It’s time for economic development 201 or even 301

As you might expect, when I talk with people these days the main question I get is “how do we get the economy back on the rails?”  Usually this is in response to my presentation where I show New Brunswick is in the longest period of economic stagnation at least in the last 80 years as measured by GDP growth, business investment and labour market growth (decline).

For example, I had coffee with someone (a reader of this blog) who is adamant the solution is productivity.  New Brunswick’s economy is less productive (various measures) than other jurisdictions and therefore only a productivity revolution will ensure long term economic growth.  Other folks talk about the need to boost export revenue – flowing more money into our economy from outside.  Others fret about the lack of new entrepreneurs.

These are all good points, but I always bring people back to the question ‘why?’.

We need a deeper understanding of the fundamental value proposition that drives business investment, attracts and retains talented people and creates the conditions for new entrepreneurs to step up.

Right now the overarching issue is people.  I know I am a broken record on this but it is now the #1 reason why New Brunswick’s economy is not growing, IMO.  The Canadian labour market has added nearly 1.5 million workers since 2010 while New Brunswick’s has shed 11,200.

Growth/decline in the size of the labour market
November 2010 to November 2018
(seasonally adjusted)

000s % Change
Canada 1,462.0 +8%
New Brunswick -11.2 -3%

Source: Statistics Canada Table: 14-10-0287-01

But the bigger long-term issue is value proposition – specifically the rationale for businesses to invest in our province or people to stay and build their careers here.  We can’t buy this with government subsidies, we can’t just make a wish and hope nor can we rely on the munificence of local business people to keep investing even if it makes more sense for them to deploy capital elsewhere.   Sure, local people are more reluctant to move their capital – they feel a greater attachment to New Brunswick but in the longer run there needs to be a reason – a value proposition – for investing here.  I would say the same thing for the workforce.

The value proposition varies from industry to industry, but it comes down to things like cost environment, talent pool, infrastructure, tax and regulatory environment, natural resources and other geographically-based assets and other factors.

We can’t just pitch ourselves as a great location for business.  We have to see strengths and target industries and firms that would benefit from being located here.

Role of government

Whether we like it or not, many of our top export industries are significantly influenced by government policies. Here are the top 25 international merchandise exports from last year grouped by similar industries and the role of government.  These industries generated $12.2 billion worth of export revenue for NB:

Industry: Role of government:
Petroleum Refineries
Limited.  Environmental oversight, tax issues.
Seafood Product Preparation and Packaging, Fishing, Aquaculture ($1.7B international exports)
High.  Government sets quotas, regulates activities, decides who gets licenses, etc.
Paperboard Mills, Veneer, Plywood and Engineered Wood Product Manufacturing, Pulp Mills, Sawmills and Wood Preservation, Paper Mills, Other Converted Paper Product Manufacturing, Millwork, Paperboard Container Manufacturing, All Other Wood Product Manufacturing ($1.9B intl. exports)
High.  50% of land mass is owned by GNB.  Government decides who gets the wood – what, when, where and how.  Also, government owned utility sets price of electricity.  Governments sets environmental policies, etc.
Snack Food Manufacturing, Frozen Food Manufacturing, Vegetable and Melon Farming ($275M intl. exports)
Moderately high.  Government sets agricultural policy, determines quotas, subsidizes, etc.
Non-Ferrous Metal Rolling, Drawing, Extruding and Alloying
Moderately high.  Government sets environmental policies. Also, government owned utility sets price of electricity for this energy intensive industry.
Oil and Gas Extraction
Limited for LNG imports.  High for every other part of the industry.
Recyclable Metal Wholesaler-Distributors
Moderately high.  Government sets environmental policies.  If the big bangs at the SJ Port don’t get solved we could lose $135M in international export revenue.
Electric Power Generation
High.
Other Non-Metallic Mineral Mining and Quarrying
High.  Government sets environmental policies, crown licenses, First Nations issues, etc.
Other Plastic Product Manufacturing
Low.
Gypsum Product Manufacturing
Higher than you might think. Natural gas policies impact competitiveness and the source of the gypsum is heavily influenced by government.
Ventilation, Heating, Air-Conditioning and Commercial Refrigeration Equipment Manufacturing
Relatively low but a lack of assembly line workers has pushed investment out of NB.

So to pretend the government doesn’t have a role is to be naïve.  Government should be focused on ensuring that its policies related to each of these industries are competitive with other North American jurisdictions.   Benchmarking should be routine.

The overriding focus of economic development should be value proposition.  What are we selling?

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