Defining brand spanking new growth

I lobbed my new theory about the importance of “brand spanking new growth” in my column recently and a couple of folks sent me emails indicating they weren’t sure my ‘point’.  Because columns are only 600 words, it is hard to expound on concepts with a lot of examples but I will attempt to do so here with examples.

What brand spanking new economic growth is NOT (or might not be):

If a firm gets a big contract in the US, receives government  funding to hire 50 new staff and then lets the 50 after the contract.  A year later the firm gets a new contract, hires 50 new staff and gets government funding to hire that new staff.  This is government providing a cash flow subsidy to help a firm secure a contract – it is not leading to ongoing brand spanking new growth.  Regardless of your view of governments grants/loans, etc. most I think would agree with me on this.   The province gave UPS $10 million in 1994 to help with the recruitment, training and set up costs of that firm’s national back office consolidation in New Brunswick.  19 years later they are still here and still have hundreds of employees (down from their peak employment, however). That, IMO, was brand spanking new growth.

If an industry, like forest products, sheds 5,000 jobs  during a downturn and then 2,500 of these jobs come back after the downtown – this is not brand  spanking new economic growth.

Costco sets up in Fredericton.  This is not brand  spanking new economic growth as that firm will just access the same market for retail and food products as the rest of the firms in that market. It is good for Fredericton directly because it expands its retail reach but for the province – other than the capital investment – there is little incremental economic activity.  Some would argue there is a productivity edge from big box that frees up cash for spending elsewhere but that effect is outside the scope of my brand  spanking new economic growth theory.

New restaurant, coffee shop, accountant, bookkeeper, electrician,  hair dresser or any other of a thousand local services.   This is local market activity.  It may lead to better competition, more innovation, better prices but it is not brand  spanking new economic growth as per my theory.

Incremental provincial or local government spending.
What brand spanking new economic growth IS:

Shale gas would be brand spanking new growth.  It would build a new supply chain of small and medium sized firms.  It would create brand new jobs and brand new tax revenues for government.

Any kind of export-intensive industrial activity – but it needs to be incremental versus cyclical.  If it is bringing in new money – enlarging the economic pie here – it is brand  spanking new economic growth.

But please note the comment above about government grants/loans.  If the taxpayer dollars are just creating short term economic activity, that is not brand  spanking new economic growth (by my definition).  Almost a decade ago, I reviewed something like 50 firms that had received funding from multiple government programs in the previous five years and – I forget the exact numbers it was too long ago – something like 40 of them were roughly the same employment or smaller five years later (some had gone out of business altogether).  It certainly looked like the public funds were just supporting cash flow rather than leading to fundamentally larger employment and economic output in those firms.

Brand  spanking new economic growth from brand  spanking new industries is particularly valuable according to my theory because it leads to new supply chains, new post-secondary educational programming, possibly new research in universities, new employment – not just cyclical ups/downs, new capital investment, etc.  Customer contact centres were one such industry back in the early 1990s.  The IT industry fits here somewhere but many of the firms I mentioned above were IT so finding ways to foster genuine new growth should be the focus.  If you have virtually no cloud computing today and you have 5,000 people employed in that sector in 10 years, that would be brand  spanking new economic growth by my definition.

 

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6 Responses to Defining brand spanking new growth

  1. Eric says:

    Thanks for your thoughtful posts and efforts to keep economic development in the limelight.

    Having just participated in some events associated with National Biotechnology Week, it seems appropriate to suggest that biotech presents some opportunities for economic development in NB. Perhaps not ‘spanking brand new’ but a new twist on an old success story.

    Biotech applied to our historic successes in areas such as forestry, agriculture, fishing, and minerals presents opportunities for us to gain that elusive value-add for our exports. Bioleaching can be applied to help rationalize or improve the efficiency of mineral extraction and/or management of tailings. Biotech and the Bay of Fundy have helped the aquaculture industry to evolve. Biorefining holds promise for the agriculture and forestry sectors. Etc.

    What is exciting about these opportunities is we have some building blocks, some competitive advantages and established expertise and infrastructure. Rather than discard these traditional sectors that some label as ‘sunset industries’, they could be viewed as ‘brand spanking new’ opportunities with the application of some science and technology.

  2. mikel says:

    Geez, the world is in an economic toilet spin, entire US cities are declaring bankruptcy, and european countries are teetering and suddenly plain old growth isn’t good enough anymore? Its got to be ‘brand new growth’. Is this backpacking on Shawn Graham or Bernard Lord’s phrases ‘going from worst to first’ or just a sneaky way to talk about shale gas without actually talking about shale gas?

    Its interesting though that shale gas is NOT cyclical, even though there was a space of three or four years when it was not being developed because gas prices were so low. It has increased a bit, but this is an industry that we are reminded has been around since 1882 and has developed to a grand total of 40 wells. Meanwhile there have been NO efforts to actually calculate what it may have COST.

    But this is a common failing of economists in trying to account for ‘growth’. Had NB Power converted thermal plants to natural gas and built a gas terminal and drilled for gas itself, it would not be called ‘growth’, because the government would be doing it ‘and thats bad’. But if the land is given away to other people to develop then that’s ‘brand new development’ even though it will do little for the province except provide some short term jobs. For ‘cyclical’, keep in mind that its during DEVELOPMENT that the jobs are there, just like some jobs are there to build a pipeline. Once that is done, so are the vast majority of jobs, but for some reason that’s not ‘cyclical’ and even if hardly any royalties are realized, so long as five companies are making out well then its ‘brand new growth-hurray!’

  3. > Shale gas would be brand spanking new growth. It would build a new supply chain of small and medium sized firms. It would create brand new jobs and brand new tax revenues for government.

    I’d love to believe that, I really would.

    But if previous experience with the major natural resources producer in the province is any indication:
    – the new supply chain will all be ‘in-house’ subsidiaries of the One Big Company
    – most of the profits of this company will find their way overseas to tax havens
    – tax benefits will be offset by tax holidays, grants and government contracts

  4. tom hickie says:

    You call people who resist change nihilists but a better description may be doubters. I just do not believe what my government tells me and even when I agree with Frank McKenna I find it difficult to believe him. Experience has taught me that they are liars not to be trusted and the Louis LaPierre event has enforced the belief. He justified the reduction of the protected forest buffer along water courses and the government followed his advice just so the Irvings could cut more cheap wood from crown lands further depressing the price for private wood and hurting the environment. We could have a billion dollar sports fishery and hunting business as well as eco tourism but the government is only interested in promoting the forests as a fibre farm for Irving. Most other jurisdictions have year round sports fishing and modern policies but we have neither. The nihilists could just as easily say that you speak for big business and the government or they could ask you to explain how and why you think.

  5. mikel says:

    To Mr. Downes point, readers may want to check out the website http://www.isourforestreallyours.com There’s a little too much of the ‘interviewer ranting into the camera’, but you can fast forward through that stuff and he has some interviews with some pretty prominent people in the forestry industry. It is pretty interesting because the government seems pretty bent on duplicating forestry policies in shale gas, even though forestry policies have turned out atrociously for everybody except licensees (and even they have some tough times). As you watch it, except for players like private woodlot owners, its actually quite eerie how similar the policies look.

  6. mikel says:

    I missed that, where were they called nihilists? That would be pretty unfair, in fact its downright insane. Again, New Brunswick has NO new regulations on fracking. What they released earlier in the year are “rules for industry”-this is NOT legislation, which must be presented in the legislature, or even regulations, which must be approved by cabinet. As a legal team stated, these are “permit conditions” and nothing more, which means NONE of these ‘rules’ can be enforced (and we’ve even seen evidence that even these ‘rules’ are not being monitored).

    You would have to be INSANE to support the industry under these conditions. And that kind of insanity is more indicative of nihilism than any protest (but again, I never saw where this blogger called anybody nihilists).

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