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.