The myth of corporate welfare in New Brunswick?

From a recent column in the Telegraph-Journal.
Kevin Lacey, protector of the sacred taxpayer, recently intoned in a Telegraph-Journal commentary that instead of setting up a new model for economic development, the New Brunswick government should “chart a new path” without “government-led regional development schemes”.

Lacey, the Atlantic Director for the Canadian Taxpayers Federation, uses just about every opportunity to rail against the widespread use of government subsidies to business, or corporate welfare, in New Brunswick.

He will be happy to see the latest data from Statistics Canada on provincial government subsidization of private industry. The statistics agency released provisional data for 2008 to 2012 on the amount of money that was provided to private enterprises by provincial governments across the country.

Guess which province had the lowest amount of business subsidization in the country in 2012? I’ll give you a hint. It’s known for maple syrup, rolling hills and untapped shale gas resources.

In fact, New Brunswick had the second lowest rate of business subsidization as a percentage of gross domestic product (GDP) of any province across Canada over the five-year period except Ontario. In an average year, the New Brunswick government transferred $72 million as “subsidies to private enterprises” or $2.75 per $1,000 worth of real GDP.

Prince Edward Island, Quebec and Saskatchewan had the highest rates of subsidization with over $15 worth of subsidies for every $1,000 worth of GDP. Even that bastion of private enterprise, Alberta, doled out nearly twice as much business subsidies as a percentage of GDP compared to New Brunswick.

The astute reader will remark that the bulk of subsidies in western Canada go to the agriculture sector. This is true but agriculture is a ‘sector’ just like any other. It has profit-seeking private enterprises that face a variety of competitive and technical challenges. Just like most other industries.

But even removing subsidies to the agriculture sector, New Brunswick doles less money than all other provinces except Alberta.

A decade ago, I looked at this issue and found the same trend. New Brunswick just doesn’t dole out as much money to industry as we are told.

So how come the corporate welfare reputation continues to stick?

Firstly, there are a few high profile cases that continue to surface in the media. Opponents of government-led economic development will reach back into ancient history and dust of Bricklin or point to the more recent Atcon as egregious examples of corporate welfare.
Second, while the total amount of money doled out by government is relatively small, the total number of firms receiving government support is much higher than the national average.

A 2009 study published by Industry Canada found that 13.6 per cent of small and medium-sized enterprises (SMEs) in Atlantic Canada received funding from government lending agencies compared to seven per cent among SMEs across the country.

This would seem to indicate New Brunswick gives out less money overall but spreads it around in smaller chunks to to a broader base of smaller and medium-sized firms.

Unlike Kevin Lacey, for me the issue is not ideological. It is more pragmatic. Under what circumstances should the government be a bank for industry and how do we determine if this is a good use of taxpayer dollars?

This is why I fully endorse the government’s move to an ‘opportunities-based’ approach to economic development. New Brunswick has specific assets, infrastructure and competitive strengths that should be catalysts for private sector investment and new entrepreneurial activity.

There is a role for government, working with community and business leaders, to determine what these opportunities are and how we can best exploit them to strengthen the economic foundation under communities across the province.

This doesn’t necessarily require a lot of ‘corporate welfare’ but it does require identifying and bolstering the value proposition for investment into those opportunities. If there is a good case for investment, private industry will come.

There is a public interest in economic development. I reject the idea that government should just stand back and hope for the best.

But effective and accountable economic development has been elusive in New Brunswick.

Let’s hope this time things really will be different.

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2 Responses to The myth of corporate welfare in New Brunswick?

  1. Kevin Lacey isn’t exactly the best person to respond to on this issue, since he represents the zero-government market-based approach, so his calls for lower government subsidies to industry (and to everything else!) are accompanies by a tax-reduction rhetoric that is irresponsible and short-sighted. Attacking Lacey is, in other words, attacking a bit of a straw man.

    More to the point, it is irrelevant to the core issue what other provinces are doing. If what New Brunswick is doing is wrong, then what the other provinces are doing is wrong as well. Perhaps there are exceptions (suggesting that “agriculture is a ‘sector’ just like any other” is a flimsy response to a complex issue). But no matter: the fact that other provinces are committing the same wrong act, and doing it more often, does not make the New Brunswick act right.

    There is also the question of affordability. New Brunswick’s numbers look low because a lot of the GDP in the province is semi-mythical, being composed of oil imports and exports by the Irving refinery. It would be interesting what percentage of discretionary spending these subsidies to industry represent. One suspects thatit is much higher for New Brunswick than Alberta. And if we calculate affordability progressively, because rich provinces are able to spend larger percentages of their income on luxuries than poor provinces, then the picture again shifts. New Brunswick may spend less than Alberta, but the province is much less able to afford even what it does spend.

    (It’s frustrating reading your columns because I know that you as an economist know these things, and yet you argue as though these factors do not exist.)

    I would also suggest you change the debate when you ask, “Under what circumstances should the government be a bank for industry and how do we determine if this is a good use of taxpayer dollars?” To my experience, banks are very reluctant givers of “welfare”, and indeed, participate in financial exchanges only for their own profit.

    This speaks to why there is such criticism of “corporate welfare” in New Brunswick. It is not because of the actual amount of money doled out, but because the province has received so little in return for it. There are of course the high-profile stories of failure, but also ongoing subsidies to incumbent industries who take the money and place it in their offshore tax havens (and continue to lobby for zero taxation here in the province).

    I don’t necessarily oppose an “opportunities-based” approach to development funding, but I would suggest that New Brunswick’s incumbent business and industry leaders are exactly the wrong people to ask for direction. They unerringly opt to call for support for their own industries, confident that they will not be called to account for outcomes.

    We need to elicit wider participation, based on a provincial policy that broadens access and sharing of provincial resources so that a wide variety of purposes for land or forest or other resources is considered. For example, we should be setting aside a substantial proportion of Crown resources and land for “alternative enterprise” that seeks more sustainable and higher value-add industries in the province.

  2. anonymoose says:

    off-topic but of possible interest – http://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430

    Maybe by the time NB gets around to extracting our natural gas the price will be higher and we’ll benefit more.

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