The sometime paradox of local firms and economic development

I had a long, winding conversation this week with someone on the topic of why some local firms seem hostile to economic development efforts.  From Salesforce.com to Molson Breweries to UPS and dozens more – when there are efforts to attract industry to New Brunswick inevitably there will be someone in the media suggesting it is a bad idea.

At one level this seems counter-intuitive.   In the US, for example, many Chambers of Commerce mount investment attraction teams and are actively out recruiting business to move to their city.  I recently read a book that talked about the Chamber in Pittsburgh and its efforts to attract industry way back in the late 19th Century.  Doesn’t a rising tide lift all boats?

Not really.

For some local companies, attracting firms here means more competition.  Not for local markets as – with very few exceptions such as Costco – economic development groups are not out looking to bring in competitors for local market activity.  They are seeking export-based businesses.

The competition is for labour and other resources and if economic development efforts are successful it does lead to rising costs and can make things uncomfortable for incumbents.    One business leader told me recently “I am all for attracting industry to New Brunswick – just not in my industry”.

So, to summarize there are firms that directly benefit from investment attraction and new job creation (i.e. construction firms, retail, services, etc.) and there are those that may feel a somewhat negative effect (those that may have their workforce raided, for example).   The latter, unfortunately, can be expected to resist – publicly – efforts to attract industry.

I have tried to convince these folks of the importance of clustering and building a broader labour pool and supply chain.  If you attract Google it is good for the whole IT industry and this is primarily true but there will be some firms negatively impacted.

But the bottom line is that New Brunswick needs economic growth, business investment and good paying jobs.  If the local business community is creating enough economic activity from within to generate the tax base to pay for public services that would be sufficient but it is not – and guess what – there are few locations in the world that are self-sufficient at a local level.  Even New York City is aggressively trying to attract industry.

I can’t deny that successful economic development leads to rising wage levels.  Between 1991 and 2006, the wage spread between customer service workers in Moncton (i.e. receptionists, accounting clerks, etc.) and the average wage in the region was cut in half by the call centre industry.   The average wage in 1991 hovered at around a couple of bucks beyond the minimum wage.  Now it is nearly $8 above the minimum wage.  That did put pressure on local firms that needed to hire this class of workers – no question.   This was somewhat part of a national trend, however.

The last point is on the use of incentives.  Some firms will say they have no problem attracting industry but they don’t like giving taxpayer money to them.  As I said in my column this week, that is a reasonable position but one I don’t agree with.   If all Canadian provinces and US states got together and banned the use of incentives I would be the first one up cheering but until they do, I support incentives – as long as there is limited risk to the taxpayer money and a strong ROI on the investment.   In other words, if the government puts in a million and gets out ten million in tax revenue over ten years, that is a positive ROI.

I would just say to my friends and colleagues in the local business community to keep an open mind about this stuff.  New Brunswick needs economic growth and do you want to be the one seen as standing in the way?  Healthy economies across North America get that way through a mix of dynamic, local entrepreneurship and good quality national and international firms.  We need that here as well.

 

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3 Responses to The sometime paradox of local firms and economic development

  1. Given that you may be referring to me as someone seen to be hostile to economic development, I would like to point that that could not be further from the truth. I firmly believe that rising tides float all boats, eventually. That said, I do have two concerns.
    The first is the issue of incentives or subsidies. I have never said that Salesforce or any other shouldn’t get them. I somewhat clumsily tried to point out that all companies should get them. My ask as a born in NB company is that the playing field be equal. PQA, and many other “local” companies, don’t have the economic clout of a company like Salesforce so I don’t really need another disadvantage. Maybe an automatic tax rebate for all companies is fairer? I am not an economist so I don’t know the entire impact, but does it really matter who creates the new job?
    My second concern is that spending to create the jobs without spending to create the talent pool necessary to fill them could be a problem. If there aren’t enough people here, eventually companies, mine or Salesforce or any other, will have to start looking elsewhere. The eventual result of that is that growth happens where the talent is. It is reasonable to ask who would go and look first. It won’t be me but if a large company finds a bigger talent pool, isn’t that a risk. So, let’s work to make sure that there are people and talent for everyone.
    Believe it or not, as a business owner I don’t have a problem with rising wages here. I have to deal with that where ever my offices are. I hate the argument that it is cheaper to live here so there should be a discount. It just isn’t true and we should never use it as a reason for lower wages. Pay a fair rate for talent and experience wherever you find it. As a home owner and as a father of three, more money in the economy is a good thing. It is my job to sell services to the world that allow me to pay the salaries. I just need the people to pay.
    I understand the promise of a cluster. Will it work? Will people from Vancouver or Toronto, or Montreal move here because there are so many good jobs? Maybe. But maybe not too. Those Google jobs exist in those places too. I love it here. I am not sure that I would move here for an equal job. For all the benefits of fresh air, friendly people, and no traffic, there are also limited air travel options, limited arts and entertainment, and dare I say it, fewer education and healthcare options. So some might move but will it be enough soon enough?
    What about immigration? I believe that the number of foreign immigrants is capped at 635 people through the nominee program. That isn’t enough to help, we need a lot more. And can we provide enough infrastructure and neighbourhoods to keep the ones that do come? We can but it will take money and commitment beyond the first step of attracting them.
    What we can do is keep our own kids. Give them huge tax rebates to stay here after they graduate. Maybe give them forgivable loans to go to school here in the first place and tie it to remaining here afterwards. Attract kids from other places using the same offers. Tax holidays for any recent grads from anywhere. And publicize it. And make it automatic or at least easy to get.

    As to business subsidies, here is an idea i would like to discuss. Instead of giving money to attract companies to locate here, and to be fair, instead of giving it to local companies to grow, offer rebates to non-NB companies to use NB companies to provide services and maybe goods. That way, “away” companies see a direct benefit of using NB companies, NB companies get business and create jobs, and most importantly, NB companies develop skills and expertise that they can then sell to other clients. The knowledge and equity stays in the province and is leveraged far beyond the original company that is attracted. Maybe an economist can poke lots of holes in that for me because it seems to easy to me.

    Thanks David, keep spreading the word.

  2. Oliver D says:

    Keith: Wasn’t your company the recipient of similar grants both here in NB and in NS in the past?

    I have to agree with David regarding the use of these incentives. At this point, they are a necessary evil because EVERYONE offers them, and if NB didn’t then at least some of these jobs would go elsewhere.

  3. Richard Reeleder says:

    “So, let’s work to make sure that there are people and talent for everyone.”

    I’d agree that we need to have a talented workforce available, but how do we go about picking and choosing the sectors that need the talent? NB is in austerity mode and we are seeing cuts in education. There are reports that the local high school is losing about 60% of elective course offerings this Fall. If that is true across the province, then there will likely be many high school grads in a few years that lack exposure to some of the sectors where we need more employees.

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