Nudging the invisible hand – just a tiny, little bit.

For those of you who think I’ve gone all Mariana Mazzucato on you and think government should become a market maker – relax, but I do believe government can be a market nudger.

As I have written about many times I am a big fan of markets. When working well they can be remarkable as arbiters of price, quality, supply and capital allocation. I’ve written whole articles on the ‘pizza’ market. It has small, medium and large firms. It has local, national and international firms. It has firms priced at the low end (Little Caesars) and the high end (Piatto in Moncton) and it has a wide range of specialities from the bland to the highly niched. It features easy of entry and exit. There are firms that make lots of profit and can accumulate wealth and there are firms that go out of business within months of opening. And there isn’t much government involvement beyond food safety and some control over access to certain inputs such as industrial cheese.

But the assumption that somehow all markets are infallible is just not correct. What I mean by this is that we kind of assume that if there is a market opportunity in a local area that enterprising entrepreneurs will be there to fill it. The reason there are no hot dog stands in Fredericton is that there is no demand for hot dog stands. The reason there is no river boat operating on the Saint John River (inside joke) is that there is no demand for a river boat. The reason there is no dentist office in Minto (I’m not sure about this) is that there is no market for dentistry in Minto.

I disagree and have come to the conclusion that one of the central roles of ‘economic development’ – whether practiced by governments, chambers of commerce, industry groups, etc. – should be to shed light on potential entrepreneurial opportunities. Not set up and run businesses. Not provide outsized subsidies to set up and run businesses. But to frame potential opportunities – particularly those with strategic value – and then make those opportunities known to entrepreneurs and business that could take advantage.

We do that a little already. Opportunities New Brunswick is out trying to convince national and international firms that there are ‘opportunities’ to set up in New Brunswick and take advantage of a competitive advantage such as the cost environment, geography, a natural resource, etc. but beyond that we do very little. Most of what we call economic development is helping existing firms – with grants, loans, etc.

For example, if a firm in Taymouth thinks it has a product that it can sell into international markets we will give it grants and loans (ONB, ACOA, CBDC, BDC, EDC, RDC, and other acronyms) to help it get into those markets. But we give very little thought or focus to where the entrepreneurs come from in the first place. That is up to the ‘free market’ – I’m told.

Now the usual retort to my argument here is that how can government be good at picking entrepreneurial opportunities? To many that is like fingernails on a chalkboard (Millennials – Google it). In fact, this is not exactly what I am proposing here.
Let me give you a concrete example. New Brunswick is now the second largest producer of wild blueberries in the world. We have made enormous progress on farm productivity – we have allocated a lot –more Crown land – and we have seen a large expansion in blueberry production to the point we have an oversupply and will be curtailing production.
As far as I can tell there has been significant effort to expand the number and scope of farmers but virtually no effort to foster other types of businesses in the sector – in the supply chain and in the use of the product (other than the attraction of a large scale freezing and storage capacity). Where are the startups? Where are the firms taking blueberries and transforming them in to value added products? Nutraceutical uses? Industrial uses? Where is the commercial kitchen to allow potential startups to test their blueberry-based food products? Where is the university research into the antioxidant properties of blueberries and the tech startups arising from that research? Are there ways to harness the properties of the blueberries as a natural sweetener?

In my view someone – some entity – should be at least shining the light on potential opportunities and exposing those opportunities to potential entrepreneurs. Think of it as a trade show for New Brunswick blueberry entrepreneurial opportunities.

Now, again, to many of you this is a bridge too far for government. This should be the role of private industry or at least industry groups. Maybe so. But where are they? There is a very strong public interest in New Brunswick developing an economic cluster around our blueberry sector. We have a microclimate and environment that is ideally suited to wild blueberry production – there are few locations in the world as attractive as New Brunswick. We can’t passively sit back and hope that entrepreneurs from far and wide will figure it out.

I would infuse this approach across our economic development – local, provincial and national. If Minto needs a dentist because everyone has to drive into Fredericton and pay the premium in time and money to do so – I would contact all the dentist offices in Fredericton and see which one would be interested in setting up a satellite office in Minto. Minto would get the economic benefit of that office and residents would have the convenience. Unless someone actually works on this it may not happen in a Darwin-like fashion.

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One Response to Nudging the invisible hand – just a tiny, little bit.

  1. Another great column, David. I really like your ideas for related industries for blueberry production — especially when antioxidants are believed to be effecting in preventing the effects of aging in the brain. By why restrict it to New Brunswick? Blueberries are a big industry in NS. And there is a Prince Edward Island Wild Blueberry Growers Association (Who knew?). It’s an excellent opportunity for the provinces to work together to develop the sector.

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