Instanbul’s not Constantinople: Focused economic development is not industrial policy

People seem to confuse my thinking about economic development.  I get the charge that I am advocating ‘picking winners’ or old school ‘industrial policy’ that are ‘known to be a complete failure’, etc.

Sometimes people see what they want to see when they read my writing.  That’s fair – I guess that is what happens with all writing.

So in the interest in absolute clarity, here is my view.

First, old school industrial policy as the term has been used refers to governments using tariffs, large subsidies, big contracts and limited competition to allow industrial champions and sectors to emerge.  This was fairly common in the 50s and 60s but its roots go back to the 19th Century when steel fabrication and other big industries in North America were getting started and were undercut by British producers.  The argument was that we need to see a local industry take root so we put huge barriers on the imported goods.

I am certainly not advocating that.

In my view, focusing economic development around potential opportunities is no different than a business doing the same thing.   In my view, in Atlantic Canada we have structured economic development mostly around programs for certain kinds of businesses (mostly funding program by government).

By contrast, I would put folks in a room and have them work on opportunities – where goals can be identified and progress can be tracked and where there is accountability for results and results are more business investment, more jobs and more tax revenue for governments.  I advocate a team-based approach to economic development at the provincial or regional level supported by a strong team of professionals in local communities.

These teams can be made up of private sector and public sector people – dedicated seconded staff – they need the tools to do their job (think PEI Bioalliance or PropelICT) and it doesn’t have to be all public sector funding.  In fact, there would be more legitimacy if there was private sector funding support – although the revenue model can get complicated).  The revenue model for the public sector investment should be straight forward.  I put in $$ in tax dollars and I get $$$ worth of incremental tax dollars.

To me this is not industrial policy – by any stretch.  It’s what I call opportunities based economic development and it is building on perceived strengths – industrial Internet in Fredericton, energy in Saint John, gaming in Moncton.   It doesn’t preclude working on other sectors and it doesn’t exclude any projects that make sense for the community and its strategy.

At a core level, we need to elevate the size of the economic pie in this region.  That means more investment, more entrepreneurship, more immigration.  Saying we shouldn’t be ‘focused’ because we might ‘exclude opportunities’ or we might ‘favour one industry over another’ makes no sense to me.  If we have strengths – geographic, natural resource, industrial, workforce, educational, supply chain, etc. why wouldn’t we want to leverage those for additional opportunity?

Now, when you get into specific actions – you have to think about consequences.  So advocating a huge tax cut – targeted or not – needs to be thought through.  Where we strategically invest public sector R&D spending needs to be thought through, etc.

In the end, when you look at successful economies around the world, they have a few key sectors that are the main economic base.  The role of government to foster growth in those sectors should not be heavy-handed (i.e. big tariffs or other market distorting interventions) but it can fine tune existing efforts to support development (education, R&D, infrastructure, etc.).

Of course, the biggest reaction to my approach is that the private sector in New Brunswick is not interested.   Some people think the private sector only wants government as a bank and that is all.  This may or may not be true – I have seem mixed results in my work – but in the end leadership has to come from somewhere.  If the private sector doesn’t want to pursue an opportunities-based model, then maybe the public sector will have to lead the way.

 

 

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