There’s a woman in Riverview who is obsessed with attracting IKEA to Moncton. 

When it comes to attracting industry to New Brunswick, “why don’t we put her in charge”?

There’s nothing like a little passion combined with determination and perserverance.

I was reminded of that reading this story from PEI:

Golden Grain Bakery [moved] to Borden-Carleton’s industrial park in 2005 and has been struggling to find employees ever since. 

Snair says he does not want to leave, but fears there is no alternative. He believes businesses that pay high starting wages, and the Island’s unemployment insurance program, are part of the problem.

“I believe people can make more sitting at home on minimum wage,” he said. “So why would they work?”

Snair says he pays all of his employees higher than minimum wage, most a couple dollars higher, but says in order to compete with nearby businesses that pay $15 to start he would need financial help.

“I’ve lost a lot of workers to higher paying jobs,” he said. “We’re a small business, we simply can’t afford to do that.” He says he began turning to government for help more than two years ago and has yet to receive it.

Borden-Kinkora MLA George Webster says he is aware of the issue, but that his government is not responsible for putting people in those jobs.  “I don’t think the P.E.I. government can make people go work there. They make their own choice to work in that field or not,” said Webster.

There are multi-layered issues here such as the minimum wage,  the trade off between working and accessing funding from government programs and the role of government in trying to create jobs.

Without going into all of it, I do think the PEI government is right not to prop up companies that are paying wages too low to attract workers.  Wage appreciation is a consequence of successful economic development.  Propping up companies who cannot pay market wages with taxpayer money is a consequence of bad economic development.

One of the ways that small companies succeed is by being highly targetd.  Ford can market their cars far and wide with a very mass market approach.  Other smaller companies can be very effective but they need to be highly targeted to who they think are most likely to buy their cars.

This is why I think places like New Brunswick should (and should have years ago) look at potential niche markets for investment attraction and trade development rather than just follow the pack to China or India.  I worked a bit on a project to attract investment from France one time.  I was told that Quebec has nearly 100 staff in France working on investment, trade and tourism.  New Brunswick had (has) none.

Norway, Finland, etc. seemed to be places with affinity to New Brunswick (climate, culture, etc.) that have companies that are active in the North American market.  Not a pile but potentially enough carve some investment for NB.    If you get targeted you can hire Norwegians speaking sales guys, have Norwegian language collateral materials, align immigration efforts, etc. 

But we don’t do this and Quebec and Ontario end up attracting - by default - most of the companies that want to set up in Canada from Scandanavia. 

This is a specific example of a multimedia firm setting up in Quebec for its massive tax break which we can’t begin to compete with.

But it doesn’t invalidate my argument about focus.

New Brunswick’s population grew 80% slower than the national growth rate since 2006.  Only two provinces registered a slower growth rate.  And this performance gets us:

“Some people say they’re ambitious goals. We feel that it’s important that we set high targets,” Arseneault, also the deputy premier, said in a phone interview Monday.

Trevor Holder, the Progressive Conservative critic for Post-Secondary Education, Training and Labour, said the latest statistics are a “good sign.”

Constantine Passaris, the chairman of the Population Growth Secretariat’s advisory board, said that’s something to brag about.

A high target we can brag about.  Even Trevor Holder is happy.  I guess when you set your expectations as low as you possibly can, anything can be considered something to brag about.

Of course, Passaris puts a cherry on top with this juicy morsel:

Finding ways to keep youth in the province, increase the birth rate and family friendly policies, and adopting aggressive immigration policies are keys to keeping on track, he said.

Passaris knows better.  In his little screed he should have led with the jobs and career opportunities to keep people here rather than the standard old line about ‘family friendly policies’.   As for immigration, we have definitive data that up to 40% of immigrants leave within five years - because of a lack of economic opportunities.  

Look, don’t get me wrong here.  This is much better than the outright population decline in the Lord years.

Oh and by the way, I have always cautioned these guys to limit bragging about population estimates.  They get revised every few years and every year since 1992 they were revised downward in New Brunswick.

I realize this is all politickin’ but there is a lot of work to do before anyone can brag about the New Brunswick economy.

It seems to me that a fundamental opportunity would be for the Tories to take up the empowerment of local regions within New Brunswick mantle - a la the Finn Report but I have heard many Tories argue against the principles of that report.

David Cameron got elected talking about transforming the way government is done in the U.K. by pushing decision making and authority down to the local/regional level.  

The argument in New Brunswick has always been that we are ‘too small’ and you can’t have all that ‘duplication’ and that is why - take a stab at it - 95% of all government decision making is done in Fredericton.  Even municipal funding is primarily controlled by the province.

A city manager of one of the big three municipalities in the province once told me he hadn’t seen a single official from the provincial department overseeing local government in three years.   I won’t say which city or which government but I think you get the point.  

While that seems like a relevant point - that scale matters and that is why everything is done in Fredericton - the reality is that people live in communities.  Economic development happens in communities.  Schools are in communities.  Hospitals are in communities.

When I went on my cross province interview tour last year for a project I was struck by just how quick everyone from Saint John to San Quentin was quick to blame Fredericton (and secondarily Ottawa) for their problems.  It seemed to me that it has become easy and convenient to do this.

I’d like to see the Finn Report debated, maybe tweaked and then brought into power.   What do we have to lose?  When the county system of government was scrapped back in the 1960s, Northern New Brunswick’s population was growing at a healthy rate.  Now it’s in fairly steep decline.  We have equalized government service delivery, yes, teachers in Tracadie now make as much (within a range) as teachers in Moncton but we have extracted any control over the destiny out of these areas and placed it in Fredericton. 

The hope is that a beneficent leader will come along and save us (whomever us is). 

I think it is worth a try.  I don’t want a situation where the government sets the Acadian Peninsula apart like a seperate administrative district such as Northern Ireland.  We still need the horsepower and capacity of the provincial government in Fredericton to work for all areas of New Brunswick.

But we need to find a way to have the local community put skin in the game.  They need to feel like they own it and they have some control over their destiny.

And I think that’s at least partially the message of Lise Ouellette.

There in government money spent in the Miramichi than ever before.  Almost 20% of total income in the Miramichi comes directly from government transfers - a rate well above most other small urban areas across Canada and that doesn’t include all the non-transfer government spending on new hospitals, roads, whatever in the area.

But the truth is that people don’t want to live in an area that is going down and I feel for that.  I want people to fight for their communities.

But I think Mr. Gullison risks falling into the same trap with his focus on “private woodlot owners, farmers, small business, and seniors”.    I don’t know enough about the first two on his list to add much to the debate.  I am not sure what government policy can drive up the price of private woodlot owner wood. I have said that I think the farming sector in New Brunswick might make a comeback and I support efforts to promote the use of local produce and agricultural products - even at a higher price.

Chronic economic challenges create structural changes in the business environment.  We need to forceably change the narrative in the Miramichi and one of the ways that is done is by achieving some measure of economic development success.

I guess the point of this ramble is has government really ‘destroyed’ the Miramichi?

It seems to me that the ‘fix’ to health care will be elsewhere.  I think governments should commit to providing stable, inflation-level increases to the system each year (it’s been close to triple the rate of inflation in recent years) and then look to innovation in service delivery, systems, and even revenue models.  It’s no secret that I support some form of nominal user fees for those that can afford it as a moderating force on the system.  I don’t think that wil fix the system but it will make us think about health care costs a little more directly.

Health Care & Social Assistance Employment Growth in New Brunswick

Source: Statistics Canada Labour Force Survey.

Here’s a neat little thought experiment/forecast that will never happen but it is interesting to look at trends.  Right now there is one health care worker and social assistance worker for every 10.5 other people in the population.  To put it another way, when you attended the Paul Anka concert, more than one person in each row was a health care worker.  By 2050 following the same trends there will be one health care worker for every three other people in the province.  That gives the term ‘family practice’ a whole new meaning when there is a health care worker per family.

There was almost no appetite for any new tax increases and very low interest in cutting government services and spending.

Go figure.

The problem with polls, as I have said many times before, is they don’t force a hard choice on people (usually).  For example, a typical poll will ask whether something is a good idea - without setting it in a context.

Would you like a cut in taxes? - will get you almost A 100% YES response but Would you like a cut in taxes? if it means we have to close your local hospital will get a completely different response rate.  Of course, the direct line between tax cuts and hospital closures is never really there but the respondent to a poll should at least be given a set of outcome options.

But back to the debt issue.  The truth is our debt load is manageable - relative to most other provinces.  As I shown elsewhere it is growing faster than most other provinces so we will catch up within 5-7 years if we don’t get it under control but right now it is not as bad as Nova Scotia, PEI, Quebec, etc.

And people don’t connect the dots on this stuff because the “every New Brunswicker owes $11,500″ is not exactly true.

Every natural gas user in New Brunswick ‘owns’  over $15,000 worth of Enbridge Gas NB deferral account exposure because that is the per customer amount sitting in that account - which, by definition, will be paid down through future revenue taken from said customers.  But people don’t connect those dots because they can just walk away from Enbridge and go back into the loving embrace of NB Power.

I would argue that at a basic level, people see NB’s debt the same way.   Canada is a free country.  People are mobile.  If I don’t like what is happening here, I will just move to Saskatchewan or Alberta just like my siblings, my cousins and my great uncle Pete.

Alberta has something like $60 billion in the bank.  In other words, if I move to Alberta - using the logic of this story - I immediately have $12,000 in the bank.  Lucky me.  I leave my $11,500 in NB debt and immediately claim my share of the Alberta surplus just by moving from Moncton to Hinton.

My point is we need to connect people at a different level.  We need them to think about their community and think about whether or not they want their government to do things that will help it survive and thrive into the next generation.  If you could get 90% of New Brunswickers to feel strongly about this, you could get buy-in for a whole lot of decisions - including a broader focus on economic development.

It’s a good thing that economic development is on people’s minds and it’s a good thing the Tories are actually talking about attracting investment.  You will recall in 1999, the Tory plan was for a “made in New Brunswick” approach to economic development.  Now, it seems, they realize we need to be a province that has both a strong focus on local entrepreneurship and the business case to attract national and international investment.

The NDP plan is not particularly realistic although they haven’t told us the mechanism they would use to push forward economic development.

I think there does need to be a serious debate in this province about taxpayer dollars being used to ‘retain’ or ’save’ jobs.    In the wake of the recession, that terminology is all the rage but we really have to think this through.  There may be times we want  to ’save’ a company but that should be rare.  In general economic development has to be about growth and moving ahead - not holding on to the past. 

Think about UPM.  It is clear now they received millions of dollars in taxpayer funding just to prolong the inevitable.  I have talked to folks in the ‘Chi who told me the same thing - including the final $5 million given by former Premier Lord to get them to hold off through the last election.

If there were structural business case issues with UPM that made it uncompetitive to operate in New Brunswick -access to fibre, infrastructure, energy costs, etc. - then the role of government is to decide what, if any, public policy tools could be used to address these issues - industry wide.  For example, I have no problem with NB Power having a large industrial rate as an economic development tool or I have no problem with taxpayer dollars invested in crown forestry development, etc.  That, it seems to me, is a far different thing than giving $5M, $10M or $35M to a firm in the hope it will stay open a few years more.

At the end of the day, economic development investments must have a payback to the taxpayer - a clear, financial payback to the taxpayer or why do it at all?    I have heard all this crap about how “it would have been worse” without us - in several contexts.  I don’t buy it. 

We need a tad more ambition for our economic development organizations than just “it would have been worse” without them.

Sackville software developer Kleinmundo Solutions Inc. has inked a partnership agreement with a large U.S. firm that president Patrick Langlais says should help bring his young company’s head count to 12 this year.  The New Brunswick company provides document automation software to legal firms so they can format outgoing bills to clients, as well as reporting, electronic billing, data transformation and data management and manipulation services.

Langlais said Kleinmundo recently netted one the top 20 legal firms in the U.S. - the name of which he promised not to reveal - as a client. Among those clients that have agreed to let Kleinmundo name them on its website are Blank Rome LLP, Fox Rothschild LLP and Cox Smith Matthews Inc.

So this firm has large U.S. law firms as clients.  You will recall that another Moncton firm, Whitehill, built its business by targeting U.S. law firms.    It is interesting to note that another tech firm in Moncton, ShiftCentral, has a number of U.S. law firm as clients.

What gives?  Of all the software and technology firms targeting the U.S. legal market, how come three Moncton firms have made such great inroads?

Maybe it’s nothing.  Maybe it’s something. It is a bit strange.

Alward said he could save $120 million over the next four years by withholding the tax cuts for people who make an average of $450,000 a year.

First, there is no tax bracket specifically for those earning $450,000 and up so unless Alward is going to establish one, the reversal of the tax cut would have to apply to the highest tax bracket which would be $118,000/year which would mean over 12,000 persons.

But let’s say he does just raise the tax rate on those earning $450,000 or more.  I still don’t see how he gets $30 million in more taxes per year. This study for the Canadian Labour Congress estimated the tax cut was worth $27 million per year to those earning $250,000 or more.

But, I could be wrong - it would be nice for them to release how they are calculating their expected taxes but that would be too much to expect from any political party.

As for the corporate tax cuts - Alward is going to “cut small business tax rates to stimulate job growth and economic development”.

Sigh.  After former Premier Lord cut the small business tax rate to the bone, New Brunswick had third worst rate of small business growth (decline) in North America among the 60 provinces/states -according to a Fraser Institute study.  Further, total employment growth among small businesses with less than 20 employees actually dropped after the small business tax cut.   Note that over 17,000 of the net 19,000 job growth came from employers with 500 or more employees (that includes government).

There are an estimated 45,000 businesses in New Brunswick and an estimated 87% of them have less than 20 employees.  The only reason to cut small business taxes is political.  These small business owners vote and many of them contribute to political parties.

Employment Growth/Decline by Size of Employer (2000-2006)

Source:
Statistics Canada. Table 281-0042 - Employment by enterprise size of employment (SEPH) for all employees, unadjusted for seasonal variation, for selected industries classified using the North American Industry Classification System (NAICS), annual (persons) (table), CANSIM.

This election it seems will be no different.  Premier Graham has teased us with specifics about his 20,000 jobs - talking about energy, and targeting sectors.   So far the Tories have been very opaque about economic development.  I searched the website and found very little.  I did find this Bob Goguen commentary in the newspaper where he says:

Dave Alward’s plan for job creation involves supporting New Brunswick businesses that reinvest and create New Brunswick jobs.

He will do this by making sure that New Brunswick-based businesses have a fair chance to bid on taxpayer-funded contracts.

We can create sustainable jobs here in New Brunswick simply by ensuring that New Brunswickers benefit from provincial government spending.

….being more aggressive and innovative in how we approach potential investors; taking advantage of the strengths of our communities, as we work to help all regions in our province grow and prosper; and refocusing our efforts by pursuing lasting, meaningful economic development that will positively change our communities, rather than focusing on changing headlines.

These are all good but, again, very vague.   New Brunswick companies already get the vast majority of government contracts.  I am not sure how much more business is to be had there - and if it means sacrificing quality or price, is it worth it?  Maybe - I honestly haven’t studied the issue.  To be sure this is not going to drive economic growth in New Brunswick.

“Being more aggressive and innovative in how we approach potential investors” is an interesting phrase but I hope they will try and flesh that out a bit more.

Refocusing on “lasting, meaningful economic development” is even more vague but if they are suggesting a stop to propping up ‘troubled’ companies - I think they should just come out and say it.  It’s a tough policy issue - probably the right one - to say you (as a government) won’t help a company that is going under when it is a good provider of jobs in a smaller community in New Brunswick (the PCs gave piles of cash to AV Nackawic, Atlantic Fine Yarns and many more when they were in power). 

I don’t expect much detail on economic development.  The voters prefer catchy phrases like “investing in New Brunswick companies” and “taking care of our own”.  That typically will suffice.  Any party stupid enough to talk about attracting multinational firms here would likely lose votes over it.

In the end, the public would be wise to think a tad more about this stuff.  In Casablanca, Rick says “I just lost 20,000 Francs, I’d like to get it back” when making the bet with Captain Renault.   I say we just lost $1.7 billion in non-refined oil exports, I’d like a strategy from government to get that back.

I continue to lament the fact the time to act on this stuff was 7-10 years ago.  I remember talking with U.S. companies that just couldn’t find workers - for manufacturing, for IT, for just about anything.  They were paying $11.50/hour to start for McDonalds employees in Vermont.  I would argue that much of the work that was outsourced to India couldn’t have been done in the U.S. anyway.

Now we hear about U.S. companies looking for basic computer programmers and getting thousands of applications.

They are lining up around the block for a chance at $11/hour manufacturing jobs in Alabama.

But that doesn’t mean we give up.  We have to focus tightly on the business case for investing in specific industries in New Brunswick and then chase the potential investors (here, across Canada and around the world).  It will be more tough now but it doesn’t mean we don’t try.

It seems to me the defining issue hasn’t really surfaced yet.  The various parties are trying to define one but I don’t see an “auto insurance” or a “toll busters” or a “CoR” defining issue as of yet.

The first poll of the election cycle shows 41% undecided and a relatively small spread between the Libs and the Tories.

It’s interesting to note that the NDP, People’s Alliance and the Green Party are expected to be influential.  CRA’s poll shows almost 25 per cent of decided voters are planning to send their vote to one of the third parties.

The question is where will they take voters from? 

It will be interesting.

But there are some learnings here.  I think the question does need to be asked whether or not our collective economic development efforts are achieving what we want them to achieve.  If you were to ask BNB or any Enterprise Agency or ACOA or the CBDCs or any other of the groups doing ‘economic development’ in the province they would say they are achieving their vision and mandate.

I think we need to set the bar higher.  Determine growth sectors, set serious targets for investment and jobs and then work backwards to determine what policies need to be development, where each of the organizations fits into the effort and then create a strong value proposition for investing in those sectors.

The second point is the sprinkling.  Since I have been involved in economic development - 20 years now - BNB and its predecessors have played the role of a bank providing funds to companies around the province.  I think we need to have more focus.

Which brings me to the third point which is around measurement.   It’s relatively easy to measure the effectiveness of tax payer dollars being used in health care, education, transportation, policing, etc.  There are measurable criteria.   Economic development is not so easy to measure.  At a provincial level, I would like to see a rigorous incremental tax base measurement methodology put in place.  For every dollar invested in economic development, we get $X back in new tax revenue to the provincial government.

I realize this is likely never to happen although it is being used as a metric in Ireland, Quebec and other places.  The idea that economic development should be tied to growing the tax base should be a no brainer but you will find very few takers in the economic development system - which is too bad.

But implementing my measurement model would put to rest the whole question of BNB or not to BNB.  If the organization was clearly showing a return on taxpayer dollars invested - who could question that?

I suspect it is easier to talk vaguely about jobs ‘created’ or ‘retained’ and then about all the throughputs - counselled companies, funding announcements, training, etc. rather than on some end objective such as tax base growth.  But, in the end, what is the point of economic development if not to grow the tax base and support business investment?

Of course that does sound self-serving coming from a consultant -but I suspect there is not a whole lot of work for me on the social policy front.

I think this speaks for itself.  Irrespective of the need to eliminate the deficit, we have got to figure out a way to boost own source revenue.�
CONSOLIDATED OPERATIONS (C$MILLIONS, YEAR ENDING 3/31)

Here are some juicy tidbits (if you don’t want to read the full piece):

New industries are pouring into Nova Scotia at a prodigious clip. “Nova Scotia Moves into the Mainstream,” reads a headline in the Financial Times of London in 1965.

IEL’s “record makes impressive reading,” says Time magazine in 1962.

The Financial Post commented that IEL should succeed “if only by sheer audacity.” The audacity part was Manuge, along with industrialist Frank Sobey who served as president of the arm’s-length agency.

Always on the hunt for potential clients, a chance encounter with a person remotely linked to Michelin Tire on a plane trip led Manuge on a hunt — described by the Financial Post as an “international cloak and dagger thriller” — that finally got the secretive company here for its first North American landfall, against the wishes of French president Charles de Gaulle who wanted it in Quebec. A similar encounter landed India’s first major international investment, the Anil hardboard plant (now Georgia-Pacific) at East River, Lunenburg County.

And there was the first European car assembly plant, Volvo. One report has Manuge “literally chasing after Reynolds International chairman, J. Louis Reynolds,” to land Canada’s first aluminum can factory. His secretary kept count. He logged a million miles from 1961 to 1971 hustling business for Nova Scotia.

He’s quite cranky about things these days.   Not too big a fan of NSBI.  Doesn’t like the regional development agency.  Hates giving grants to business.

To be fair to the current crop of economic developers, it’s always easier to remember the positive of an earlier age than the negative (people want to put a positive spin on their past accomplishments, naturally). 

But I think there is something to the underlying point here.  Someone just sent me something that shows NB is forecasting to spend $345 million on ‘economic development’ in 2010.  That’s a huge pile of dough. 

I have felt for a number of years that sprinkling taxpayer money around the economy in the form of grants hasn’t worked very well.   Regardless of what you think of the use of grants, there doesn’t seem to be high level evidence of results.    There are isolated cases of very good success but many more where the outcome is questionable.  

I have been calling for a thorough review of the who, what, when and where of economic development in New Brunswick and I think an election is the perfect time to trigger such a review.   I think we have gotten into a stream of activity  and are spending more and more in that stream each year - and I am not sure it is the right stream. 

I won’t dive back into all my concerns here - read the past few months worth of posts - but it has something to do with vision/focus, something to do with effective measurement (i.e. tax dollars generated per e.d. dollar spent) and something to do with passion - people being fired up about economic development at all levels.

I think we need to focus on a few key strategic sectors, build infrastructure, R&D, talent, promotion and excitment around them - and then sell, sell, sell - to anyone local - national - international that will listen.

Here’s a story of a young girl from New Jersey who joined Al Gore’s “Inconvenient Youth” Advisory Group because:

“I was in Canada in July near Halifax/St. John’s and saw the ship building factories with smoke billowing in the background.”

I know this source isn’t the New York Times but St. John’s is about 900 kilometres from Halifax so it would be hard to be near either one at the same time.  Second, I am not sure what ship building factories are but the Halifax Shipyard doesn’t have smoke stacks.

Of course she could have just stayed in New Jersey where there are 10 times the smoke stacks.

My point is not to question a young teen’s knowledge of geography (nor the editor/journalist in New Jersey). 

We seem to be raising a cohort of visceral 140 character, black & white thinkers.  Instead of thinking all industrial activity is ‘bad’ while driving cars, watching TVs, running electricity from coal in houses, burning carbon to fly to Africa, the younger generation needs to have a conversation about what they want to give up.  Outsourcing smoke stacks to India and China should be as upsetting to Al Gore’s youth advisory group as phantom smoke stacks in Halifax/St. John’s.

They (we) should have a serious conversation about what they want to give up.  They (we) are consuming more products and stuff than every before. We are eating more. 

I’ve said it here and in my column that I am very happy to have a conversation about ratcheting down consumption and moving back to more local production.  My son has one video game player (Wii) while most of his friends have at least two of the systems.  There are multiple TVs in every house.  Most teenagers have cell phones, laptops, 20 pairs of shoes. 

What I am not for is outsourcing all of our pollution to India and then patting ourselves on the back for being eco-friendly.  If we are going to produce natural gas and use it - I think we should do it here - responsibly - but we should reap the economic benefit here. 

Lowering our carbon footprint has to be about lowering our consumption over time.  I heard a podcast ysterday where a guy was adamant that for the U.S. to dig out of its huge fiscal hole, it will have to grow its GDP by 4-5% per year for the next 20 years. The U.S. is already the most over consuming nation in the world and we are going to more than double the size of the economy again over the next 15 years or so?

If we shift away from consumption and back a little more to local production, if we massively ratchet down our expections (one car, smaller houses, one TV, 2 Webkinz instead of 20, etc.) I believe we could have an orderly transition to a less consumptive world without breaking the economy and our way of life.

That’s the discussion I want kids to have - and a little basic geography for journalists.

In his latest blog he talks about how people retention initiatives can be ineffective and actually counterproductive which is a point I have made as well on several occasions. 

Trying to incentivize new university graduates to stay here with cash - when their best opportunity is elsewhere is not particularly good policy.  If you see some greater good by rebating some of their education costs, fine, but I don’t see much value in this policy.  If the jobs are here, the kids will stay and others will move here.

Same with more regressive efforts such as boosting EI in rural and smaller communities in order to incentivize people to stay.

The other one that is used is guilt.  I have heard this one quite a lot - “stay here even if you don’t want to as you owe it to your community”.

In the end, labour mobility is a reality and we shouldn’t have public policies to try and impede it - we should have economic development efforts that allow us to benefit from it.

The reality is that very few people - if any - in New Brunswick would ever pay the $417k.

There are under 1,200 people in New Brunswick that reported total income in 2007 of over $250k.  We don’t know how many of those people earned over $250k of ‘employment’ income (which is the rate used in the story above) but my guess would be very few.  

As I have pointed out here many times after your employment income tops $100k or so it makes sense to have it streamed as dividends or corporate income and that is why the bulk of everyone with high earnings owns a business - with the notable exception of government workers.  Lawyers, dentists, doctors, electricians, plumbers, consultants, etc.   When Bernie dropped the small business tax rate to only 5% a few years ago several thousand self-employed persons switched to incorporation to get this low rate.

And even if you don’t own a small business to flow your high income through, there are many other  ways to ensure the tax man doesn’t get your $417k - tax sheltered investments, reporting income earned in other jurisdictions, taking income in other forms than employment income, tec.

My point here is not to pick on people that earn lots of money.  Good for them.  My point here is that governments tend to set tax policy based on the superficial view of tax rates.

The debate around how we generate the taxes we need to pay for public services should be had with the real data.  We have this faux debate about tax rates when it isn’t correlated to reality. 

That’s why I like consumption taxes.  They are clean and tidy and hard to avoid and their regressive nature can be minimized with rebates for people at lower income levels.

The real question is not about winning an election but about delivering a message of hope - that all of the things I dream for Oscar can come true. We can stop clear-cutting forests now and re-evaluate our forestry practises; we can begin to clean our air; we can begin to start paying our bills; we can begin to build clean public transit infrastructure; we can begin a 25-year debt elimination plan; we can liberate our youth by making education affordable and meaningful; we can grow the arts in every small community in New Brunswick; we can save family farms, grow healthy food, make things again, readjust our society as to set an example to the world of what can be achieved with a green vision.

He concludes with:

Oscar will have a great life as I rest in peace.

This is what I spend the better part of my days thinking about and like just about every variation on this vision - MacDougall doesn’t provide any strategy/pathway to making his vision a reality.  It sounds good but that tends to be the problem. With all the little NB slogans politicians throw around, very few are grounded in any kind of reality.

How would MacDougall generate economic value from the forests?  It’s easy to take a Conservation Council position and clamp down on cutting trees but how does he propose to fulfill the rest of his promises?  He talks about a 25-year debt elimination plan.  Where is the economic development pathway to make this happen?  He talks about making education ‘affordable’ and ‘meaningful’.  The New Brunswick taxpayer (and the Alberta taxpayer) already pays subsidizes something like $40,000 worth of costs over a four year university degree.  How much more does he want the taxpayer to pick up and where would it come from? 

He wants to save family farms and grow healthy food - I am actually more optimistic over the long term about this one for reasons I have mentioned before.

I think Oscar will have a great life but it won’t be tied to New Brunswick’s destiny.   Based on our current trajectory, he will either end up eleswhere in Canada or he will be part of something called the Maritime Province (or the Maritimes) which will be a single province that has been scaled back to a provider of natural resources to feed central Canada. 

My parents saw three of their four kids move away from New Brunswick yet never voted a single time with any consideration of the platform for economic development of the party.   It was always about health care or education or plain old party affiliation - or frustration over a single issue such as amalgamation or toll highways or whatever.

MacDougall needs to articulate how he is going to do something never done before - create an economic foundation in New Brunswick that is self-sustaining.  And, even harder, he needs to convince New Brunswickers that it matters.

I see that NS Power is looking for an 11% increase in its industrial electricity rates to help mitigate the high costs associated with migrating from coal-based electricity generation to renewable generation.  NS is still the most reliant on coal-based electricity generation of any province in Canada.  It’s no wonder Dexter is talking about Newfoundland and/or Quebec hydro.  The only consolation for NS is that the province is less dependent on large power users than New Brunswick and they have done what appears to be side deals with some of their largest users (i.e. biomass/NewPage) to keep their power costs relatively low.

Ontario is also looking to cut power costs for the largest industrial users even at the cost of shifting higher costs to residential users.    Ontario’s electricity rates were destined to go up after McGuinty put in the most aggressive green energy strategy in North America but it came with a carrot for Ontario voters - thousands of new jobs in the green energy sector. 

It looks like McGuinty is gambling that retaining thousands of industrial jobs and creating thousands of jobs in the green energy sector will compensate for higher electricity rates in the minds of consumers.  In addition, New Brunswickers need to realize that very few Ontarioians use electricity to heat their houses so the higher costs are really on the margin compared to this province.  A 20% increase in electricity prices when you pay $1,000/year in electricity bills is not as painful as a 10% increase in electricty prices when you pay $2,5000/year as in New Brunswick.

The smartest guy in the room on this is actually Gaetan Thomas who knows full well if he loses the large industrial customers, power rates for the rest of us are going to skyrocket.  As I have pointed out here before it’s basic accounting.  He generates hundreds of millions in revenue from the large users that go against fixed and relatively fixed costs.  If he loses some or all of that revenue he cannot reduce his cost base so those costs have to be shifted to the smaller users. 

It’s a complicated business to be sure but unless places like Ontario, Nova Scotia and New Brunswick figure it out over time all energy intensive business will move to BC, Quebec and Manitoba - provinces will lots of cheap and clean hydro that have all three committed to keeping industrial rates among the lowest in North America.

What Google wants is more revenue from Canada but I think they would build goodwill by putting data centres, software development, etc. in eastern and Western Canada as well. 

I hope the guys and gals at BNB are working on Google.  It would be a good addition to our IT industry.  We have some great startups here but not many of the big guys. Oracle is here via acquisition but there aren’t many others.

I didn’t put it in my column but Industry Canada used to say that each $1 billion in exports sustained something like 32,000 jobs.  This would vary significantly by industry but on average this was their estimate.

That translates into 54,000 jobs lost in New Brunswick because of the decline in exports.  I admit that seems high but if we look closely it may not be so far off the mark.  

From 2000 to 2009, we had a huge expansion of the public sector.   The New Brunswick government budget in 1999-2000 was $4.3 billion.  By 2010 it was up to nearly $7 billion.   That $2.7 billion increase drove much of the gain in employment over the decade along with the call centre sector and some smaller growth areas.  I would say the few large industrial projects (potash, refinery, Lepreau refurb, etc.) also injected significant short term spending into the economy.

In other words, this spending masked the loss in export industries.  Even though our employment growth was second worst in the country over the decade, the public sector spending kept at least some growth in the economy.   If export growth had just stayed constant New Brunswick’s economic picture would have been far better.

The question is where do we go from here?   There is virtually no way the provincial government budget will increase by 63% over the next decade.  The government’s deficit reduction plan calls for spending growth of 1% per year until 2015 - at that assumes above average GDP growth during that period.

I think the data is clear.  Without a significant boost in exports - this can be services as well as products - New Brunswick is in for a bleak decade.  The federal transfer programs should help somewhat but as we have talked about before even those are likely to contract in coming years.

Where will these exports come from?

I think there is a little room for growth in the forestry products industry but it will never return to the heydays of the early 2000s.  The markets have changed and there just isn’t enough fiber.  But I think we could see a few hundred million in increased forest products exports if things go well.

Seafood?  I am not sure about that one.  It’s been a big export industry but it also has a very seasonal and low skilled workforce.

Energy exports?  Wind, nuclear, nat gas?   I have been studying this industry a lot lately and I think there is potential in the medium term - the middle part of this decade onward - assuming New England keeps to its renewable energy targets.  The challenge here is the employment multiplier on energy exports is relatively low.  Finding ways to put that energy to work in New Brunswick would have a much higher economic impact (i.e. attracting industries that are energy intensive) but that becomes a issue of price - and we know that industrial electricity and industrial nat gas prices are very high in New Brunswick.

Information technology?  Maybe - but we would need to see thousands of jobs in this sector if it was to be anchor of economic growth over the next decade.    Think about it in straight economic terms.  If provincial government spending only goes up 20% over the decade, that means we will need to see the private sector make up that 43% gap - just to keep the same level of tepid growth in the 2010s that we saw in the 2000s.

It is likely the call centre sector is out.  I suspect some of the firms will still grow but others will decline.

If a person was audacious - they would say that Rayburn Doucet will build a cluster of several thousand jobs in industrial fabrication up in Belledune and AREVA will build a 2,000 high wage jobs energy part somewhere in the Saint John area.  They would further say that Fredericton will become a centre of advanced learning technologies and attract 2,000 high wage jobs in this sector.    Moncton?  Still trying to figure out it’s potential growth path.

Throw in a few thousand jobs in IT and a modest rebound in forest products activity and you can start to see a fuzzy growth picture start to emerge.

I’d like to see us set some specific targets and craft credible plans for hitting them.

The census has simply become a cheap way for academics, economists, and social scientists to get information.

This is the nub of it and they have been saying it all along.  It makes perfect sense now.  I still don’t agree with the decision but I now understand why they did it.

They want to hobble those folks that use Census data for social policy debate and development.  It is absolutely true that the largest users of long form data are government departments (federal and provincial), social policy advocacy groups and academics looking to ground the debate in robust data.    

Hobble might not be the right word.  They don’t want government paying for the data that the Canadian Centre for Policy Alternatives then uses to anchor much of their policy options.   This is not just about external think tanks, however.  Internal government departments use this data widely for internal policy debates.  Now they won’t be able to.

It is true that it will likely create a new industry around demographic and economic research.  But only those with deep pockets will be able to play and they will be able to write their surveys in such a way to ensure the survey findings are aligned with their expectations.  I have no real problem with that when it’s a survey about online banking preferences but when it comes to pay equity legislation?  You want that debate to be had by bouncing one biased survey findings off another (Fraser vs. CCPA)?

Not to mention historical comparison is over for at least some time.  It will be very hard to compare mandatory Census data with voluntary Census data (if at all).

But at least I take comfort that I am not losing my mind.  When Stockwell Day talks about the dangers of telling Statistics Canada you are a Jew - I started to think I am becoming mentally untethered.

He’s quoted in the Globe today as saying:

“I know I don’t have very many allies in the media on this. I’m kind of alone out here,” he said. “All I can tell you is that I do believe it’s the right thing to do and in politics if you start not doing the right thing because some people criticize you, why would I be wasting my time

So this is an interesting point for me. How does something get to be ‘the right thing to do’ in politics? 

If Clement was trying to make a decision on taxes or health care spending or where to put a new road and 200 of the expert organizations you talked to were against it and three were for it (and the three all have close ties to the PM - the Taxpayer’s Federation, the Citizen’s Coalition and Fraser) - how could be be so sure it’s the ‘right thing to do’?

I have said on this blog on many issues that I lean towards believing expert opinion on subjects that I don’t have a deep knowledge so in this case, if I was Clement, I would default to the expert opinion on this and maybe set up some type of commission to study it and report back to the Minister.

It just doesn’t make any sense.  Clement and Day keep talking about putting people in jail for not filling out the form when no one has ever been put in jail.  Then the backup argument is that it is somehow just not fair to force people to fill out a form like that - why not?

Somebody sent me an email today - not a fan of the Conservatives - saying the real motivation behind this is to make it harder over time for the government to develop social programs.    It is true that many of the big social policies out there rely heavily on long form data but I don’t necessarily agree with his opinion - I never really liked conspiracy theories - someone tried to put me into one during the recent NB Power debate and it’s not fun.

It’s probably more simple than that.   A few key influencers - the few Libertarians we have in Canada - didn’t like it and kicked up a rumpus during dinner with Harper and got the thing scrapped.  And that’s not a good way to set policy - particularly on things that are hard to reverse.

Now, with that in mind take a look at this list of 23 occupations that are expected to keep declining - significantly until 2018.  Of course these lists are not directly comparable but for a thought exercise it is interesting.  Most of the decling occupations are related to production (again in that general sense) - oil and gas labourers, electronics assemblers, machine operators, etc. and most of the growth sectors are primarily consumption - restaurants, retail, health care, etc.

I think economies - even provincial economies like New Brunswick - need a balance of production and consumption and when we lose the production side of things we end of driving down consumption.

I’ll make a prediction that both oil and gas extraction and manufacturing will be making a comeback in the U.S. and probably Canada as well.

Occupations expected to decline

Postal service workers — 12% decline by 2018
Switchboard operators — 12% decline by 2018
Oil & gas unskilled laborers — 13% decline by 2018
Inventory and recordkeepers — 13% decline by 2018
Correspondence clerks — 14% decline by 2018
Electronics assemblers — 15% decline by 2018
Machine operators — 15% decline by 2018
Miscellaneous plant and system operators — 15% decline by 2018
Photo processors and machine operators — 16% decline by 2018
Machine parts manufacturers — 17% decline by 2018
Computer operators — 19% decline by 2018
Oil & gas derrick operators — 19% decline
Extraction worker helpers — 19% decline by 2018
Bookbinders and bindery workers — 19% decline by 2018
Utilities meter readers –20% decline by 2018
Shoe and leather workers — 21% decline by 2018
Desktop publishers — 23% decline by 2018
File clerks — 23% decline by 2018
Pumping station operators — 25% decline by 2018
Order clerks — 26% decline by 2108
Semiconductor processors — 32% decline by 2018
Sewing machine operators — 34% decline by 2018
Textile machine operators — 39% decline by 2018

And then look at the 10 American Industries That Will Boom In The Next Decade

Full-service restaurants
Local government, excluding education and hospitals
Employment services
Nursing care facilities
Offices of physicians
General merchandise stores
Computer systems design and related services
Home health care services
Services for the elderly and persons with disabilities
Management, scientific, and technical consulting services

“People like Donald Savoie (UofM), David Campbell, Peter Linfield and Don Desseraud (UNB) seem remarkably quiet about this election. Why are some of these experts not ‘beating the drum’ on the following:”

and then went on to list a variety of issues such as Atcon, Hydro-Quebec, deficits, etc. - basically all of the opposition talking points for this election.

I can’t speak for Savoie, Lindfield or Desseraud but I would make two responses to this from my perspective.

First, I have been raising the issues that I think are very important both in my column and this blog - deficits, job creation, the need for high value jobs, my disagreement with tax cuts, etc.  I have stated clearly that I supported the Hydro-Quebec sale and burned through a lot of goodwill at the same time.

Second, I am trying to be non-partisan about this because I hate it when we politicize economic development.  When Bernard Lord repudiated Frank McKenna’s economic development efforts for purely partisan reasons, I couldn’t believe it.  Most people - not all - but most agreed that Frank’s main contribution was his economic development efforts and Lord felt he had to come up with a ‘Made in New Brunswick’ economic development model.  As I have pointed out, he ended up benefitting from more call centre jobs created than McKenna did - a fact that is never mentioned by anyone.  Lord could have expanded McKenna’s efforts beyond call centres and helped foster the growth of other sectors of the economy but opted for a passive approach.  I hope the current Tories understand the critical importance of setting policy and effort to make New Brunswick attractive for business investment.

The Liberals have Atcon, the Tories had Atlantic Fine Yarns.  The Liberals had the Caisse bailout, the Tories had Orimulsion.  The Liberals are running up a huge deficit in the face of the recent recesssion, the Tories ran up a huge deficit under former Premier Hatfield.  The Liberals may have made mistakes with NB Power (I am honestly not qualified to say) but so did the Tories (Orimulsion and the Lepreau refurb). 

The point for me is there are lots of folks parsing political messages and making their points to try and sway voters one way or the other.   I’m interested in trying to get economic development on the radar of all political parties and the general public as well. 

This is non-partisan.

In response to charges he was too cozy to Stalin, Winston Churchill once said he would make a favourable reference to the devil in the House of Commons if he would help defeat Hitler.

I’ll make a favourable reference on these pages to any political party or politician that recognizes the importance of economic development and sets a clear agenda to move away from the sprinking of taxpayer dollars around New Brunswick model to a strategic sector development model.

On average I would say there is at least a handful of stories each and every week - mostly in Western Canada - criticizing the unfairness of the equalization program.   The public - again mostly in the West - is regailed with stories of how places like New Brunswick have cadillac schools and more doctors per capita - all paid for by Albertans.

This story, however, receives specific mention.   It’s an op-ed written by a guy named Ian MacDonald who is a bit of a caped crusader against Equalization (I have seen many articles in his name on this topic over the years).    This one is particularly interesting because he names a number of Quebec public services such as $7/day daycare, the low university tuitions, the new funding for free in vitro fertilization and many more - with each being punctuated with “Thanks Alberta” after them.

If you have been reading this blog you will know that I support the Equalization idea - that there should be transfers like this to smooth out ability to provide government services.  It’s in nobody’s interest for places like New Brunswick to not be able to fund public services, which will lead to less economic development over time and further the cycle of poor public services and eventually lead to third world conditions inside Canada.

However, we (and Quebec) have gotten really dependent on this program and other more temporary transfer programs and I am increasingly convinced these programs are going to be slowly trimmed back over the next 5-10 years both for fiscal realities and as a direct result of the ongoing public assualt on Equalization.

The last time I mentioned in the media the idea of Equalization as a mechanism to help drive economic development (a hand up vs. a hand out), I was scorned by a UdeM professor who indignantly stated something to the effect that Equalization was never meant to support economic development.

Why not?  Why set up a program that penalizes economic development efforts?    If New Brunswick generates more own source revenue, the federal equalization program ratchets down almost in parallel.    Why?  Why not set it at some five year level and agree with the province on strong economic development targets?

It is tempting to use populist rhetoric because it feels so good to say it.  It comes off the tongue and it’s like candy to the ears of those who want to hear.

“Never let facts get in the way of good populist rhetoric” Nicely said.
“Good Intentions vs Reality”. While populist rhetoric doesn’t fall anywhere’s near good intentions, maybe a better understanding of the “reality” of the situation would be more effective. Unless of course, you are trying to whip up emotional support from the electorate, and you don’t exactly want to point out the facts that brought us to our current reality. Paying an international call centre 5 million tax dollars in forgiveable loans so they can employ a small percentage of the population for a contractual time period, for instance. (not the highest paying jobs, but it pays) Nice idea, until the contract expires and the company leaves, because it was a money-losing project to begin with. So, what we are left with is a number of people now trained in working in call centres, but no call centre to work in. But there are plenty of call centres to work in, not necessarily in the locale where they were trained, but in various locations around NB, and mostly outside the province. If some of the call centre business gets outsourced to areas in foreign countries, then what does our newly trained population do? “The government has a fundamental role of protection. Protection of the rule of law, protection of property rights, protection of the people against those (people or companies or governments) that would seek to do harm against others in society” Bribing companies to setup in NB for short term projects wins immediate favor, (regardless of cost to Nb Tax-payers) until those people leave to take their skills elsewhere, for any reason. Eroding the tax base, or staying here on EI, welfare, if you can qualify, (more tax money gone) Is there a process being used to examine if there is a “real” net benefit to NB, or is it closer to really expensive rhetoric and buying votes for the short term?

This reads like great insight and if you don’t know any better you would pump your fist in the air but the truth is that whoever posted this is selling you the soap.

Most call centres in New Brunswick - the vast majority - are not doing ‘contract’ call centre work (outsourcing work from other companies).  Royal Bank, TD, UPS, CAMCO, Fairmont, ExxonMobil, on and on - are doing their own, internal customer service work. 

So his bit about the “company leaves, because it was a money-losing project” is just plain an exaggeration.  There have been a few close their doors (ironically most of the NB-based ones) but as a percentage of the total - it is a small fraction.  All industries have turnover (companies entering and those exiting) and it is remarkable that so many call centre jobs are still here after 20 years.  

He is talking about a very small part of the industry.  And I love this language of bribing companies to “setup in NB for short term projects “  again a huge distortion of fact but using words like bribe, extort, corruption, etc. are so inflammatory that people read them and are more likely to ignore the actual point of the narrative.  

I can’t think of a single customer contact centre that hasn’t more than pay back any government incentive through increased tax revenue.  This guy wouldn’t bother to do any real research on that because it would defeat his point.

Finally, what really saddens me is that guys like this will then go out and demand the government give more money to ’small business’ and help New Brunswick business first and all the related rhetoric even though the failure rate of new business in New Brunswick is around 80% within five years and the money given to small business on a per employee basis is far greater than any given to a call centre.

But, again, populism is about pushing buttons not about good policy.   Bashing international firms and “putting New Brunswickers first” resonates with the public (unless of course those New Brunswickers being put first happen to have built large companies in New Brunswick then they are also bashed). 

I love good debate and I don’t think I have a monopoly on good ideas.  In fact, I have become less strident in my positions on this stuff as I get older but I eschew this populist rhetoric and I will continue to do so because I don’t think it will ever help New Brunswick move ahead.

I realize this is a great tool for rallying votes but I struggle to find broader value from pitting people against industry, small business against big business, demonizing foreign companies and the other ways that populist rhetoric is used to stir up fear or frustration or anger between groups in our society.

The government has a fundamental role of protection.  Protection of the rule of law, protection of property rights, protection of the people against those (people or companies or governments) that would seek to do harm against others in society.  And you will find examples of criminal behaviour by individuals and by companies.

But I think we need to eschew the temptation to stir up populism for political gain. 

Take the issue of economic development.  There are those who would pretend (and are doing a good job of convincing many people in New Brunswick) that the economic development efforts in New Brunswick are all focused on either big foreign national companies or a few large NB companies.  

Never let facts get in the way of good populist rhetoric.

As I have said before there are around 600 economic developers in New Brunswick - in organizations such as BNB, ACOA, Industry Canada, Enterprise Agencies, NRC, etc.  and a rough estimate would set the number directly involved in attractin companies to New Brunswick at around 15 - out of 600.  

BNB has a small team - I don’t know the numbers now but it used to be around 10 - that were dedicated to attracting companies and investment.  ACOA has none.  There is a team at the head office that have some joint trade/investment functions but on an FTE basis - it might be one person (I don’t know).

The Enterprise Agencies all have someone that workers with companies looking to set up in the province but I dont’ know of any have a dedicated Investment Attraction person (maybe one or two?)

So, conservatively, on an FTE basis, there may be 15 or 2.5% of the people involved in economic development are working on attracting investment.  But you will hear (at least I do) that we are too focused on attracting - as the the People’s Alliance calls them - white knights from outside New Brunswick.

The populist theme is that “we don’t need these companies coming here and exploiting our people” and the like.  Again, for some reason, this type of rhetoric will find an audience in New Brunswick.

I don’t have time to go through them all but one more population thread is pitting people against big business.  This one is widely used in New Brunswick.  I have heard Chamber of Commerce leaders railing against the evils of big business.

Again, fact checking isn’t the point of populism.  The overwhelming percentage of effort undertaken by those 600 economic developers is focused on the SME sector of the economy.  Sure, there are efforts to support the larger companies - but if you look closely at the efforts of all of these agencies you will see that the majority of projects are with mostly small firms.

ACOA, for example, has a maximum loan level of $500k.   That, by definition, is focus on small business. 

Go through the workplan of any Enterprise Agency and see how much of the work is directly with the large businesses in their community.  It is usually almost none.

By the way, I am not complaining about this - I am just stating a fact.  The prevailing economic development wisdom in New Brunswick for the past 30 years has been that we need to forget about attracting industry and focus on fostering entrepreneurship.    It’s as engrained in our collective thinking as just about anything.

In the end, populism isn’t helpful.  It’s not about building anything. It’s about exploiting fear, anger and frustration.  It pits people against people, communities against communities, businesses against people and the end result is that this feeds our weak economic growth over the decades and our stagnant population growth.

If I could meet every single New Brunswicker, I would try my best to convince people that business is not the enemy and that national and international firms are not necessarily out to exploit people.   I would assure them that government will protect the public interest but that there is no value in demonizing the economic activity we need to sustain our quality of life.

I only read it quickly but he wants to strengthen NSBI with a greater trade development and is calling for a more streamlined process for company support projects.  He also seems to want NSBI to work more closely with these allied organizations.

He is pushing for a more aggressive R&D tax incentive regime and cutting the capital tax.

He thinks the R&D focus should be primarily on the sectors with the greatest opportunity.  Sound familiar?

He says “The provincial government should invest the necessary resources with the Atlantic Canada Opportunities Agency to assess properly the performance of the RDAs”.  I think this is key.  There is way to much moaning and complaining about the ineffectiveness of RDAs in both Nova Scotia and New Brunswick.   Let’s figure out once and for all what is the most effective role for local RDAs.  Are they are bookshelf for provincial and federal funding programs as some have suggested?  Or are they a highly valuable development team providing services that grow key sectors of the local economy?

I think his point that it doesn’t require new money and there may actually be savings is a good one.  He claims $500 million is spent on economic development each year in Nova Scotia.  That seems high to me but I know from my own research that the amount of money - for specific economic development - isn’t the problem in either NS or NB.   I do think we could see more provincial spending on activities that influence economic development (like R&D) but the direct spending is large and maybe could be cut. 

In New Brunswick, there are something like 600 people employed for economic development organizations such as BNB, Enterprise Agencies, ACOA, Industry Canada, NRC, etc.  That’s more than enough  - the real issue is effectiveness.

I think Savoie missed the boat by not recommending better measurement of results.   NSBI has done some interesting things in this area and is probably one of the better organizations for measuring results.  Others are far worse.  New Brunswick’s reporting and measuring of economic development is vague at best.

In the end, I would have liked to have seen Savoie delve more into the FDI piece.  He seems to have accepted this as for granted - he isn’t against it and repeats on several occassions the important role of NSBI in this area - but he doesn’t develop it in much detail while there are pages and pages on how to foster more entrepreneurship.

I think he touches on the issue that I have been focused on in recent years - aligning economic development on a sector or cluster basis.  There is quite a bit of language in there about stratetgic growth sectors.    The truth is that a lot of government bureaucrats don’t want to talk about focusing on key sectors (except in a broad, almost marketing sense) because they think that will dissaude investment in other sectors.  I disagree.

Economic development in the Maritimes is now more important than ever.  While Savoie looks at the world through a public policy lense, his addition here is valid and should be implemented in large measure by Nova Scotia.

Small jurisdictions can compete.  They just can’t be all things to all people.

Take this industry - medical technologies.  From the report:

A number of smaller states had high concentrations of MTI [medical technology industry] jobs. Minnesota and Utah had the highest concentration of MTI jobs relative to total employment—over 3 times the national average. Delaware, Massachusetts and Indiana followed, with over 2 times the national average.

Only California has more medical technology jobs than little Minnesota (1.6% of the US population - New Brunswick is 2.2% of the Canadian population). 

You can’t get more New Brunswick than Minnesota - mosquitos, cold winters, huntin’ and fishin’ and yet it’s doing some really interesting things.

We have got to get over this notion that we can’t compete and put real horsepower into figure out how we can compete.

I’ll make a couple of quick points.  First, I am not sure that the ‘post-industrial era’ is inevitable.  As I have pointed out many times, there are 10s of millions of people in North America working in industrial jobs and there will be increasing pressure to do even more of that work closer to home.  It is enormously energy intensive to offshore our carbon emissions to India and China.  I believe over a longer time horizon - 20-30 years, there will be more industrial activity, not less in North America.  I do not believe it will be a massive increase as I also think there will be a parallel decrease in overall consumption as people start to figure out we don’t need three cars each, massive houses, etc.

The question is where will this industrial activity take place? I see no reason - really - why a place like the Port of Belledune couldn’t become a large scale industrial fabrication centre with thousands of workers.  It’s as good a place as any - we just need to get the value proposition right.

Tremblay’s assertion that communities have relevance and worth beyond their economic foundation is one I have made as well.  I think we have to work on that foundation because communities that are increasingly ‘wards’ of the state - in my opinion - won’t last too long.   Government and community leaders give up and let them wither.

Anothter point relates to the term ‘rural’.   Miramichi, Bathurst and Edmundston are not ‘rural’ by Statistics Canada definition.  They are small urban and take on all of the characteristics of small urban (not sure about Campbellton) centres.  There is also no reason - intrinsically - why we can’t see modest growth in these rural areas - services, IT, engineering and other professional work. 

My last point relates to his statement that we need long term strategic planning.  This is huge but mostly ignored.  Economic development in New Brunswick - and even more so Northern New Brunswick - has been about carving out some money from the budget and sprinkling it around the province.  We need to more creative that that.  We need to determine new industrial opportunities and then invest in the infrastructure (people, places, things) that make the province attractive to those opportunities. 

We are kidding ourselves if we think the sprinking taxpayer money around model will ever work.  I don’t think anyone has ever done a value for money audit on that spending.

If the government won’t listen to economic development types like me, maybe they will listen to an English prof at St. Thomas.

The raw bottom line is this: Subsidy-induced film activity may have glitz and surface appeal. But nationally, it’s a washout — film production lured from one place to another is classic “robbing Peter to pay Paul.” At the end of the day the country’s no less prosperous. The net economic impact is simply to enrich the filmmakers at the expense of state taxpayers.

The problem is that the state (and local) lawmakers are not concerned with ‘nationally’.  When British Columbia ups their very lucractive incentives to attract film and new media - I suspect the ‘national’ doesn’t come into the discussion.  When Quebec and Alberta raise their incentive rates to compete with BC, ‘national’ is not part of the discussion.

Pundits and thinkers like this guy who wrote this article have the luxury of speaking in theoretical terms or looking at national impacts - state and local economic development groups do not.  If this very guy was put in charge of the film industry development organization in Louisiana, do you think he would be calling on state lawmakers to cut the tax credit programs?

I am not a big fan of direct taxpayer funded incentives to stimulate economic development.  I have written widely on this topic.  I think tax-based incentives make more sense but even those can end up generating a negative ROI for the taxpayer.

But I struggle with this idea of unilateral disarmament.  Nova Scotia just gave $60 million to Daewoo to set up a 150 person wind turbine manufacturing facility in Trenton (the government has an ownership stake which makes it different than cash but it is still a lucrative incentive).    Daewoo would have likely got more to set this up in the U.S. right now because of the huge federal and state cash designated to grow the renewable energy sector (although the Trentonworks facility was likely another important asset).

I would like people that think about these things to not take the easy way out like this guy did.  There are Governors’ associations, Premiers’ groups, etc.  If they want to get together and agree to total disarmament I say good for them.  Other than that, I would like to see a little more nuance in the analysis.

The country overheated - just like Ontario in Canada - because of the sustained above average growth.  In addition, Ireland had more exposure to the financial meltdown than Ontario.  Housing prices have dropped and unemployment is around 13%.

It’s important to point out, just like Ontario, that the recent economic retrenchment is only a fraction of the economic build up over the past two decades.   It is clear that countries and jurisdictions that overheat end up with a correction at some point. 

But I am bullish on Ireland.  Their economic development infrastructure (people, programs and policy tools) is still robust and - I would argue - among the best in the world.  They will need to do some recalibration now - because eastern Europe has been eroding some of the country’s value proposition.   The G&M has an article talking about a construction worker who was making 150k Euros per year because of the massively overheated construction market during the overheated phase of the economy.

Rapid growth does change things.  You move from reducing local unemployment to attracting expatriates to attracting immigrants.  That does change the dynamic.  You end up with very significant growth in housing and other costs of living.  That forces up wages but also makes urban centres less attractive for workers starting into the workforce.   And, maybe a bit counterintuitively, it forces a rapid escalation of government spending because there is a lag between the spending on public infrastructure and the time it takes to get that investment back through tax revenue.

But Ireland will be back.  Just like Ontario and, yes, just like California.  California has been - with a few fits and starts - an above average economic growth engine in the U.S. 200 years.  There are those who say this is the end of the road.  I disagree. 

There is an enormous store of capital, goodwill, entrepreneurial spirit and just plain scale in these places that is brought to bear when times get really tough.

That exercise taught me some valuable lessons.  I don’t have a problem with people being against something because it just doesn’t feel right or because it sets off their crap-o-meter.  Sometimes intuition is a good tool -sometimes the only tool - we have (think Gladwell’s Blink).  But I can’t stomach the idea of basing a decision - of serious magnitude on quack science because it validates intuition.

Another valuable lesson for me was the importance of not posturing as some kind of expert in areas where I have little expertise.  I can render an opinion - and I do so on an hourly basis - but I am now more sensitive to position this as just an opinion - based on my limited knowledge of the subject matter. 

Which brings me back around to Statistics Canada.  I was surprised that the agency was letting Minister Clement get away with his comment that voluntary would generate the same results as mandatory regarding the filling out of the long form.    Now the chief statistician has resigned - and he has cited this strange assertion as just plain wrong. 

There must be something else going on here.  All of the Minister’s reasons for scrapping the long form are very thin and just about every ‘expert’ has come out against it.  The privacy argument is bogus.  The Canada Revenue Agency can conduct a full body cavity search to make sure you are paying your fair share of taxes.  I have a friend who just finished a three year ordeal with CRA where he had to share just about every possible piece of private banking and legal document.  Governments can and do intrude into our privacy on a regular basis.  The long form Census is one of the least intrusive ways.

Like John Ibbitson in the G&M today, I hope the Tories backtrack on this - set up some kind of commission to study it or something.

As for invasion of privacy, all governments require citizens to provide personal data for a wide variety of uses - it’s all used in confidence - Statistics Canada data is suppressed all the time to ensure that you couldn’t possibly figure out who the person or company is.  And in the end, people can ‘lie’ if they don’t want to share their information.  That’s just the plain truth. 

As for forced labour (mentioned here and elsewhere),  we are forced by government to do lots of things - many against our will.  If this is such an issue pay people $5 to fill it out.

The free ride argument is the worst.  The US Census data is all free - every scrap (at least that I have used and I use it extensively).  The Canadian data - other that some standard tables - is all at a cost when used in a commercial capacity.  I spent (on behalf of my clients) over $5,000 last year on Statistics Canada data. 

As for the outpouring of anger from Canadians, I never heard of it.    And I have never heard of anyone going to jail for not filling the long form out.  I had to fill it out last time and they called me several times to ensure I received it, ask if I needed help, etc.

A major point - raised here by someone - is that if the data becomes voluntarily filled out it cannot be compared to previous years and it won’t necessarily even represent Canada as a whole.  The only way to get a true cross section, is to make it random.

I think this matters.  We need to understand the nuance in the demographics.  All provinces are different.  There are huge ethnic and linguistic differences.  The socio-economics are very different.  We already have a federal government that likes to ram national, inflexible programs onto a group of very diverse provinces.  Wait until we don’t have good data to highlight these differences.  The Census long form is the best set of data on granular aspects of the Canadian population.

“We will be wandering around once more, hat in hand, looking for a new knight on a white charger who will come to rescue us poor NB peons in exchange for exploiting our resources”!

What resources AREVA will be exploiting is beyond the point.  Why ruin a good piece of populist rhetoric with little old facts?

Then the transition to the fact that 3/4ths of the residents in the Gulf region of the U.S.are against the ban on offshore drilling even after the horrific realities of the BP spill.    Person after person interviewed on the TV program talking about how important companies like BP and the oil industry are to the quality of life and standard of living in the Gulf region.  Even the normally jaded journalist seemed surprised by this.

But in New Brunswick attracting a BP or an AREVA or whomever - even without a tragedy like that oil spill - makes us peons.

Then I watched that movie Inception - another movie where corporations are portrayed as doing anything to steal secrets from their competitors.  

We are bombarded with messages - politicians, media, movies, documentaries, etc. that portray the for profit enterprise segment of our society as inherently malevolent (saving for some positive rhetoric for the small business) and that the role of government is to protect us from business.

This is not a New Brunswick issue but it sure is firmly entrenched here.

But like the movie Inception, in the end it is about ideas.  We organize ourselves and our societies around a few main themes and everything we do pivots off those themes.

My idea is that New Brunswick needs more business investment and more industry to broaden our tax base and keep our population modestly rising.  We need to have more balance between the public services we want and the tax revenues our economy can generate. 

And that means orienting our public policy and our community efforts towards attracting that investment and industry. 

What the Peoples’ Alliance and all the other parties won’t tell you is how they would address our economic development challenges.  They talk in vague generalities but if they ever got into power we would end up with more variations on the same theme.

Tom Peters, probably the most successful management guru of the 1980s, once said that American businessmen were true capitalists – until they walk through the front door of their businesses each day. Then they spend their time trying to wring tax breaks, grants, monopolies and other non-market benefits out of government.

Normally, this is under the umbrella “everyone is doing it so we have to be in the game”. You know what I mean. If my competitor is getting a tax break or government forced positive market conditions, it is only fair that I do as well. And I am sensitive to that argument. Governments shouldn’t change the conditions on the playing field to favour one over the other because if they do, it forces this kind of incentive war of attrition.

The interesting thing is that New Brunswick is actually one of the least offenders in this area. The think tank Fraser Institute periodically publishes a report on the amount of government subsidies to industry by province and New Brunswick, adjusted for the size of its economy, routinely ranks among the lowest users of subsidy to industry.

If we are going to use incentives, I favour government using tax breaks and other incentives where there is a clear return on the investment of taxpayer money on that investment. I do not recommend utilateral disarmament.

My point in the column was that I wished environmentalists would agree that using our indigenous natural gas resources, is a good thing that will bring economic value to New Brunswick. If they started at that point, and then went on to discuss how this development could occur with minimal environmental impact, that would be – I think – the basis for a good development path. But, as I said and Dr. Moir confirmed in his op/ed, they adopt an aggressive, anti-company stance and that is not conducive to working together. He says:

However, it is fundamentally unfair to let companies simply reap the cash rewards - often with government inducements like tax incentives, royalty breaks, subsidies, and variances - while expecting the rest of us to pay. Indeed, in New Brunswick our business mantra seems to be “privatize profit and socialize risk.”

If Dr. Moir wants to engage and be a partner in this does he think this statement is conducive to working together?  If I said “all environmentalists are trying to empoverish our communities” would that set the good will to work together?

If environmentalists want to be at the table (and Moir says that is true), they should admit these companies have a right to exist and New Brunswick has a right to use its natural resources for the betterment of the society.

Park the rhetoric and build goodwill.

That’s the one benefit - hopefully - of sending thousands of NBers out there.  We should track down everyone in a middle and senior management position and make the case for investing here.

We have been told by the media since the start of the recession that New Brunswick fared much better during the recession than the rest of Canada due to its ‘diversified’ economy and strong ‘fundamentals’ and that New Brunswick was first out of the gate with an aggressive stimulus program.

It’s one of those live by the sword, die by the sword moments. 

I said it then and I’ll say it now.  We didn’t have the booming growth in employment that places like Ontario and Alberta had for the past 15 years so we didn’t have as far to fall during the recession.  Government spending actually picked up during the downturn and the main sectors that were hurt - auto, other manufacturing, oil & gas, etc. have very little presence here to begin with.   You can’t lose what you don’t have.

Now as the national economy picks up steam again there is no ‘natural’ growth pattern for New Brunswick (little to regain) and we are back to the structural issues.  

I expect fairly tepid employment growth moving forward  - maybe more declines - if we don’t see any new sector opportunities emerging.    NB-focused services sectors (including most construction) are reactive.  As there is new growth in the economy, these sectors react and hire more staff.  10 new call centres or five new manufacturing facilities lead to the requirement for 50 new retail clerks, 5 new hairdressers, 4 new plumbers (#s not accurate - just for illustration).    It doesn’t work the other way around.   If we see a rash of new hairdressers, it won’t lead to a new manufacturing plant setting up in the province.

So we does this new, primary growth in the economy come from?  It won’t come from government spending - you can expect government spending in New Brunswick to remain fairly consistent for the next at least five and probably closer to 10 years.

Will it be manufacturing?  Certain segments of the manufacturing industry are starting to pick up but the competition is enormous.

Will it be call centres?  There are still some niche opportunities here but I don’t see much overall growth on the horizon.

Will it be IT?  Again, it’s a very competitive space - particularly if we are looking to attract established companies here.

Will it be energy-related?  Areva is one of those projects that could gird up employment for a couple of years but that project is still several years out - if it goes ahead.  As for gas exploration, we can expect a modest increase in activity but not a massive injection.

Government needs to think about this stuff.  It’s easy to issue press releases each month trying to spin the labour market numbers but eventually they can catch up to you.    Either you have economic growth drivers or you don’t.

It seems to me that Areva is looking at New Brunswick as a beachhead for their North American nuclear strategy. 

Makes sense to me.

The long form was sent out to 20% of the population and they were required to fill it out.  Now it will be sent to 30% of the population and it will be voluntary.  The Minister doesn’t like coercion, he says, and now that it is going to 30%, maybe even more will fill it out.

I use this data a lot.  It is critically important to understanding the broader trends in the Canadian economy.  I have also filled out the long form and it is not that big a deal.

Governments force people to do all kinds of things.  Filling out a 20 minute survey doesn’t sound that oppressive to me.

I hope this change was well thought out.

It’s a bit strange for the Opposition to be tying this to the failed Hydro-Quebec asset sale but I guess we are in that political season.

We will have to see the specifics of the arrangement.  I suspect at this point they will just be signing some kind of MOU and working towards a real project.  I’m not sure if the power from a second reactor would be used here or exported to the U.S.  If the power was for New Brunswick, we would need a very long term contract at a low price.  We can’t afford to be exposed to the cost risks associated with nuclear power, IMO.

But the broader energy park concept is important.  It’s one thing to produce energy, it’s another - and potentially far more lucrative - to use energy to power economic development here.

But even more important is the growing realization that ‘energy hub’ must be far more than just a few big energy projects.  What good is LNG if natural gas prices here are through the roof?  What good is it to be an electricity exporter if electricity prices here are uncompetitive? 

ExxonMobil is now the largest private sector employer in Moncton and Accenture has a utilities BPO in Fredericton serving energy clients across Canada.  We need to expand our definition of energy hub into the services sector as well.  Our software and I.T. firms should be building product for energy companies (like the smart grid project underway).  We should be a hub for back offices.  We should be attracting regional offices (Apache, Southwestern Energy, etc.).

We could end up with 20,000 above average paying jobs and tens of millions in tax revenue to government each year from a broad-based energy hub that goes from natural gas exploration through to petrochemical processing through to an industrial energy park and on to a cluster of services and support firms.

For the past 25 years, America really didn’t particularly want manufacturing - there were some southern U.S. states that pushed hard for it but as a country the model seemed to be “we do the R&D, software, finance, etc. and we’ll let other countries do the lower value manufacturing”. 

But when your labour market is short 7 million jobs, it changes your perspective on things.    I think you will start to see a few things:

1. More stuff like Andy Grove’s commentary guilting both companies and governments to make manufacturing a priority.

2. Even more lucrative tax incentive and support programs targeted to manufacturing jobs.

3. More focus on Buy American.

Don’t get me wrong.  I don’t expect plastic toys or tee shirts to be manufactured in the States but anything mid to high value with some J.I.T. sensitivity will be increasingly repatriated to the states.  Companies will adjust their business models to add more domestic manufacturing.

It’s just a guess but as was discussed in the podcast, India and China are now catching up to the States in terms of R&D, software, etc. as well as manufacturing.  Nothing is sacred anymore and the U.S. will need to re-assert itself.

I think this bodes well for New Brunswick.  We should be able to carve off a very small niche, I think, of this trend.

Secondly, and you will excuse this line of thinking, it is interesting these two massive plants are being sited in Arizona and Colorado - relatively small US states - similar to New Brunswick in comparison to the size of the country.   If new facilities were like this were to be set up in Canada with massive federal dollars - there isn’t a snowball’s chance in hades they would be sited anywhere but Ontario or Quebec.    It might have something to do with the U.S. Senate (Colorado has the same clout as California or New York) or it might just have something to do with the the state-federal relationship but whatever the reason, there ain’t no way this type of plant would receive tens or hundreds of millions of federal dollars in Canada to set up in New Brunswick.  It hasn’t happened in New Brunswick - ever (there was a little of this with Michelin in Nova Scotia).

But the broader point is that it is good to see UNB profs discussing this stuff in the papers.  There seems to be a few more weighing in lately other than Passaris and Desserud and Desjardin which is good.  There are a pile of economists and social policy researchers in the universities - I’d like to seem more of them putting some mind share towards economic development in the province.

They typically don’t like to spend time worrying about the real world.  When they do (economists) weigh in it tends to be on macro-economic issues such as fiscal policy, monetary policy or at a provincial level on debt, deficits, taxation, spending ratios, etc.  I’d like to seem them put their intellectual capacity against the problem of under-investment here.  Maybe if 20 economists actually studied and reported on how places like NB around the world were able to bring in new investment and jobs, maybe the public and the media would report it.

I’ve had this debate with a few economists.  An economist views economic development (the practice) as a Phd in hair research views a barber.    They study hair all day long but would be slumming to talk about cutting hair.

We need better barbers in New Brunswick and the Phds in hair research can help.

New Brunswick basically has a long standing private capital investment problem.  I know that sounds clunky but nevertheless I can’t find a better term.   Call it business investment.    The point is that the province hasn’t generated enough investment to fuel an economy that creates enough tax base and jobs to sustain the public services we want or the population for our communities that we need.  There are certainly areas of NB that are doing fine - I just spend a couple of days in Fredericton - but on the whole, the province is not generating enough investment to sustain the economy and population and that leads to more and more transfers from the Feds and out-migration of the population.

If you believe the premise - and I would say the majority do not - they think that in Canada you will always have rich areas (i.e. Alberta) and poor areas (i.e. NB) and excess taxes from the rich should pay for the poor.  I had this articulated to me nicely this week by a person with zero involvement in any kind of economic development or public policy thinking.  Just a neat, crisp, position on the issue - that kind of resonates.

However, if you do believe my premise, turning to solutions is exposing the extent of the challenge to addressing it.     Will it take a low tax environment to attract this investment?  No, we have the lowest tax environment (business, property and payroll taxes) in North America according to KPMG and that hasn’t led to a flood of new investment. 

Will it take low business costs?  We are already among the lowest cost locations in North America for most business activities - but not by a wide margin.  A company might shave off 10% here ont the raw cost elements versus Michigican or some place but they could make that up in productivity.  Besides, if a company really wants to cut costs to the bone - they will go offshore.

I say we need competitive tax rates and a competitive business cost environment (it should be cheaper here than urban Toronto for example) but there has to be more.  History tells us that the most expensive places to have a business tend to massively outperform the cheapest (Silicon Valley versus New Brunswick).

This is where the ‘hands off’ crowd comes in.  They say we shouldn’t pick ‘winners’ or ‘losers’.  Just cut taxes to the bone and cross your fingers. 

I’m a hands on guy.  It’s not about the grants or loans - that’s been oversold as the main driver of new business investment.  Long term, sustainable industries are built around regions that have a very strong business case for investing there.  Tax incentives and other government may be part of that but, again history tells us, there must be more.

So without oil to attract the investment (apologies to Cecil Freeman), how else is it done?   Across North America and Europe there are only about 10% of jurisdictions (states, provinces, local regions) that generate a large part of their tax revenue from royalties off natural resources.   It sure helps but there are other ways.

Effective economic development has something to do with entrepreneurship.  How come we are not creating a new class of high growth, global firms based here?   Where are the new John Manships?  If we had just 100 new entrepreneurs who were able to build 100 companies with $100 million in annual revenue (mostly from markets outside NB) - we wouldn’t be having this discussion.

It has something to do with attracting investment.  It has something to do with energy.  It has something to do with R&D.  It has a lot to do with our universities.

But it starts with a shared idea - that we need this build up of the private economy in the first place.

However, the spinners seem to over-spin in the hopes that the moderated version that ends up in the press will still be positive. 

For example, the government press release states ” The largest number of interprovincial migrants since 1990 caused the population of New Brunswick to grow for the 13th consecutive quarter”.   396.  That’s the number ‘largest’ number they are talking about.  No mention of the -127 natural population decline - the largest natural population decline in - I think - forever. 

The Minister is quoted as saying “”Some people say they’re ambitious goals. We feel that it’s important that we set high targets,” Arseneault, also the deputy premier, said in a phone interview Monday.”

It’s strange how in New Brunswick we lower the bar to rock bottom and then any slight move upwards is an ambitious goal.   Having a population growth rate 70% slower than the Canadian average is now an ambitious goal.

It is certainly better than population decline, however.  If you want my thinking on why population has grown - check out my TJ column tomorrow.

The article has multi-layered themes that each could be the subject of a blog.  The importance of the long term view, the criticality of large infrastructure such as a port to long term growth, the flight from the urban core to the suburbs, the lack of urban density, attempts to curtail suburb growth by draconian ideas versus making it attractive to live in the urban core (that whole carrot versus stick thing is going to be a central idea related to Saint John’s future, IMO).

I have spend a lot of time over the past few years studying NB’s economic development past.   I have read books -Savoie, Fredericks, etc. reviewed old Census data from the 1940s and 1950s and I have talked to some of the old geezers that still remember efforts to promote NB back in the 1960s and 1970s.   

The Saint John example is very instructive.  If Saint John met its forecast of 250k people, what would that have done to the province?  How much less relaint on Equalization would we be?  Would 18 years of net out-migration have turned to 18 years of net in-migration?    I have long said that a province needs one or more economic anchors that drive economic growth.  There are urban centres across North America that play such a role but New Brunswick doesn’t have a large urban area to do that.  According to the 1970s vision, Saint John could have played that role.

On an unrelated note, I see Microsoft has set up an other data centre in Iowa - a state with one of the lowest rates for industrial electricity in North America.  Note the salary level - $31/hour (with health care in I presume).   We’d settle for $30/hour in New Brunswick and throw in health care as a bonus.

“Iowa Gov. Chet Culver says the Microsoft Corporation plans to move forward with the construction of a modular datacenter in West Des Moines. Culver said Thursday that the $100 million facility is expected to be up and running by next spring. The Iowa Economic Development Board approved an award to Microsoft that will prove tax benefits from the High Quality Jobs program for the creation of 25 jobs. Microsoft says those jobs will pay an average wage plus benefits of $31.04 per hour. Culver says the technologically advanced facility will significantly reduce water, power and carbon wastes associated with traditional datacenter facilities. He says it will also enable a more efficient and higher utilization of computing capacity and productivity.”

I’ll give you two reasons.

Brad. Green.

The Tories were pretty good to the public service.  New contracts had fairly good wage increases.  There were no major shakeups.  Lots of new money flowed into the coffers and when Brad Green got booted out of office in the Fredericton area - he lamented with exactly this point.    One of the reps from the public sector union (can’t remember the name) stated something to the effect that the Conservative don’t respect the public service).

The civil service votes and I expect the percentage that vote is very high.  Piling on the public service in public by a politician is likely to show up at election time.   It may be low hanging fruit to pick on the public service but it isn’t exactly endearing to them.

If there are changes needed to the public service, if there are efficiencies to be had, if there is a need to re-engage them in a broader vision for New Brunswick, it seems to me the strategy should be to bring them along side rather than hack away.  A demoralized and detatched public service is not in anyone’s best interest.

We spending barrels of ink every day demanding that the public service rise to the challenges facing New Brunswick and then we flip the page and load up with stories about how dumb them are.

You can’t have it both ways.

He says the entrepreneur who owns a small business wants to “feed the family” while the scalable startup goal is to make lots of dough and implement their vision.  He makes good points about both entpreneurial companies (large) and social entrepreneurs.

This stuff matters to economic development.  As I have said before, most of the focus has been on supporting and nurturing small business writ large when it may be more impactful to focus just on the ’scalabe start ups’.  Or maybe not.  My point is that either one is a policy objective but if your stated objective is to foster more high growth, export-oriented entrepreneurs than you should target that group (scalable start ups) rather than blanket incentives for all small businesses.

And the interesting thing is the polling data still shows significant support for offshore drilling in those states most impacted by the spill - Louisiana, Mississippi, etc. There was a national poll and almost 60% of Americans said they didn’t care if BP went under but in the area most impacted, it was a fraction of that.  I heard the Senator from Louisiana talking about this on Meet the Press.

Then, yesterday, a judge in - I think it was Louisiana - struck down Obama’s new offshore drilling ban as unconstitutional. 

I think about these things.  Saskatchewan has a large and expanding oil and gas industry.  It is the largest producer of uranium in Canada - maybe North America.  

In New Brunswick, when someone hinted there could possibly be uranium mined in the province, there was outrage - signs in every window “No Uranimum Mine”.  There is a growing movement to try and block the limited drilling for natural gas.  During the Hydro-Quebec debate, a number of intellectuals were way to cavalier saying “who cares if the forest products mills close?”

I realize the federal transfer payment system is meant to buffer poor provinces and allow them to offer their citizens comparably good public services. 

But I think we need to appreciate the importance of economic development.  It’s become all too easy to dismiss this as a secondary thing in New Brunswick - on the implied assumption that the other guy will take care of us.

Now, before I have to field comments about the dangers of uranium, hydro-fracturing, decemation of the forests, etc. etc. etc. I ask you one thing.  Why, in a poor province like New Brunswick, are we less tolerant of many of these industries?  

Of course we need to ensure there are strong enviromental safeguards in place around natural gas drilling.  Of course our forest products industry needs to be balanced. 

But what is our basic posture?  I’m not talking about the tenured professors, unfireable bureaucrats, environmentalists and other safe, vested interests.  I am talking about the average guy, gal on the street?  If their opening position is hostility - I don’t understand this.

I think that is clear from this interview with David Alward.   It’s chalk full of references to the good old days such as :

I was part of a government that had to make difficult choices. We made a difficult choice in health care, and in my own riding, to close hospitals and build a new facility. That was not an easy process to go through but there was a process. And people were engaged in it. And there is a new facility there today with more doctors and nurses and more specialties being provided than existed before.

The new definition of a hard decision is one that leads to a brand new hospital and more doctors and nurses and more specialties being provided than existed before?  I remember that debate and I realize that people were angry that a few small hospitals were being closed but that seems to be the new normal - spending a lot more money is considered to be a tough decision.

I was part of a government that, over seven years, paid down $500 million on the debt of the province. That was not easy.

That seven years represented one of the fastest (if not the fastest) period of increase in federal transfers to New Brunswick in the province’s history - at a time when the national economy was in the midst of the longest period of sustained economic growth in history.  

This government has not had a revenue problem; the revenues, if we look at where they were in 2006 to today, have continued to grow. They have had an expenditure problem.

Expenditure growth under the Tories - per capita, % of GDP, straight up - was virtually the same as under the current Liberals. 

I like David Alward.   I only met him a couple of times but he seems like an affable bloke and I have met a few of his advisors and they seem to be smart guys/gals.  But one of the problems with recycling the Lord team is they were (and it seems are) convinced 1999-2006 was some kind of golden era in New Brunswick.    But it wasn’t.

1999-2006 highlights: 

Toll highway deal torn up - costing the province at least $200-$300 million to date in debt service costs and lost toll revenues. 

Orimulsion - well over $1 billion impact and counting.

The natural gas deal that, well, have led to what we have today.

The NB Power reforms that, well, have led to what we have today.

The first population decline since the Great Depression - there were more people living in New Brunswick in 1998 than in 2007.  To me it is absolutely staggering that Canada as a whole added 2.7 million people to the population from 1998 to 2007 and New Brunswick saw a decline of over 5,000.  

Canada witnessed unprecedented tax revenue growth from 1998 to 2007.  If there was ever a time to start putting a chink in fiscal dependency of NB to the federal government - it was 1998 to 2007.  Yet, we went over $400 million year further into dependency on the equalization program.

Of course, I could go on and on.  We had that eNB initiative that was supposed to transform New Brunswick into some type of ICT hub and it didn’t.  We were going to rocket to the top four in Canada among the provinces for R&D spending per capita.  We didn’t.   

This is not a political blog - it does look at the intersection of politics and economic development.

There is a very good chance that David Alward will be the Premier in the fall.  I have been wrong in just about every political prediction I have made since the late 1990s so I don’t want to make any now (to jinx either side).  

But if he gets in I hope he has the wisdom to understand that the Tories of 1999-2006 governed during a period of unprecedented prosperity in Canada and if they are in power from 2010 on - they will be governing in a period of significant austerity and a period where we will need tremendous public policy wisdom - on energy, on economic development, on fiscal restraint, on regional governance, on the labour market, etc.

2010-2020 will be fundamentally different than 1998-2006.  I hope they get it.

New Brunswick is a province, it is not a small part of a large province.   New Brunswick is not ‘rural Canada’.  It has urban centres - small urbans to be sure - but all the features of urbanity - universities, hospitals, airports, etc.  It is wrong - even for Toronto-based gurus - to say New Brunswick is rural Canada. 

Not all of New Brunswick has trouble retaining talent.  Again, another broad sweep based on the definition that New Brunswick=Rural.  Certain parts of New Brunswick and certain industries are having trouble but I wonder if the Toronto-based guru realizes that from 2001 to 2006 there was a positive net-migration from Toronto to Moncton.  Take a look.  675 people were living in Moncton in 2006 that were living in Toronto in 2001.  445 people were living in Toronto in 2006 that were living in Moncton in 2001.  Oops.  Maybe Toronto has a brain-drain problem  - at least to Moncton it does.

I’m sure this guy is well intentioned.  New Brunswick isn’t on his radar so he is plucking concepts from other locations and trying to tweak them for relevance here.  Fine. Hope the lobster was good.

What we really need out of these gurus is ideas on how small urbans can compete, how provinces (not small regions within provinces) can build the kind of policies that support attracting investment into targeted industries.  Ultimately that is the source of my discomfort with the New Brunswick=Northern Ontario analogy.  New Brunswick has the fiscal and policy making capacity to do things that make it distinct from the Gaspe or Northern Ontario or rural BC or all of the other places Iggy thinks looks like New Brunswick.

On a scale basis, New Brunswick’s problems don’t look as daunting.  We’re just a little sliver of the economy down here and there are fiscal mechanisms to ensure we don’t fall off a cliff (i.e. equalization).  There are really no such mechanisms for Ontario.  Imagine if Ontario ended up needing 41% of its provincial budget through federal transfers?  It would be a problem.

New Brunswick just needs to find its footing in the economy and get focused on the opportunities that will drive investment and high value career opportunities.

There is no question that government, community and business leaders are realizing that New Brunswick is about to enter a period of serious austerity when it comes to government spending. Just like previous recessions, governments have built up big deficits and will need to either cut spending or raise taxes (or both) to climb out of the hole. Since both political parties are on the record saying they will not raise taxes, the only other short term option is fiscal restraint.

Government spending in New Brunswick over the past 15 years has been well above private sector spending. When we clamp down on public spending, will the private economy pick up the slack or are we in for an extended period of economic malaise?

In addition to the need for fiscal restraint there are a number of other significant public policy challenges that will influence the economic trajectory of the province. Our competitive position is being eroded by high energy costs and increasingly tight labour markets. Having low unemployment is a good thing but it does put upward pressure on wages. Higher wages, higher energy costs and a Canadian dollar close to par with the U.S. dollars is a dangerous combination for our export-intensive industrial economy.

But travelling around the province I get the sense things are different this time. It might just be me but I think a lot of people are really starting to understand the scope of the challenges and are not interested in settling for the superficial political rhetoric that pervades the public square these days.

The other thing I see is less interest in assigning blame and more interest in getting down to business.  Assigning blame for the lack of economic development is a cottage industry itself in New Brunswick - north vs. south, urban vs. rural, Moncton vs. SJ, Moncton vs. Halifax, - someone else wins ergo I lose.

It’s easy to blame the other guy.  It’s harder to take responsibility.

But I will say this.  There were 30 people or so in that room and each one seemed to be more knowledgeable than the next.   I felt like an intern.  Here were people - some with 30-40 years experience rattling off statistics and context from as far back as the 1970s without missing a beat.

Addressing New Brunswick’s economic challenges will come from marshalling and listening to the guidance of folks like this.  There is a deep braintrust around here that has seen it all and has good ideas.  We need (I need) to listen to more of these folks.

But that’s not my main point this morning.  The T&T has a cover story about the Halifax-Moncton corridor - quoting Donald Savoie saying the two should work more closely together.

I am a big fan of urban-urban collaboration like this. 

Richard Florida now thinks the future is in these mega-urban regions and that is where governments should invest their dollars.  Provinces and even national governments fade in importance compared to these city-states. 

He may be right, he may be wrong.  Just a few years ago he was paid a pile of cash to tell little places like Sackville they are the new creative hubs and now it’s mega-urbans.

But I do agree with him on the importance of urban areas and the economic linkage between strong urbans and their smaller town and rural peripheries.   If we had strong urban to urban linkages in the Maritimes - Halifax - Sydney - Moncton - Saint John - Fredericton - Bathurst - it would be a better model longer term.

I think it will be an interesting policy debate over the next few years - decade or more.  One could argue that Canada has already followed a mega-urban development plan for the past 40 years.  According to Statistics Canada, Greater Montreal, Ottawa-Toronto, Calgary-Edmonton and Greater Vancouver have accounted for all new population growth since 1971.  Everywhere else combined has lost population.

First, I am amazed there hasn’t been more of this - particularly among the outsourcers.  Given the breadth and depth of the recession, I had expected more consolidation and downsizing.  It hasn’t been as bad as it could have been. 

It is possible we are entering a phase where some of the call centres with shallow business models will be slowly retreating out of this market (Atlantic Canada).  It will start with the outsourcers and could go into the company customer contact centres/back offices.    More and more folks are using the Web to interact with companies, there is higher U.S. unemployment prompting many firms to take a second look at onshoring this type of activity and the India factor continues to be a real issue in this industry.

I have been saying (and many others) that we should be trying up move up the value chain within these firms.  The Royal Bank call centre in Moncton has 70 computer support people doing remote support for RBC nationally.   The ExxonMobil business service centre is doing a variety of higher value stuff as well.

There are somewhere between 18,000 to 25,000 people working in customer contact centres in the Maritimes - maybe a little more - and I would expect that number to shrink by a few thousand over the next 5-6 years.  Even the most optimistic view would not see major growth like we have witnessed in the past 15 years.

As for the payroll rebate here are my thoughts.  I am not a huge fan of grants and loans and loan guarantees and forgiveable loans, etc.  anyway.  I think that when economic development becomes exclusively about being a bank - we are missing the point.  Economic development is about public policy, cluster facilitation, tax-based incentives, etc. that combine to create the environment where certain industries can have a strategic advantage by locating in your jurisdiction.  Think about BC’s massive effort to grow its computer animation/digital media cluster.  That is economic development.  The ‘bank’ part should be one small part of economic development.

As far as incentives go, the payroll rebate is one of the best tools with no risk to the taxpayer.  The payroll rebate (by definition) is only given out after the payroll is paid and, in my understanding, it is only a fraction of the amount the company generating in personal taxes, HST payments, etc. to government.  Therefore, it is not risky at all to the taxpayer.

And you have to remember that just about every jurisdiction in North America offers incentives for specific industries to expand.    From BC to Georgia to Texas to PEI, there are programs.   Alberta is one of the top providers of subsidies according to Fraser Institute research each year.  So if the NS government is to cut, it needs to consider the competitive landscape.

In the end, the Nova Scotia government would be wise to work with NSBI to determine the best growth opportunities then craft the strategies and policies needed to attract investment into those sectors.

Much of what he says I agree with - particularly about New Brunswick not being a basketcase.  But he consistently has tried to use the example of New Brunswick to highlight what he thinks is going wrong in Nova Scotia:

When people outside the region ask me what’s going on here, I tell them this: We have an experiment occurring between free-market concepts in New Brunswick and free-spending concepts in Nova Scotia. I think we’re going to see that New Brunswick’s approach is better. New Brunswick’s approach is about doing what governments should be doing, which is creating an environment for business - as opposed to trying to be business.

I don’t think the data backs him up.  It is true that New Brunswick has a much lower debt to GDP ratio but if you bring in NB Power’s debt - we are just about the same.  In the minds of the bond rating agencies, they factor in NB Power’s debt as public debt and so should we because much of it is stranded and will come out of the taxpayer either directly (through an Ontario style restructuring) or indirectly through rates that are higher than they should be in order to pay down debt that should have been paid down before.

As for the broader, ideological sweep about free-market in NB and free-spending in NS - that’s bogus.

RBC is one of the better organizations for their analysis of government spending.  It is hard to do a completely accurate comparison between provinces because certain provinces have more or less crown corps or have other spending mechanisms that don’t compare easily but - as a proxy, RBC’s comparisons are good.    In their most recent report, RBC shows that government spending relative to GDP in Nova Scotia has been consistently below New Brunswick.  Program expenses per capita are much lower.  Program expenses growth since 2001 has been about the same.  Click on the link if you don’t believe me, Charles.

From the 2008 Stats Can SEPH data, there were 18,140 people working in provincial and local government administration in Nova Scotia or 4.6% of the total (from SEPH).  In New Brunswick there were 15,480 or slightly higher than Nova Scota at 4.9% of the total workforce.

Basically what you have here is Cirtwell approving of the deep tax cuts in New Brunswick and disapproving of Nova Scotia resisting the temptation to cut taxes and then engineering some view of the world that doesn’t correspond with reality.

The guy NB hired that recommended the deep cuts to personal and corporate taxes said that NB would likely have to raise the HST to 15% - exactly what Nova Scotia did and Donald Savoie recommended this as well.

Cirtwell is a very bright guy but he shouldn’t take these kind of liberties with the facts to take a shot at the Nova Scotia NDP government. 

New Brunswick is facing some serious challenges - economic, demographic and now fiscal (government) and he isn’t adding much to the dialogue with this ideologically motivated piece.

I haven’t studied the issue enough to have an informed opinion on it but I do have to chuckle when I hear the debate.  On one side, all the warnings about the gutting of the Canadian industry, moving it to just a branch office of a U.S. firm with just the bare bones minimum economic activity.  On the other side, the new investment opening up massive new possibilities for the industry to growth and flourish.

Why I find this funny in a Macabre kind of way is it is the exact same debate that happened when NBTel was merged into Aliant and into a Bell subsidiary.  The pro side was sure the new investment would open up massive new possibilities for the industry to growth and flourish.  New Brunswick would become Bell’s testbed for innovative ideas and new product development.  The con side said it would gut NBTel, turning it back to an old fashioned incumbent offering local services with limited economic activity.  All the high end jobs and economic activity would be slowly migrated to Ontario.

I’m a big fan of attracting investment to New Brunswick and will remain one.  I look at firms like ExxonMobil (over 1000 employed in Moncton) and I am convinced we need more, not less, of these firms.  But many national firms in Canada are very Ontario-centric and I was one of those who believed that Bell would consolidate front office, product development, high end marketing, etc. back to Ontario.  Back in the 1990s a top economic developer in Nova Scotia told me it was easier to attract investment from outside Canada than from Ontario.

I guess legislation to protect industries is impossible but when a national firm buys out a significant economic asset here we should be deliberate and proactive to work with the new owner on a longer term vision for the firm in the region.  It should be a priority of BNB to work directly with Bell, Oracle, Stantec, Genivar, Sungro, and any other national or international firm that buys up a local firm to develop a growth path for their NB operation. Think about Speilo as an excellent example of this.

The latest CRA poll finds the economy and health care followed by NB Power are the top areas of concern.    The CBC had a poll earlier in the week that found people are cynical and suspicious of politics and politicians.

The biggest flaw with these polls is they don’t set a context for the respondent.  The classic example of this is on taxes.  If you ask people should the government cut taxes - 90% will almost always say yes.  But if you ask should the government cut taxes - if it means adding three weeks to the average wait time or the closure of the local hospital, then you will get a far different response.

And then there is the role of the media.  I have vowed not to criticize the CBC on these pages but I will say that in general the media will churn out stories fostering cynicism and suspicion of politics and then they are “shocked, shocked” to find out the public is cynical and suspicious of politicians.  Newsflash to the media (including myself as a columnist) - the people get this attitude somewhere - it doesn’t just fall from the sky.

Same with health care.  There are ongoing challenges with health care.  No question.  But health care spending today in New Brunswick is up over a $1 billion per year in just the past 10 years with no increase in the population.  The politicians hear the public has “health care” as a top issue and they are inclined to throw more money at it.  Someone, somewhere should have figured out by now it is not a direct route from more spending to better outcomes.

But, again, health care is a darling media topic because it is low hanging fruit.  There is always someone ready to complain or some Premier ready to go outside the country for treatment.  Over the course of a year, I suspect that if you did a review of subject matter in Canadian newspapers topics most frequently covered would be in order: Politics, economy and health care.  And with the possible exception of the middle topic, the media coverage isn’t about good news.  Sorry, Anne Murray.

We have a new political party in New Brunswick and their economic development policies sound (and act) just like the other two parties.

The People’s Alliance of New Brunswick economic development ideas are:

-Privatize the liquor corp.

-Turn BNB into an organization more focused on small business exports

-Give more tax breaks to small business owners/investors

-Cut tax rates for new business start ups

C’est tout.

When you read the narrative, they cite the CFIB so I guess we don’t have to go far to see the influence.

Another wall to beat my head against. 

There is nothing wrong with public policy to try and support small business but there has been an army of bureaucrats supported by dozens of programs to support small business over the past 25 years (BNB, CBDC, ACOA, SEED, young entrepreneur, female entrepreneur, on and on) and what has that got us?   25 years ago New Brunswick’s population was rising, now it’s stagnant.  Northern New Brunswick was stagnant, now it is in fairly steep decline. 

We have more microbusinesses in our economy than most other provinces and fewer large businesses (over 300 employees).

Despite talk from government for decades, 95% of all our exports are from a few large firms - oil, forestry, minerals and fish.  Throw in McCain’s and that is almost all exports from the province.

A new party should have new ideas.  Quite frankly, they could have gone far left  - at least that would be original.  All of these ideas have been tried.  Bernard Lord cut small business taxes to the bone and both the PCs and the Libs gave tax breaks for investing in small biz. 

As for BNB, 95% of its effort is focused on small businesses under 100 employees.  I don’t have the exact figures but I am almost sure this is the ratio.    The big firms only come to BNB looking for grants/loans.  All of the services - trade assistance, etc. are targeting the relatively small guys.  So the PANB is going to push that ratio to 98%?

As for reducing the amount of grants to industry, I don’t have a problem with this but a) it will end up being harder than they think.  Many of the small businesses they salivate over are the ones knocking on the door looking for grants, loans, loan guarantees, etc.    A tax break won’t help much if the bank demands a loan guarantee; and b) if they are moving off the grant model, what are they replacing it with?    Tax breaks.   If you add up all the businesses in New Brunswick and divide it into the total corporate income tax revenue the NB government collects every year you get about $4,000 in corporate income taxes paid per business in the province.

So why is the PANB anchoring its economic development policy on cutting that $4,000 down to $3,000?  How many jobs will be created in the average firm by cutting $1,000 out of the average corporate tax bill?

New ideas, folks, won’t come from reading CFIB circulars.

Without giving away the column content, it is fair to say the more things change the more things stay the same.  Population growth back then was well below the national average, immigration was lower, we were less educated than the rest of Canada.  While we have dramatically improved a lot - relative to the rest of Canada we continue to be a laggard.

If I had an army of young researchers I would plow through all this old data - including old newspapers, books - any old content and publish reams and reams of comparative and trending data.  I just don’t have the time to dedicate to this stuff but I think a key to unlocking the future is understanding the past.  And we don’t spend much time at all in New Brunswick understanding our past - particularly our economic past.

But all this old data as an economic thread running throughout.  Read the narrative from the 1956 Census and you will see many of the same themes.  Read an old newspaper from the 1950s and you will see protectionists versus free trader and warnings for New Brunswick.

To some this old stuff should be kept in the past but I can’t help thinking it holds clues for those thinking about our future.

Employment Growth Rate - May 2009 to May 2010

Source: http://www.statcan.gc.ca/daily-quotidien/100604/t100604a3-eng.htm

Employment growth across Canada started to rebound in July of 2009.  Since then the country has created 310,000 jobs.  New Brunswick’s flat line of employment growth coupled with the second lowest employment rate in Canada is not particularly encouraging.

If it is any consolation, the employment picture under the Tories wasn’t much better.  We have been suffering under tepid private sector job growth for a while and there are no call centre jobs waiting in the wings.

“It is quite exciting, actually, when a province can outperform the country,” said Judith Andrew, Atlantic vice-president of the federation Wednesday. “That really does reflect a pretty positive outlook for the province of New Brunswick.” “Our barometer tends to be a pretty accurate coincident indicator for the economy.”

It is certainly true that NB did not get hit as hard in the recession for reasons we have discussed many times so there may be influence there but the variance with Nova Scotia and the commentary makes my crap-o-meter go up a few notches.

She predicted New Brunswick will continue to climb on the business barometer for the rest of the year. “It has been on the upward track,” said Andrew. In contrast, Nova Scotia is at 61.2 and tracking downwards, she said.

The CFIB is in a very public and acrimonious battle with the Nova Scotia government and coincidentally its members are very negative on the economy.   It may be a coincidence but….

Nova Scotia has serious economic challenges as well as New Brunswick but intuitively there shouldn’t be such a variance in the business confidence level.  New Brunswick has the second highest deficit in the country that we need to dig out of.  We have similar problems with population stagnation as Nova Scotia.  Small business employment growth has been very limited over the past 10 years and net new business start ups have been among the lowest in North America.

But if I was a SME (I guess I am one) my response to a CFIB poll would be based on my current situation and on my perception of things based on what I read in the newspaper.   In New Brunswick we are reading mostly good news stories these days and in Nova Scotia, I pick up the newspaper and read that the budget will be devastating for Nova Scotia SMEs (according to the CFIB). 

I guess it makes some sense after all.

I am not particularly knowledgeable about two of the three but I do know that Atlantic cooperation is highly unlikely.  He mentions Atlantic Lottery.  A couple of years ago a senior person in Atlantic Lottery told me that there is still resentment in Nova Scotia over putting the head office in Moncton - two decades later.  Imagine if we started consolidating health care back office functions or - heaven forbid - electricity utilities.

My theory on this - espoused before - is that in an area like Atlantic Canada where there has been limited economic activity, this kind of rationalization would come down to economics.  New Brunswick would fully support health care back office consolidation across Atlantic Canada - if those jobs were put in New Brunswick.    PEI would fully support a single regional electricity utility - if it was based in Charlottetown.

If you don’t believe me think about the consolidation of blood supply services into Halifax recently.  That is still a massive issue in this province with weeks of lobbying and thousand of pages of briefs.  I don’t have a position on that because I don’t know the full extent of the issues but it is an excellent example of one city losing to another in Atlantic Canada (in the minds of the players) and it has been acrimonious.

Beggar thy neighbour has been the policy for decades and I don’t see that changing anytime soon.  Most of us would rather everybody gets cut 10% across the board than I get cut 30% and the other guy gets an increase - even if it is a far better outcome system wide.

In addition to the occasional crackpot and conspiracy theorist, I am now getting a number of comments from spambots that are mimicing almost real comments.  For example, there were a bunch coming in talking about how insightful and valuable my blog posts were - no kidding.  Because this raised my suspicions I looked a little closer and sure enough it is Mumbai or Russia based spammers looking to be ‘approved’ so they can serve up some more spam in the future.

I guess that’s a reality of running a moderated blog these days.  A ficticious lady named Rosanna just sent me a comment “You have done it once more. Incredible read!”   It was too good to be true.

Between the busty porno ladies signing up for my Twitter feed and the flattering spambots posting to my blog, I have to be a little more on my toes than I would prefer.

I might be getting more cynical in my old age but while I agree with most of his points I don’t think he or anyone else has made the case that systemic, broad-based change is necessary.  We say it - I say it on a daily basis - but nothing changes ergo the people don’t seem to want it.

You could easily make the case that NB doesn’t need to change a thing - it just needs to float along and drift with the winds of change.  If the feds cut back transfers, you cut back the budget a bit, raise some taxes a bit, hope the restart of the economy with generate more revenues.  The system in Canada won’t let a province collapse.   Just promise to cut ambulance fees, reinstate a ferry or two, talk vaguely about budget management and public engagement and you will get elected.  And this is definitely a non-partisan issue.

For me this goes back almost 15 years when a senior advisor to Frank McKenna told me that economic development-issues rank 5th or 6th on all their internal polling.  Even back when unemployment rates were very high this was the case.  The only time that economic development raised higher on polls than potholes was after a flashpoint issue like a major plant closure but in general the public never really made the link between government action and public policy and economic development. 

But there is not much need rehashing all this stuff - it all comes down to practicality.  Most New Brunswickers don’t like change.  The ones that are in good public and private sector jobs are doing just fine.  They have a relatively low cost of living and a pretty good quality of life.  The folks that are struggling could have left for Alberta but haven’t so they are likely not leaving unless there is no other option.  And the rapidly growing group of retirees or close to retirees have no interest in change. 

People over 60 were against the NB Power sale two to one over people under 25 (although that one poll had a high margin of error).  I get myself in hot water when I say this because I do have a lot of respect for the older generation and I am very thankful for the massive changes of the 1960s and 1970s on the social front.  New Brunswick made massive strides in those decades in social policy but now that very same generation is highly resistent to the kinds of economic change that we need right now.  Many of them - based on my interaction - are the most resistent to attracting investment and even immigration.  You must remember the rant in the Telegraph-Journal recently from a guy who had moved back to Saint John and didn’t want it to become “Los Angeles”. 

Well, no one in the world is talking about transforming Saint John into Los Angeles but this is symptomatic of the broader reality.  What demographic group in New Brunswick would wholly embrace the kind of change Dr. McLaughlin is talking about? 

How about the government sector?  There are 90,000 people working in public administration, health care and education in New Brunswick.   When people come in talking about ‘rightsizing’ government and better management of costs - which one of the 90,000 is going to put their hand up and say me first?  

How about the seniors?   I was in a smaller NB community not that long ago where the local economic development officer wanted to make some pretty impressive changes like expanding the industrial park, etc. but the older people were by in large against it.  When he said “your property taxes will have to go up if we cant build up the commercial tax base” they responded “put our taxes up” we like things as they are.  It’s hard to fight that logic.

How about the younger generation?  I appreciate some of the initiatives such as 21Inc. to raise awareness among young people but my sense of it is they aren’t getting all weepy about the state of NB’s economy.  If they have a great job here - most of them are content to stay - if not they are content to leave.   It’s been a preoccupation of mine in recent years to try and understand what makes a culture sticky - what things need to be in place for people to want to stay or to really miss a place once they leave (think Cape Breton or Ireland)?  Do we need more Anne Murrays?

How about the small business sector?  Are they standing up demanding full bore economic development?  Not in my experience. 

Who then is going to champion a broad-based change initiative that re-invents a smaller, more nimble and successful government?  Who is going to champion an economic clusters strategy that might mean saying no to the current model of sprinkling taxpayer dollars across the province across dozens of industries?  Neither the Tories nor the Libs have done so in the past so I think it is unlikely they will in the future.

It a bit of a longer rant this morning but I really think that change in society - true change starts with a clearly articulated view of what that really means and finding groups in society to help generate broad-based support. 

Change will come to New Brunswick but it will be forced on us by outside influences.  The Feds will cut hundreds of millions out of their transfers to New Brunswick over the next few years (maybe not in hard cuts but cuts in the growth of transfers which amounts to the same thing) and there will be no call centre sector to channel in thousands of new jobs.  So public spending will be cut - no matter who is in power they will have no choice and we can look forward to a decade of anemic economic performance and population stagnation or decline.

But if it is forced upon us - people will grumble but they will accept it.  If a provincial government tries to initiate it without being able to blame the federal government, I think they will not accept it.

I’ll keep pounding away here, though.  It’s kind of fun and what else am I going to do?   I earn a living working with a wedge of folks in this province that are trying to change things from within and I am happy to do so.  It’s just hard to see how these folks will ever get any real traction without a broader collective will to change and I don’t see that happening.

Grade 11 students at Three Oaks, Kensington and Kinkora Regional high schools near Summerside, PEI will be able to register for the Aviation-Aerospace Academy Diploma program. Students will have the opportunity to acquire the skills necessary to pursue a career in the aviation-aerospace sectors at the various work placements they will be required to complete.

In the most recent five years I have access to the data, the net loss in those five years (2003-3008) is nearly double the net loss in this age group from the early 1990s.

Of course I am only talking about the net loss.  Over 97,000 people in that age group have moved out during the 27 year period which really represents the folks we haven’t been able to keep here.

But don’t worry there is a strong net in-migration of people… over the age of 60.

There has been a pile of ink spilled in the past few days about whether we should force young people to volunteer.  I think we should probably spend a little more time thinking about how to keep them here in the first place.

Hey, maybe the politicians should mandate they stay here.  Because of the lack of jobs they can volunteer.

“New Brunswick is punching above its weight in both years. That will help the province get back on its feet in a big way after suffering in 2009,” Hall said.

I prefer to take the oil refinery out of my analysis of exports because it massively distorts the picture and leads experts like this to paint a false picture.  If the value of Irving refinery exports comes back to 2008 levels, that will add $2 billion worth of exports - with hardly a single new job created and yet Mr. Hall says this will help the province get back on its feet in a big way?  How?

There is a far greater link between the forestry industry and “getting back on its feet” as every million in incremental forestry exports generates direct jobs harvesting trees, trucking, sawmills, etc.  The Irving Refinery is a great economic driver for Saint John and New Brunswick but that is not reflected in the export data and in fact allows politicians to crow while distorting facts.

Remember Kirk Macdonald crowing that exports rose by “a billion with a ‘b’ Mr. Speaker” after the new refinery expansion came online while the total value of the rest of exports declined - he never mentioned that and it was (and is) a serious problem.  You can expect Liberal politicans to talk now about leading the country in export growth without ever mentioning that exports from New Brunswick not including oil and gas are down 31% over 10 years.

I have actually heard EDC presentations on exports in New Brunswick and can’t recall the economist ever mentioning the economic impact of certain kinds of exports versus others.

From the article:

Prince Edward Island, meanwhile, will see its exports grow by a “modest” two per cent this year and by six per cent in 2011.

This is Exhibit A of my point.  PEI has built a whole new aerospace industry that has created 900 new jobs (adjusted for population that would be the same as 6,000 new jobs in New Brunswick) and we get the message that NB is booming and PEI is modest.

It’s a mistake.  We need to start assigning economic impact to certain categories of exports.  LNG natural gas exports from New Brunswick generate far less value to the province than indigenous natural gas exports because the latter generates E&P activity and royalties.  The oil refinery has 800 (?) jobs (anyone know the real # here?) whether the value of exports is $5 billion or $8 billion (admittedly there may be some job losses - I am not sure.

It’s time to start aligning the value of exports with the economic impact in the province.  Journalists as well should draw this distinction when writing stories about exports.  Telling New Brunswickers we will “get back on our feet” because of the increased value of refined exports is not the right message.

We talk about a bilingual society and then spend almost all our time and effort keeping French and English apart. Our schools, media, cultural instututions, and just about everything else is either English or French. It’s easier for my kids to get a French speaking penpal in France than in NB.

We have talked about Faith Popcorn and David Foot and others that made interesting forecasts based on past trending and turned out to be wrong. 

But these forecasts add value to public policy.  Foot predicted a demographic disaster so the government just cranked up the immigration tap and, presto, demographic disaster at least delayed.  Did Foot have a hand in that?  Who knows but certainly his warnings were the subject of great debate in the 1990s.

But back to my prediction.  I think we will be moving off the global economy model by 2050.  People are already starting to realize the huge environmental costs associated with a) ever increasing conspicuous consumption and b) the offshoring of production to the furthest corners of the world just to lower labour costs. 

But history is clear that predicting the future is almost impossible.  This Big Idea’s guy suggests a global pandemic is coming that could kill hundreds of millions of people.  That will upset the apple cart in unanticipated ways as countries literally close themselves off to try and immunize themselves. 

There is always the spectre of war - nuclear war and other now considered unlikely but history says is likely.

We were chatting about this in Halifax yesterday.  The Chinese model of a dicatatorial, planned economy is starting to get serious interest in certain parts of the world such as Africa and certain areas of Latin America.     The messiness of democracy - in some peoples’ minds - is holding back development in emerging economies and stifling transformation in advanced economies.  In China, if they wanted to green the economy - they would just make it so.

So, it is conceivable, we could be looking at the emergence of more totalitarianism in the next 50 years - particularly in places of the world where people make the case that democracy is holding back progress.  It starts with a democractic mandate (like in Nazi Germany) and then morphs into full fledged totalitarianism.

And totalitarianism could lead to wars - particularly over resources - and then we are back into the old cycle once again.

Who knows?   I prefer to operate in the here and now with an eye to the future.

Now that the deal has been scrapped, we are stuck with this very real problem of uncompetitive power rates for large industrials and a viable option would be to let them do more self-generation or find other mechanisms to lower their rates or at least keep them from escalating further.

But as the new CEO of NB Power has said multiple times - he absolutely needs these customers.    The loss of revenue from the large users (including PEI) could seriously screw up the utilities business model.  There might be some marginal savings from lower fuel purchase costs during peak times but across the year the loses - in his words - would be consequential.

So the gordian knot remains.  At power rates 40%-70% more than other competitive jursidictions like Quebec and BC, how long can these large users remain reasonably competitive here?

Craig Brett, the Canada Research chair in Canadian public policy at Mount Allison University, said politicians and New Brunswickers will have to confront these serious challenges before the election this fall. “The government keeps saying that people in New Brunswick don’t want to have service cuts,” he said. “That leaves you with two options. You either keep running deficits or bring taxes back up. It’s only simple math.”

Dr. Brett, conveniently, leaves out the third option just - I presume - to keep his simple math simple.  Newfoundland didn’t generate huge supluses and pay down its Equalization deficit by either running deficits or bringing taxes up.  Alberta didn’t run up billions in surpluses by bringing up taxes or running deficits.  Saskatchewan didn’t cut services, raise taxes or run deficits while running up among the fastest growth in public spending in the country.

I raise this because it’s too easy in New Brunswick to ignore economic development.  Dr. Brett could have easily stated that New Brunswick’s private economy has struggled to generate the tax base the province needs to provide public services and that a focus on generating new economic activity would be a third option to the simple math.

But in New Brunswick it is simpler to ignore the economic dynamic.  I know some of you will say I am being petty - that the economic option is a given/implied here.

But I don’t think so. 

New Brunswick does need to reign in its spending and probably does need to find ways to be smarter in service delivery but the long term viability of New Brunswick as a province and as a place trying to have successful communities where people can enjoy a good quality of life will be tied more to its economic development than efforts to chip away at social programs or tweak tax rates up or down.

The Canadian Learning Index used by Macleans magazine to tell us what places are smart and dumb is saying New Brunswick has the lowest percentage of household with access to broadband.

The NB government is saying New Brunswick is “Canada’s leader in providing high-speed Internet access”.

Sometimes when it comes to statistics we haggle about degrees.  This is an all out war.  Either we are the worst for broadband access or the best.  Which one?

Does anyone have a theory?

I just finished a wide ranging review of the NB economy over ten years.  I can’t share the data here - or my client might not cut me a cheque but there was one interesting stat I will share.

As we have talked about before, government spending has been rising faster than private economy spending by 2-3 times - depending on how far back you go.  As far back as the latter 1990s, government spending has been triple the rate of inflation and well over double the rate of GDP growth.

Common sense (and basic math) tells us that can’t continue forever.  At that rate of growth by about 2100 there would be no private economy left (impossible because of Laffer).   But was it a bad thing that government sector outspent the private sector for the past 15 years by a wide margin?

If you drill down much of the surplus revenue came from energy royalties and GST/PST increases.  That money was doled out to places like New Brunswick and spent.  There was a little debt reduction but very little.  Most of it went to fund 5,000 new positions in public administration, health care and education as well as to public capital spending.  There were some tax cuts but they were marginal.

So, let’s say the government back in 1995 said we are going to cap public spending at the rate of inflation.  Sounds reasonable given that the population was about to stagnate and drop into decline.  All that excess money would be put back into the hands of NBers and we would faithfully save it into our RRSPs.

And then the Wall Street boys would fritter it away by hiding the risk associated with over inflated U.S. housing prices and causing a massive stock market crash that lingers until today.  My very small RRSP holdings are lower now then they were nine years ago.

My point is at least this way we have new hospitals and nurses.   I guess this is the esoteric part - would tax cuts have stimlated private economic growth or attracted people and investment here?  Or was the government wise to just plough our share of Alberta oil revenues into health care?  Is our health care system 80% better today than 10 years ago because of the 80 % increase in spending?

I come down on the middle of this - maybe a good New Brunswick waffle - but I think we need to have proper investment by government in public infrastructure, the social safety net and hopefully economic development but I think there should be some logic to the spending.

The problem with blowing up the health care budget by 80% and thousands of new jobs with a stagnant population is that people now expect this rate of growth.  It’s going to be hard to reign in spending over the next 5-10 years.  Maybe we should have spent more time thinking about how to reform the system while the dough was pouring in.  Now it becomes harder because the funds that could have been used to change the system (say through upfront capital spending on technology) will not be there.

Enough rambling for now but I think Chris Baker is right (see previous post comment) about applying logic to government spending and, now, spending restraint.

In addition, employment growth in publicly funded sectors - public administration, health care and education is up over 18% over 10 years (2000-2009) while private sector employment growth is a tepid 5% over that time frame.

I think the case for spending restraint in the public sector is strong but without a credible economic development plan it’s problematic.  As I have said before, government spending serves two purposes: 1) beefing up public services and 2) to make up for anemic private sector economic activity.    We need to see the private economy starting to add significant new employment.

David Alward needs to give us a credible economic development platform.  As Don Desserud says “This is the light side of a platform.”  It is feel-good to talk about democratic reform and transparency and even talking about restraining government spending doesn’t bother the masses until they see it hit them directly.

I think one of the problems with the Lord government was the lack of a weltanschauung for what they wanted to do while in power.  The 200 days of change was a flurry of promise fulfilling but beyond that it was just about spending NB’s share of the federal surplus.  I have said before many times that if the Lord government had crafted policies and efforts that led to one or two more “call centre” style sector development efforts, New Brunswick would have led Canada in economic growth.  We had fiscal wriggle room, we had good will among corporate Canada and we had an economic development infrastructure just aching for McKenna-style leadership on economic development.

I worry the Tories will fall back to Lord’s “made in New Brunswick” economic development model where all we get is small business tax cuts and ‘red tape’ reduction.   That failed before and it will fail again.  That model is based on a fundamental misunderstanding of how economies grow.

But there are still a few months until the election and a few Tory friends of mine tell me a plan is forthcoming.  I hope so. 

A pile of folks said bringing down the Hydro-Quebec deal was “a great day for democracy”.  I think it would be a great day for democracy if a New Brunswick government put a serious economic development plan on the table.

When I came back to New Brunswick in 1991, the province was already becoming known for its geomatics and GIS expertise from the excellent work at UNB.   So the question is simple.  Why didn’t we leverage that great research into a serious geomatics cluster in New Brunswick?

Why didn’t we go out and try and attract the top players such as ERSI based on the capabilities here?   Why didn’t we put incentives in place to increase the technology’s use here?   Why aren’t there hundreds if not thousands of jobs in this sector with international and local companies providing services and technology around the globe?  When you google geomatics cluster you get many hits about a very interesting initiative in Alberta - but I went through a dozen pages of hits with no mention of New Brunswick.

There are a few companies operating in the sector that I know of but if you go back to studies done in the mid 1990s you will find all this talk about ‘potential’.

I just think we don’t do a good enough job looking at economic development from a cluster - or if you don’t like the word - an ecosystem perspective.

We should fund research that is aligned with targeted sector development efforts.  We should try to attract firms in those targeted sectors.  We should promote entrepreneurship in those targeted sectors.  We should build community college and university level diploma and degree programs to turn out graduates for these sectors.  We should be out targeting immigrants that have skills in those targeted sectors.  We should be branding the province or regions within the provinces as excellent places for those targeted sectors.  We should be preparing cost studies and tax studies showing our advantages in those sectors.  We should be developing tax incentive programs to attract investment into those targeted sectors.  We should organize trade missions in those targeted sectors.  We should…..

Ad hoc doesn’t seem to work that well.  Sure we had great GIS work at UNB 20 years ago - probably still do - but how are we building that into a more integrated approach to economic development?

How about finding some CEO or whomever to endow a “Nobel” prize in economic development?  You put a $100k prize out there and you ask for the best, innovative ideas for regional economic development.  Then you have a panel judge all the submissions and you have a winner announced at the St. Andrews World Economic Development Forum.

Or something similar.

We have discussed the topic of entrepreneurship at least a couple of hundred times over six years here.  We have looked at data showing that New Brunswick has a higher percentage of small businesses compared to the rest of the Canadian provinces but those small businesses have far less change of becoming mid and big businesses.

We have also talked about the fact that while NB positions itself as an export-intensive province, almost all of the exporting is done by large firms.

We have talked about the difference between a lifestyle small business owner looking to make an income and work for him/herself and an entrepreneur who is willing to risk their RRSPs on a crazy entrepreneurial idea.  New Brunswick has thousands of the former and a small handful of the latter.

We have talked about the DNA of entrepreneurs - what drives them and speculated why there are fewer here than elsewhere.   The fact that success is poo pooed in many corners of New Brunswick (as a side I chatted with a guy that has a huge house and a great car in a small rural town and the rumour around is that he was a drug baron).  The fact there is very little risk capital coming out of the disposable income of doctors, lawyers, etc.  like you might see in a larger urban market. 

I remember the frustration of the folks involved in that effort back in the 1990s to get a risk capital pool started.  They assembled a group of wealthy NBers and asked them to all put some green in a pot.  Then they would hear pitches from entrepreneurs and decide in whom to invest.  The frustration was these angels had the risk tolerance of a bank and the return expectation of a loan shark (or an ATM).   If we don’t have small brown envelopes of cash to throw at interesting ideas, we will have fewer entrepreneurs.

We have talked about the interplay between large firms and entrepreneurships.  I pointed out - much to the angst of several colleagues - that the majority of successful entrepreneurs in New Brunswick started out in a large firm - got experience, came up with a good idea and then went on their own.  Very few started in their Apple garage during high school.

I remember the grand debates over cutting small business tax to the bone back in the Lord years.  He was heralded by the CFIB, by Chambers, by national groups as being a visionary and supporters proudly intoned this would create massive new entrepreneurship in New Brunswick - until that Fraser Institute report showing New Brunswick was 58th of 60th provinces and U.S. states for new business creation - after that tax cut was put in place.  The child-like naivete of thinking a tax cut alone would spur entrepreneurship.

I was having a lunch with a couple of IT guys a while back and we agreed that the best way to truly stimulate IT entrepreneurship in New Brunswick would be to give Gerry Pond $100 million and ask him to allocate it to the best new ideas over the next five years.  Gerry’s had a few whopper losers and a number of winners and would likely be a far better bet then bureaucrats.

In the end, the inference to Davos means thinking.    The World Economic Forum is about the best minds in the world converging to debate the biggest economic challenges of the day.   It is an amazing brand. 

I would say that New Brunswick should try to be the Davos - not of entrepreneurship - but of economic development.  Economic development ties in the broader elements such as investment attraction, workforce development, the role of R&D, infrastructure, networks and entrepreneurship and the complex forces and relationships that bring them together.

I have been calling for this for years for one main reason.  If New Brunswick became a world leader in thinking about economic development the hope is some of the ideas would actually rub off here.

I know there is cynicism about this out there but I urge you to think about it.  Across the generations ideas are the currency of economic growth - that should hold for regional economic development as well.

Here is KMPG’s methodology:

So basically all business taxes - including those paid on labor (CPP, EI, etc.) are included in the mix.

It is important to point out - I have before - that Canada as a whole has a tax system that is biased towards personal tax compared to business tax.  Far more taxes at all levels of government come from people than from business (use HST as an example - levied on people but not on business).  This has been a calculated public policy decision over time that Canada needs a low corporate tax regime to compete against the big bad US of A. 

You will note that most US jurisdictions have double the tax burden on corporations as New Brunswick.  For manufacturing, the Moncton index rating is 50  and Boise, ID is 92.  That means that the exact same plant with the exact same characteristics will face almost double the tax burden in Boise than in Moncton.

This is exactly why I think we need to counter the U.S. jursidiction and their use of tax incentives for economic development.  A company might get $100 million worth of tax breaks in Boise that they wouldn’t have to pay in New Brunswick anyway.

I have asked governments and economic development agencies to take a simple manufacturing model and do this exact comparison to tackle head on the net benefit from tax incentive use in the U.S. compared to Canada but I have never seen it done.  The KPMG is an interesting model and should be used but a far more impressive approach would be to take the Toyota plant in Kentucky, determine all the tax breaks they got (Hundreds of millions) and see what they would have paid in New Brunswick.  My suspicion is that they would have only paid a fraction of those taxes in New Brunswick but we will never know.

But, I digress.  My blog title was “a kind of moral hazard”.  I am not sure that New Brunswick should set its corporate tax structure that much lower than other Canadian jurisdictions.  Depending on the sector, there is a significant spread between Nova Scotia, Saskatchewan and New Brunswick (NB lower).  While that looks like a competitive advantage, I am not sure.  Quite frankly, I haven’t thought too much about it.  How low is low enough?  My stated position and I am not moving off it yet is that New Brunswick’s corporate tax structure on average should be in line with the Canadian average and that we should use targeted tax incentives to grow specific clusters.

With one huge exception.  I am thrilled New Brunswick has the lowest tax environment for R&D.  That should be shouted to the highest heaven.  If companies are going to take risk, explore, create, innovate - they should have a positive tax environment in which to do it.  And according to KPMG, we are such an environment.

Sell.  Sell. Sell.

Because we are heading into an election in the fall, I was asked if I endorse specific parties or politicians during an election campaign.

The short answer is no.  I consult with economic development agencies across the Maritime provinces and I interact with politicians and government bureaucrats and I have made the decision this must be non-partisan.

Now, I do comment on specific party platforms and I do offer critique (as you know) of economic development programs and activities. 

I might endorse a politician or party if they rolled out an economic development program that I thought was outstanding but I haven’t seen one yet in 20 years.

If you want me to comment on any economic development-related platform issue, I would be happy to do so.

There does seem to be a pile of academic research in the area of community economic development but I make a big distinction between CED and the kinds of ED that I am interested in.  Specifically, how do we attract business investment into regions such as New Brunswick?  How do we build new clusters from nascent economic activity in places like New Brunswick?  How do we foster a risk-taking environment where entrepreneurs grow that want to take on the world?  How do we promote places like New Brunswick around the world on a fraction of the budget of a place like Ontario?

These, it seems to me, are too pedestrian for many academics although as I have said if you substituted “sub-saharan Africa” for “New Brunswick” above you would get a lot of research.

I also realize there are lots of undergraduate programs in CED and I went through the Waterloo certification course for economic developers in the 1990s.

What I was looking for was a graduate school where I could get a Phd focused on the kinds of topics mentioned above and I had a really hard time finding an opportunity.  There was an interesting university in England that had a very interesting research area looking at how places like Northern England could attract Fortune 1000 firms and similar economic development activities.

I don’t want to start a war but I do think that much of the CED work is about re-distributing the economic pie rather than growing it.   Inner city redevelopment is a very important goal in many urban areas but much of the focus is about repatriating activity from the suburbs rather than new growth.  In a place like New Brunswick we have to be focused on incremental economic growth, incremental job creation (good careers) and incremental tax revenue to start to limit our exposure to federal transfer payments.   Take a look at a lot of the CED work and see how much of it is meant to achieve those objectives?  

Again, I think CED is critical in a community context.  Encouraging small business start ups to reduce high neighbourhood unemployment and provide services in the community is important in many situations but there is a higher level view.

I wish I hadn’t used it to start a fire one day - I wish I had kept it.  It would be Exhibit A in any graduate level course on effective political spin.

Or not - they were booted out of office not that long after the magnum opus of statistical manipulation.

Of course my understanding of a report card is that it is supposed to be clear, to the point and comparable with no varnish.  Imagine getting your child’s report card and reading that exercise in manipulation.  “Your daughter scored 22% higher than the 1957 mean score adjusted for national variations in teaching outcomes using the OCED model for socio-economically adjusted test scoring”.  Huh?  Did she get an A or a B?

I got a similar sense when I read Donald Arsenault’s op/ed about how happy he is with the employment numbers in New Brunswick.  Don’t get me wrong, I don’t think there is any inaccuracy in these numbers - I don’t have time to review them all but the presentation and analysis would suggest a far better result than I think is warranted based on a simpler assessment.

As I have said and proved using simple employment growth data, New Brunswick has underperformed the national growth rate for employment most years going back 10, 20 and 30 years.  Not a huge underperformance but enough to lead to population stagnation and continued net-out migration.

I will say as an aside the call centre industry was an amazing boost for government here.  No other province saw a single sector dominate employment growth over the past 15 years or so.   On an April to April basis from April 1993 to April 2010 there has been a net employment growth of an estimated 62,600.  If you take out the public sector employment in public admin, health care and education, you drop down to somewhere around 40,000 net new private sector jobs and if you back out the between 16,000 and 20,000 in customer contact centres, you almost have half of all new private sector jobs coming from one economic development initiative. 

That’s a stunning event that has never really been properly studied. 

But I digress.  My point with raising that remains that we have no idea what the ‘call centre’ sector will be for the next 10-20 years.

Back to my original thesis.  On a week where the government announces a new Minister of public engagement we get another example of spin.  It seems to me to properly engage the public you should start with providing a clear statement of the facts.  Serving up spin leads to more cynicism. 

The government should say it is turning out to be harder than they thought to achieve self-sufficiency.  They should say it has been hard to see new industries take root and grow here and that they will go back to the drawing board to figure out what went wrong and what went right over the past few years.

I have said that I was surprised there wasn’t a significantly juiced up economic development focus - given that was the core theme of self-sufficiency.    One or two more “call centre” type initiatives would set New Brunswick firmly on the path to economic self-sufficiency.

The recession was a setback but the longer term reality remains.  Outside of one massively successful initiative (call centres), New Brunswick has not had much success in fostering the growth of new industries such as ICT, life sciences, 21st century manufacturing, - even energy.

It’s time for a gut check.  The people of New Brunswick, I think, will appreciate it.

Some friends and I chatted about how haggard Jack Keir looked reading his prepared zingers the other day at the energy conference.  The NB Power project really knocked him - and I think he should have ripped up the prefabricated zinger speech the other day and spoke to us from the gut.   Rather than polite applause I think people would have appreciated it far more.  I think he’s a strong politican and a passionate guy and straight talk would go further these days than the spin.

To conclude because I have been rambling - I think the spinners should be told to write these speeches, op/eds, Twitter feeds, etc. not from the well ingrained perspective of trying to get by the next news cycle without incident but from the perspective of how do we engage the public in the broader dialogue of the need to change.

“….the OTP program raises issues that go far beyond high-performance sports. It challenges Canadians to think about the meaning of competition in a global setting and to contemplate whether the OTP philosophy should also apply to other sectors of Canadian society. For example, in the context of the often-repeated aspiration by various governments to be among the most competitive countries in the world, the OTP experience raises important questions about whether Canadians have the same appetite to compete to be the best in other spheres such as innovation and technology.”
I have been arguing for a while that, while there are negatives, there is serious value in taking a focused approach to economic development.   A small province like New Brunswick, in a relatively small country (population/GDP) like Canada, needs to have a small handful of sectors we are very good at and that are attractive for business investment.  That doesn’t exclude other sectors developing but it with other provinces/states mostly being specific in their sector development efforts - we need to be equally focused. 

The problem with focus, of course, is deciding who gets excluded.  I had a long conversation with an economist at one of Canada’s larger think tanks (in Ontario) recently and he was arguing that Canada needs to focus in on a few of the largest urban centres.  He thinks we have neglected investing in this urban growth centres in order to prop up weaker economies.  He doesn’t like the idea of investing in losers - we need to be investing in winners.

In his mind, the OTP for economic development, would involve picking the large urban centres and making them the primary focus of economic development-related policies and effort.  If smaller urbans and rural areas are witnessing declining economies, they should move to the large urbans.  In his model, the focus on clusters should be restricted to the largest urban centres where there is the best potential and the rest of Canada should be exclusively focused on those industries that aren’t urban - forestry, mining, agriculture, etc.

As you might expect we had a wide ranging and rousing discussion.  I didn’t change his mind.  He told me Toronto life sciences industry leaders are completely annoyed that the feds feel this need to invest R&D dollars in places like New Brunswick in “sub-par” research opportunities just to say they are being fair to the rest of Canada while great world-beating research in Toronto gets underfunded.

Of course my hackles were raised but just one day later I had a similar conversation with someone in one of New Brunswick’s urban centres who almost word for word made the same case for not investing in Northern New Brunwick.  He said Northern New Brunswick’s economy should be based on forestry, fishing and mining and the support services that revolve around those industries and that the real focus should be on the urbans in the south.

So, it’s complicated.  I argue for focus and then I have two intelligent peers making the case for focus (geographic focus) and I chaff.

There must be some larger principle at work here.  Smaller provinces, smaller urbans and regions like Northern New Brunswick should have the ability to build economic mass and provide the economic foundation on which social and community objectives are built. 

This focus on foundation must be based on solid economic development principles.  Bailing out dying industries, providing entrenched subsidies to counter bad business models and propping up the workforce with large personal transfers is not the way to go. 

I guess that is why I have been increasingly focused on local ownership over economic development.  When mandarins in Ottawa decide who wins and who loses, places like NB will always lose. 

I think we need to find a way to blend these principles.

While I agree with that, in my opinion over a longer time horizon, the only measurements that matter for economic development are new business investment, new jobs and incremental tax revenue to government.  All of the rest of the activity should be feeder activity into those outcomes.

The Dept. of Transportation is measured by roads and potholes.  Health by health indicators.  Education by education indicators.  How do we measure economic development?  By the number of trade shows?  By the number of client visits?  By the number of brochures?  No.  Those are throughput.  We should measure output.  Think of the elegance of the IDA Ireland:

Annual Corporate Tax Payments of IDA Client Companies €3 billion (est)

That’s it.  Pure and simple.  Since the IDA began attracting companies to Ireland, they have tracked every year the corporate tax payments to government and it is up to 3 billion Euros every year.   By the way, they don’t mention personal tax or VAT which would be in the billions each year.

As a cherry on top they use this measurement as well:

They actually track the dollars (Euros) put in by government for every job created and sustained since the IDA’s inception.  This should - must be - the model everyone uses.  Because it tracks value.  It realized that the job created back in 1993 by IDA efforts still counts - as long as it is still in place.  That is why the annual survey of every company supported by the IDA matters.  It’s not a lot of work.

I worry that in New Brunswick there are many companies that get grants and loans every couple of years but a decade on they are no bigger than before all the public support.  I could point out a dozen examples - but I won’t because that would be in poor taste.

It’s not that hard, folks.  Economic development must be about growing the economic pie.  We can easily track the cost associated with government and local efforts to attract industry and grow local industry (both direct and incentives) and we can easily track how many of those jobs and at what tax levels on an annual basis.

But we don’t.

Here is a more technical approach to measurement of economic development.  In the end, however, if you read this presentation you will see it ends up with jobs, private investment and tax revenue as the three measurements.  It’s not complicated, folks.

I certainly would approve of other measurements - of a specific and strategic nature to New Brunswick such as measuring the growth in R&D activity but in the end, even R&D must be about jobs, investment and tax revenue.

I probably have written 40 or more blogs on this subject and half a dozen columns.  I have discussed it with anyone who would listen from the building janitor to Cabinet ministers but we are no closer to this type of measurement model than 10 years ago.

Too bad.

Employment Growth: April 2009 to April 2010

Source: Statistics Canada http://www.statcan.gc.ca/daily-quotidien/100507/dq100507a-eng.htm

In the middle of the afternoon I got a fascinating example of how the entertainment value of news is increasingly surpassing the underlying value of news. 

CNBC is exciting TV.  They have taken reporting on the minutiae of stock trading and turned it into real entertainment.  Maria Bartiromo effortlessly moves in and out of stocks, bonds, commodities, derivatives, collateralized debt obligations and they weave in pithy commentary and a few shock radio elements.  It’s fun.

In the middle of the afternoon there was an unprecedented drop in the stock market.  In 20 minutes it dropped over 900 points.  Without skipping a beat, Bartiromo and her team had this fully analyzed and wrapped up with red bow.  We were in an Asian Flu-like crisis where contagion was spreading through the financial markets.  It was the end of the world as we knew it.  Analysts weighted in.  Political ramifications were summerized into Twitter length snippits.  Riots in Greece were bringing down the house. 

Then one of the CNBC analysts noticed that a few stocks had lost almost all their value in seconds and he speculated there was a ‘fat finger’ event where some computer glitch or additional zero on the end of a trade (billion instead of million) had shocked the market.

Effortlessly - with the same analysts - they moved into a narrative about the fat finger problem, the potential of financial terrorism, who wins/who loses from this effect - the apocalpyse of financial ruin that was so fulsomely analyzed seconds before?  Gone.

I wonder some times how we could have missed the financial meltdown in 2008-2009.  Especially with the thousands of people in the media, government regulatory departments, economists, etc. all supposedly watching this stuff like hawks. 

I think I just got my answer.

This looks like a good project for NB but I have never heard of BNB using payroll rebates before. I can’t find any other references to it before. Is this new? What is the program about? What are the criteria for eligibility? Enquiring minds want to know.

My random thought is this.   Why did they announce what customer rate classes would get which rate arrangement?  In hindsight it seems to me that added another layer of complexity to the debate.   Why not announce the following at the end of October 2009:

We have entered into an MOU with Hydro-Quebec to explore HQ buying substantially all of NB Power, eliminating all debt, migrating our power needs to 100% carbon free power within 10 years, providing rate relief to all user classes for five years and guaranteeing competiting electricity costs for the future.

Let’s have a debate about that.

The problem with cutting industrial rates and freezing residential rates is that additional layer of complexity.  Not only is the public required to think about the deal but also the fairness of the rates.

The reason I raise is comes from a story in one of Malcolm Gladwell’s books (Blink, I think, but I can’t remember).  In it he talks about a study that was done where researchers sat two people down at a table across from each other and then they gave one person $100.  That person was to decide how much of the $100 he would keep and how much the other guy would get.  The catch was that both had to agree to the arrangement or neither got anything.

Rational economy theory would say that a $99 - $1 split would be accepted because for the second person $1 dollar is better than zero dollars.  However, when they did this experiment over and over they found (as I recall) it was closer to $50/$50.  In other words, I would rather lose $30 and deprive the other guy of $70 because his decision didn’t see fair or moral.

To tie this back to the NB Power debate, announcing a 23% cut for industrial users and a rate freeze for everyone else put us in a Gladwellian conundrum.  Not only do I (as Joe Q. Public) have to evaluate the merits of selling the utility but I also have to evaluate the fairness of me only getting a rate freeze while someone else gets a 23% cut.

I am not saying the 23% cut was wrong - but that could be discussed and negotiated after the original issue was resolved.

It may have not had a material impact on the deal.  I still think the water was poisoned in the early days by various media and punditry that didn’t want to give it a fair hearing. 

I still have this sinking feeling we missed an opportunity to address an important issue and I think it was never really debated in a fair way. Emotion trumped reason.

The problem I made then - admittedly to very little traction - and I’ll make now is that if you take the large users off the system, you then need to spread that $4.5 billion in debt (or whatever it is these days we don’t know) over a far smaller base of MW usage.  The TJ has a good editorial today about what will happen if PEI drops off as a large NB Power customer.

Some of the people that think about these things are telling me that the best thing is for the large industrial users to be allowed to leave NB Power and buy power directly from Hydro-Quebec or Nalcor or generate their own.  I think this idea should be pursued but again we have to consider this issue of stranded debt.  If you end up with just residential customers and small businesses as NB Power customers, amortizing that debt over the small number gets a whole lot harder.

For those that just scoffed at the debt issue (usually based on an argument about the rebuild value of the assets which is totally irrelevant - what is relevant is how that old, stranded debt gets paid off), the chickens are coming home to roost.

I know I have been banging on this drum a lot lately but it is a fundamental issue for me.  I need to get my head around how New Brunswickers - Minto-based pastors no less - can watch a steady stream of data go by about New Brunswick having the least healthy population (the article yesterday about NB having the least active teenagers of all 10 provinces as an example), the least educated population, one of the worst performing economies, etc. - and hardly say boo but when a government tries to, it seems in good faith, address a looming crisis in electricity generation - we get unprecedented outrage, community mobilization, coffee shop anger and, yes, even new political parties.

Where are the new political parties forming as a result of the outrage about things that matter?  If anyone really believes the ultimate ownership of NB Power is more important than our heath or education or economic development, I grant they have the right in a democracy but that shows pretty screwed up priorities to.

I’d like to see the mobilization on these other far more important issues but for some reason that continues to elude me people seem to think that other stuff is somehow inevitable while stopping the fascist pillage of NB Power is a righeous cause.

If you want to know why the vast majority of NB communities are losing population or why New Brunswick ranks so low on so many economic and social measurements - look no further.  We are a province that is hard wired to accept our fate - to the point we will fight any effort to change it.

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We finished up last night with a Bruce Cockburn concert in a small hall with folding chairs in Eugene, Oregon.  The place was supposed to hold a maximum of 400 people but there must have been 600 or more there - 200 standing the whole concert.  Bruce was outstanding - a good mix of old and new and his own kind of disarming humour.  

The interesting thing was the demographic of the group.  The average age was easily late 50s - many of the men had pony tails and the women were dressed in hippy garb.  It was very interesting - this group looked happy and well contented.  It was fun to be plunked down in this group of folks that came of age in the late 1960s/1970s.

Oregon looks a lot like New Brunswick - with mountains.  The wood products industry is a major player, agriculture and fishing to a lesser extent.  More blue collar than I expected but quite a few multinationals.  Intel has 15,000 employees in the state and Boeing looks to be a huge employer here as well.

Over 10% unemployment and some pretty tough economic times here.

For me its a bit of intellectual oxygen.  To see another environment, to talk with folks, to observe, to emmerse for a few days. 

All in all a great trip despite the wind burn and altitude sickness from trying to climb the most deadly mountain in North America (more people have died on Mount Hood, I am told, than any other mountain in North America).

You will have to read my column tomorrow in the TJ. I take a slightly different view on out-migration.