My column in this morning’s TJ looks at the sources of ‘true’ economic growth – specifically incremental economic growth. I have received several emails already today about this column so let me clarify a few points.
It can be hard to clearly identify what is new economic activity versus what is just shuffling things around or just providing a temporary boost to the GDP.
Something like the call centre sector in the early 1990s was true growth. In 1989 there was virtually no money flowing into the province from that sector (investment or revenue) and by 1999 it was worth conservatively $200 million per year. The bulk of that $200 million stayed in New Brunswick and paid for groceries, housing, cars, restaurants and generated millions in tax revenues for government. All new cash.
The shale gas industry would be ‘true’ growth because it would represent new investment and new revenue streams and a new supply chain opportunity for NB SMEs.
But beyond these clear examples, it gets harder to identify true growth. As I point out in the piece, over time population growth is a major driver of GDP growth as the majority of GDP comes from household spending in the province. But population growth follows core economic growth and not vice versa as we are seeing right now in New Brunswick.
I didn’t cover it in the piece but I have always wondered just how much impact all the government funding programs are having on economic growth in New Brunswick. I am not sure we spend enough time analyzing this and assessing trends – particularly over a longer time horizon. According to the New Brunswick Capital Markets Study, governments invested $211 million into NB businesses in 2011 in the form of grants and loans. Does that investment turn into true and sustained economic growth? An even more interesting question is how much of that funding could have been secured through other sources?
I have discussed this before but I’ll raise it again. Back in the mid 2000s I did an analysis of 40-50 firms in a specific NB community that had received funding from at least two government sources over the previous decade (mostly BNB and/or ACOA). I cross referenced these firms with the directories that government was publishing at the time and found that over half of the firms had not grown – at least in terms of total employment – over the decade (several had gone under).
At the time I recommended that government should track how the companies they provide taxpayer funds to grow over time. Not just over a few years but over a decade or more. I’m not sure if they do – if they are they don’t make it public.
I am not criticizing government taking on the role of banker when there are gaps in the market, competitive forces require it and there is a clearly definable return on the taxpayers’ investment but I do think we could and should do more to understand how we are impacting the long term trajectory of the economy.
In the end this comes back to one of my main themes. We need to figure out what level of economic growth do we want over time and what, if anything, can we do to influence that growth from a public policy perspective. This isn’t about Soviet style five year plans and direct management of the economy. The federal government has levels of growth it would like to see and it tailors policies based on economic realities.
We should do the same thing in New Brunswick. If we need 3 percent real GDP growth over time to sustainably fund public services and infrastructure, we should say so and we should think about the role of public policy to support that. This view of economic development goes way beyond the ‘bank for business’ model we have in place right now.