

    “Bernard Lord cut small business taxes to the bone – a classic example the thinking that you create ‘general conditions’ and the investment will flow in. It didn’t. Shawn Graham cut personal and corporate income taxes and the investment was supposed to pour in. It didn’t.”

    And yet, I heard the CTF guy Lacey saying that we have to keep taxes low or we will all burn in hell. The concept that having lower tax rates than your neighbor is the key to prosperity seems to be a persistent myth. Lord is supposedly going to run in Moncton for the Harperites; if he is successful I am sure he will give us more of the same tax bull.

    I think that the cluster strategy that has been proposed before in this blog was always connected to export markets. Does that not connect the two strategies? If you are producing innovative products in this day and age that would almost automatically involve international partners at some stage. And a group of companies working in one sector would, it seems to me, be more likely to produce useful innovations over the long term than a small stand-alone. I think this is really an issue of semantics.

  3. > In my Pollyanna-ish world there would be a private sector funded industry group – maybe even on a regional basis – with funding from government and other stakeholders that would develop a growth plan

    Would that only be the case. I’d love to see the private sector in NB put some money forward. It would allay my scepticism about a private-sector-led initiative.

    Indeed, the commitment of private sector money may be a necessary condition for such a strategy to work. When it’s all publicly funding, the private sector simply uses the initiative as a money supply, and does not actually participate in the strategy.

    What is much more common from the private sector in NB is the I-got-mine attitude that says “lower taxes, especially MY taxes, and cut public services, except those that fund MY operations.” When the funding ends, businesses fold, the private sector goes away, and awaits its next handout.

    I very very rarely find any common ground with the Canadian Taxpayers Federation, a lobby group of the worst sort with murky funding and overt partisanship. But when they raise questions about the billions of dollars being channeled to business with no clearly defined return, I am with them.

    If the private sector is willing to put up its money, it can lead. But if it’s going to do nothing more than consume government cash and generate nothing in return, then it should get out of the way and let government do whatever good it can do.

  4. Downes and I are in full agreement on this issue.

  5. How does NBITC stack up as the IT organization pushing a strategy for its sector?
    There appears to be a decent amount of private sector involvement and they are being heard at least at some levels.

    Now if we could consolidate the regional groups such Tech south-east and Propel ICT we could perhaps get some traction.

  6. richard says:

    “But when they raise questions about the billions of dollars being channeled to business with no clearly defined return”

    Except of course the CFIB is very happy to have billions channeled to business with no clearly defined retun, when those billions come in the form of tax breaks. We have had several admins now that have cut various business taxes, with no obvious return in terms of economic growth or job creation. A rational organization would suggest we try something else, but I don’t hear that from the mad hatters that run the CFIB.

  7. scott says:

    The idea that it is a winning strategy to form (forced) clustered industries within an already uncompetitive region, which by-and-large rejects sound market principles, is (in my view) foolish, and irresponsible. Readjustment, like in Holland and Ireland, need to take place first before anything can take hold, whether that be a strategy where clusters formed by government innovation grants and loans brings prosperity or that tax cuts spur on clumps of global investment.

  8. richard says:

    ” tax cuts spur on clumps of global investment.”

    That test has already been done. Tax cuts are not effective as a development strategy. Move on.

    By contrast, you can find several regions within NA where govt investment in R&D has resulted in sustainable growth in high-wage industries. The problem is, in a region like NB where the relative amount of such investment (public and private) is low, do you attempt to choose sectors in which to invest? And, if so, what is the most rational manner in which to do the selecting?

  9. scott says:

    “That test has already been done. Tax cuts are not effective as a development strategy. Move on.”

    I guess my eyes have played tricks on me because I have still seen no proof that regional development programs have resulted in economic growth in this region. What I have see, on the contrary, is strictly wasteful spending that tends to distort incentives and politicize economic decisions. Usually ending with a legacy of unstainable growth, failing companies and a lack of entreprenurial spirit know more to repell investment rather than attract it.

  10. NB Film Worker says:

    You should take a look into NB films tax credit program that just got cut. If they stick with that decision then many workers like myself will follow the companies/producers and head to NS. CBC did an article on how even a small town like Caraquet gets million dollar spinoffs from the film industry when they shoot the TV show Belle Baie there and that’s just one example.

    http://www.cbc.ca/news/canada/new-brunswick/story/2011/03/25/nb-film-fight-1245.html

  11. scott says:

    @NB Film Worker
    Losing one production company in such a small community is a very difficult reality, but instead of using all of your energies lobbying government for subsidy breaks to fund a CBC production (which is already state sponsored), I’d advise the mayor to aggressively tout the area to other private film producers south of the border, who are currently outsourcing, and will be looking to relocate to an area where cost structures are economical and tax are low. Sounds like Caraquet has both those selling points. Not to mention some added longterm experience in housing the biz.

  12. richard says:

    @scott
    “I guess my eyes have played tricks on me because I have still seen no proof that regional development programs have resulted in economic growth in this region.”

    What we have seen is that across NA, broad-based tax cut strategies are ineffective as economic development programs. These programs are vote-buyers, not effective ED strategies. We have also seen that certain public investment initiatives, such as R&D, can result in sustainable growth and high-wage employment. That few if any such initiatives have been launched in NB explains in part why this region lags the country in median income and job creation.

Comments are closed.