It's The Economy, Stupid

In the world of economic development, getting media coverage is a key part of raising your community’s profile which is an important step in the ultimate attraction of businesses, people and investment.

Nova Scotia recieved not one but two major, positive media references this week. In a Business Week Online investing chat (and in the print version), Pat O’Neil, president of an influential investment firm, said that one of his favorite locations for investments is Nova Scotia. “We think Nova Scotia is going to be a big deal in the next five years,” O’Neil said. He went on to say that 10 Fortune 500 companies, including Microsoft, have established call centers in Nova Scotia as an answer to problems with overseas outsourcing.

In the other case, a California professor has written a book called ‘Retire in Style’ in which ranks the top 60 communities in North America to move to for retirement. Halifax ranks 9th out of 60 locations across North America among the top locations to retire. In the study, communities were rated on cost of living, transportation, retail services, health care, community services, cultural and educational activities, recreational activities, work and volunteer activities and crime rates and public safety.

Bravo, Nova Scotia and particularly Halifax.

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I forced myself to listen the whole federal government budget speech delivered yesterday. I knew full well that it has become a marketing effort but I thought there would be some clues as to the mindset of the government.

That’s why I was encouraged to hear the Finance Minister use the words ‘self-reliance’ over and over again. He talked about providing support to Aboriginal communities to help them become financially self-reliant. He talked about funding support for families with children that have disabilities to help them become more self-reliant. And so on.

However, there was no talk about self-reliance in Atlantic Canada. Nada about helping rural communities become self-reliant. Zip. In fact, they have increased the welfare to these communities by inflating the EI program.

As I have mentioned before, I see real parallels between the aboriginal communities twenty or thirty years ago and Atlantic Canada today. Back then, the government thought that if it poored enough money in, the problems would go away. But they didn’t. Economic problems persisted and then came the resulting social problems including low literacy, high rates of suicide and the worst health outcomes of any group in Canada.

Wait, I said back then. Remarkably the last three sentences of that paragraph apply to a place like New Brunswick today – the government poors more and more in – taking the form of EI and Equalization and the economic and social problems get worse. Atlantic Canada has the lowest rates of literacy and the worst health outcomes in Canada (New Brunswick is dead last).

What’s our response. Crank up the Equalization and the EI (at the behest, I might add, of the provincial governments).

At some point in time, somebody in the Federal government (usually spurred on by some international condemnation) will notice this trend. More money in worse economic and social outcomes. Then maybe in 2030, the Liberal Finance Minister will read his budget speech and talk about the need for self-reliance in Atlantic Canada.

Unless Daulton McGuinty or Ralph Klein crack the whip for other reasons…..

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What do Brian Lee Crowley, John Manyard Keynes and Karl Marx have in common? Brian Lee Crowley is the head of the Atlantic Institute for Market Studies, an organization that believes that the market, and only the market, should decide labour and capital flows. In other words, they seek a very minimal role for government. John Manyard Keynes was the father of unemployment insurance. In the early 20th century, his ideas shaped the policies of the New Deal. He felt that during times of economic crisis, governments should spend more, not less. He believed in a very active government playing a major role in the economy. Karl Marx needs no introduction. He believed that government should control the economy.

So what, you say, could these three possibly have in common? I’ll tell you. They all share a passion for Pepto-Bismal or some other form of stomach acid relief – most notably after another Federal budget (Keynes and Marx in spirit only as they have been dead for years).

Beyond the bubbling stomach acid, however; these three share one major thing in common. Crowley believes in the value of work. The workforce is at the heart of the economy – it is its engine. He believes that market forces, if left to run on their own, would allocate labour and capital in such a way that the workforce would be the most productive. Keynes also believed in the value of work. In fact, he suggested that during a depression, the government should pay men to dig up holes one day and fill them in the next. He knew full well that if you take work and the work ethic out of the picture, the economy is headed for ruin. Karl Marx also was a big believer in the role that work played in the economy. He believed that people should not be paid for different types of work but for need. In fact, the communists were known to shoot people who would not work.

That brings us to Canada. Canadian politicians (and economists allied with the NDP and the Bloc) have actually fashioned a new economic model – not free market, not socialist and not even communist. The Canadian model is to pay people not to work. To actually put in place financial incentives for people not to work. And, as I have stated many times before, this has led to whole communities and regions of this country where 25%-50% of the entire workforce actually works only 14 or so weeks each year and the rest of the year are paid by the government not to work.

And in yesterday’s budget, they rolled out another $300 million to sweeten up the EI pot and make it even more attractive not to work. So we are in this weird neverland where many of these communities have unemployment rates of 20% or higher and small businesses can’t find workers. They are bringing in Mexicans to harvest strawberries on PEI. They are bringing in the Dutch to drive trucks in Northwestern New Brunswick. Call centres paying $10/hour and offering on site daycare can’t get workers in rural New Brunswick. And the Liberal response? Not to provide incentives to work on-season and off-season jobs. Not to find ways to extend the seasonal jobs. Not to set aside money to attract year round jobs to rural New Brunswick. No, our strategy is to spend another $300 million (on top of the billions) to encourage people not to work.

Crowley, Keynes, Marx? No, the ‘economist’ leading the economic development of Atlantic Canada is Yvon Godin.

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Yesterday, the Federal government announced that it would be giving $115 million to Bell Helicopter Textron Canada Limited to support an economic development project in Montreal.

I don’t know that I have much to say about this except that it underscores the continuing reality facing Atlantic Canada. The stronger provinces and economies such as Montreal get all the new, high end jobs paid for in large part by government incentives. Atlantic Canada gets more seasonal Employment Insurance support (and I heard a rumour there will be more in the budget today).

When are the politicians going to figure this out. We need the $115 million job creation projects in Atlantic Canada, too. When was the last time any level of government invested this amount of money in a private sector job creation project in New Brunswick? I’ll answer that for you – never. But if you’re in aerospace in Montreal or automobiles in Ontario, this level of government incentive is a common event.

I would ask them (the politicians) to just try it out. If they spend the next ten years supporting these level projects in Atlantic Canada, let’s see if it doesn’t transform the economy, reduce our dependence on seasonal EI and on Equalization.

An acquaintance of mine that understands the mindset of government told me it would be a cold day in hell before the Federal government would put that kind of money into an Atlantic Canadian project. You see, he said, there are just not enough votes down here. He did say, however; that if a provincial government brought them a billion dollar, 2,000 job project and asked for $100 million, it would be somewhat hard for them to turn it down. The optics of outright saying ‘no’ to Atlantic Canada while saying ‘yes’ to Quebec and Ontario wouldn’t be good.

The message here is simple – provincial government go out and find these projects and then drag the feds along kicking and screaming.

Stop fiddling around with small businesses and ‘innovation’. Ontario’s growth over the 1990s was driven by the auto sector – large, multinational companies.

Go out and get some for New Brunswick.

We would appreciate it.

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It seems to me that the public has basically three responses to the rhetoric of politicians: apathy, cynicism and denial. The vast majority of folks don’t seem to care one way or another (unless they are directly impacted by a specific move of government). When the Premier talks of the prosperity he has brought New Brunswickers and all the jobs and economic growth, they look around and say ‘who’s he kidding?’, shrug their shoulders and go about their daily lives. The second group of folks are those that for whatever reason look more closely at the actions of government. These are typically advocates of one type or another or others that just take a keen interest in government activities. I include myself in the latter category. These folks, upon hearing all the inflated rhetoric, the skewed stats, the out-of-context figures designed to confuse people, increase their level of cynicism (especially when reading the propaganda machine called the Times & Transcript). The third group of folks are basically the partisans. Not necessarily hard core partisans but just folks who believe the government’s story hook line and sinker without any critical analysis. These folks range from the cadre of hangers on through to the party faithful – no matter what.

Which brings me to the point.

What is your response when you see the following graph? Apathy? – oh well. That’s just the way it is. The other guys aren’t any better. Maybe I should consider Alberta. Cynicism? – how can the Premier look people in the face and claim his Prosperity Plan is working? Denial? - I don’t believe these numbers. The Prosperity Plan is working. Just you wait until the numbers come out next month.

Collectively, our responses get translated into government action. If we are all lumped into Apathy or Denial – nothing will ever change (note to the Times & Transcript). If we adopt a healthy criticism of government action – non-partisan – maybe we push them to take steps to redress our economic problems.

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I have been studying the various ways that communities and governments attempt to stimulate economic development for almost 15 years. One conclusion that I am prepared to make is that I really believe that some communities and provinces/states try economic development strategies that are ‘out of their league’ and then get frustrated when there is no success and then cut funding and so the vicious cycle begins.

I believe that we need to take a ‘life cycle’ approach to developing and implementing economic development programs. It would be unthinkable to use a Silicon Valley economic development model to try and develop Botswana. However, in a slightly scaled down analogy, should New Brunswick be attempting to compete with Ottawa or Toronto? Or should we set our sights – if not lower – at a different target?

Take the call center industry example. In the early 1990s only three jurisdictions in North America were actively pursuing the call center industry (Nebraska, Manitoba and New Brunswick). After the enormous success that this industry brought to communities like Omaha, Winnipeg and Moncton, everyone else jumped on the bandwagon and by the end of the 1990s every province in Canada – including Ontario – had a ‘call center strategy’. New Brunswick, was among the first in and among the greatest beneficiaries. Some estimate there are over 16,000 call center workers in New Brunswick. I believe it is more like 10,000 but no matter, there are at least 10,000 jobs and the vast majority are full time with benefits and average salaries approaching and exceeding $30,000/year.

In that case, New Brunswick leveraged its unique advantages of bilingual, relatively low cost labour, low cost office space and excellent telecommunications. Add to that mix a basic government incentive program and an aggressive marketing campaign and ten years later (by 1999) you had over 10,000 jobs.

Now fast forward to 2005. Economic developers talk about ‘innovation’, ‘life sciences’, ‘aerospace’ and other sectors and areas of activity that are highly competitive, where we have very few advantages and almost no industrial base. On the ‘innovation’ front, there is over 10 times as much R&D activity over the course of a year in just the Ottawa/Hull region than all of Atlantic Canada combined. Some large companies in Ontario spend more on R&D themselves that most of New Brunswick’s companies combined. Not that I am against innovation, but if there are new dollars for economic development, I think they should be targeted where they would achieve the greatest results. Further, new ‘innovation’ funding will, like the last time, end up just making up where the region was not able to secure its fair share from other government sources such as the Canada Foundation for Innovation or NSERC. If we are not getting a ‘fair’ share of that funding, that is a separate issue.

On the life sciences front, I recently heard there were over 70 life sciences initiatives across North America – all competing for a relatively small industry. Montreal, for example, has spent hundreds of millions of government dollars over 30 years creating its small biotech cluster. Can we compete with that? The Governor of Florida recently announced a funding package of up to $400 million in incentives to attract a 1,500 person medical research facility. Can we compete with that?

The Federal Government and the Government of Ontario recently announced a $1 billion program to support the auto sector in that province. Can we compete with that?

I think we need to be realistic and targeted at the same time. I honestly believe that if the government of New Brunswick was prepared to make the investments in infrastructure, training and yes, the companies themselves, we could attract several thousand new manufacturing jobs over the next ten years. Not overly sexy – $15-$20/hour with full benefits from companies such as Michelin, Irving, etc. but good quality, long term jobs with long term, employers – replacing the resources-based ones that are leaving.

I also think that a highly targeted and properly funded strategy could bring in several thousand new jobs in the high tech sector as a ‘near shore’ location for information technology growth. Not overly sexy – $40,000-$50,000/year computer programming, technical support and multimedia development – but good quality jobs to keep our graduates here.

Message to both provincial and Federal government policy makers – stop fooling around with abstract concepts such as ‘innovation’ and setup a few highly targeted and well funded programs to attract real companies and real jobs to the province.

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The minister at the church I attend is a particularly effective communicator. He uses a variety of anecdotes, stories and jokes to make his points as to how we can better ourselves and have a better appreciation of the spiritual side of life.

One of his ‘jokes’ today made me think of the economic challenges facing us here in New Brunswick. The joke goes like this:

One Sunday, a preacher’s sermon dealt with the issue of how you get to heaven. He asked the congregation to respond to his questions on how you get to heaven. “Can you get to heaven by just doing good deeds?” “No”, the congregation replied in unison. “Can you get to heaven by giving money to the church?” “No”, came the response. “Can you get to heaven by loving your neighbour as yourself?” Once again, the congregation responded “no”. Then, he asked “How do you get to heaven?”. A five year old boy near the front of the church put up his hand. The preacher asks him, “How do you get to heaven?”. The boy responds “To get to heaven, sir, you gotta be dead.”

Now, notwithstanding that the joke comes across much better with the delivery, it turned my mind to the issue that dominates my thinking.

Maybe things need to get worse in New Brunswick before they will get better. Guys like me that study issues of economy, population, migration, capital formation, investment, etc. have been preaching for years that the ‘end is nigh’. For New Brunswickers to ‘repent’ and ‘turn towards a better way’ (forgive me the religious metaphors – it is Sunday). However, successive governments have invested less and less and the public’s opinion is lukewarm at best. As long as things are sputtering along, we don’t have to worry – let’s keep are distraction where it belongs – fighting over ‘cath labs’ at the Moncton Hospital or over potholes in Bouctouche.

In my opinion, the time to tackle the looming economic crisis facing New Brunswick was twenty years or so when enlightened demographers and economic developers began to see the proverbial writing on the wall (oops, another biblical reference). At that time, our population growth rate was already beginning to decline steeply, our unemployment rate was permanently fixed above 10% and the out-migration of our youth was increasing. Further, at that time, forecasters predicted that the forestry, mines and fish of New Brunswick would not be able to sustain the economy in the future to the extent it had been. So Richard Hatfield made a few token attempts at economic development in the 70s and early 80s. But it was Frank McKenna who rightly realized that New Brunswick was on a crash course and made economic development his number one priority from 1987 onward.

The problem with Frank, however; was that he believed that his own hustle would be enough to turn around New Brunswick. And make no mistake, Premier McKenna was the most energetic and engaged politician – probably in New Brunswick’s history. But hustle alone is not enough – it is critical – but not enough. Most people don’t realize this but all during McKenna’s reign, New Brunswick was at the bottom (or close to it) for government spending on economic development.

And that dubious tradition has been continued (if not exacerbated) by the current administration.

Until governments get serious and start funding and supporting economic development – not as much as richer provinces and states but more – I am not sure we will ever see any fundamental, systemic changes.

But, as with most things in politics, it is a vicious cycle. Politicians put their effort where they think they will get and keep the most votes. The public is preoccupied with the here and now and not the future. Those two forces are a toxic mix and explain in large part the under investment in economic development for decades.

I can still remember the public outcry when Premier McKenna spent $10 million of taxpayer money for 900 UPS jobs back in the early 1990s. The media cried foul. Lizzy Weir kicked and screamed. $10 million? How dare they? Well, if anyone had bothered to look around they would have seen $100 million deals to bring Toyota to Kentucky and $200 million to bring BMW to Alabama. And if anyone bothered to look across Canada, they would have seen our government putting hundreds of millions in to the aerospace sector in Montreal and the auto sector in Ontario. Not to mention the billions being spent on seasonal EI that pays people not to work.

So the great old sage of regional development, Professor Donald Savoie, writes a book on McKenna which rightly and fairly shows that all of McKenna’s hustle brought no revolutionary turnaround, no massive new investments and no major redressing of the fundamental economic problems facing New Brunswick.

Recently a colleague of mine here in Moncton said to me that he was tired of all the infighting among local economic development groups, counterproductive sniping, communities trying to ‘one up’ each other, etc. He said it was making economic development almost impossible and he yearned for the late 1980s when all of Greater Moncton came together in a unified way to address the communities problems. Now, he said, its all about ‘what’s in it for me’. He sarcastically remarked that we may have to fabricate a crisis to get people back together again.

Well, in my opinion, a fabricated crisis may be a better solution compared to the alternative of waiting for a real one.

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Anyone that reads my blog will know that this is my own personal bugaboo – the fact that in every opinion poll ‘health’, ‘senior care’ and ‘education’ are always topping the list of priorities.

This was the findings of the New Brunswick Finance Minister’s pre-budget PR exercise when he went around the province and pretended to look interested. Now, not withstanding that his PR release uses incorrect grammer (health, senior care and education can’t all be ‘number one’), it’s absolutely fascinating to me that while mill workers in the Miramichi are so desparate that they are barracading the exits to the pulp mill, the Peninsula is emptying out even faster than before, and that the Premier himself is finally acknowledging that we have a huge looming population problem – we still roll out the standard concerns of the public – health care, senior care and education.

So, in keeping with the past five budgets, look for, in this budget, more cuts to economic development (though I expect they will throw in a token new program to look somewhat interested) and almost no focus whatsoever on making any substantiative changes that might address our economic challenges.

The province, by my calculation, spends somthing like less than one percent of its annual budget on economic development. 99% on keeping the lights on and the government paycheques signed. 99% on incubating the new workforce for Ontario and Alberta. 99% on the status quo. 99% on stuff that won’t move us one iota towards self sufficiency.

Mr. Minister, keep those deliberations coming – as long as they validate your own lack of vision.

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This is the title of an Economist magazine article this week. Now, the Economist is just about the most respected business magazine in the world – and now they are jumping on Paul Martin and the ‘ditherer’ label.

Just for fun, I did a little Internet search on Paul Martin (as prime minister) and ‘dither’ and found literally hundreds of references to Paul Martin being a ditherer. From the mainstream media to blogs, it seems that this label is beginning to stick.

The Economist writer says that Prime Minister Martin “cannot quite shake off the impression that Canada’s top job is too big for him.“

According to the Merriam-Webster dictionary, the word ‘dither’ means:
to act nervously or indecisively : vacillate – dith·er·er

Sounds a lot like New Brunswick’s Premier (think auto insurance, NB Power, etc.).

The dictionary lists ‘resolve’ and ‘settle’ as antonyms for dither.

Two qualities that are becoming less and less apparent in modern politicians.

Read the Economist article by
clicking here.

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It seems that the Newfoundland offshore revenue deal is not going to go away. Premier McGuinty has said that he will press the Federal government for as long as it takes to reduce the level of funding that Ontario pays for Atlantic Canada and other poor provinces.

I had figured that this sentiment was coming – I had expected it to come, however; from Alberta.

What I have to say to Premier McGuinty is this. If you succeed and cut Ontario’s subsidization of health care and education in Atlantic Canada, what have you achieved?

Putting the squeeze on Atlantic Canada will only breed more resentment, hostility and ultimately frustration that could jeopardize Confederation as we know it.

The systemic underperformance of any region in a country has to be a shared responsibility. Atlantic Canadians paid to subsidize the St. Lawrence Seaway which effectively cut off Atlantic Canada as a trade route to Central Canada. Going further back, Atlantic Canadians subsidized the colonization of the West – and yes, the only province that has ever gone bankrupt in Canada – Alberta.

Premier McGuinty would be wise to follow my advice. If he wants to reduce the amount that Ontario pays into Equalization, he should support efforts to stimulate the economy of Atlantic Canada. As this region grows, our need for his welfare will be diminished.

Ever wonder why there is no meaningful automobile sector in Atlantic Canada (outside of Michelin and I wouldn’t underestimate their impact)?

Oh, you say, it has to do with just in time inventory systems, integrated logistics, the cluster effect, and so on.

Yeah? Tell that to Alabama. Tell that to South Carolina. Tell that to Ireland. Tell that to Curitiba, Brazil – all with no ‘integrated logistics’, JIT or another BS excuse. All of these areas and more grew large auto sectors from scratch in about the same geographic and economic situation as Atlantic Canada.

There is no auto industry in Atlantic Canada for one reason as far as I can see. Ontario and Buzz Hargrove (a native New Brunswicker) would never let it happen.

How’s this for a strategy? Next time Buzz is negotiating with GM, Ford or the others, he negotiates into the contract a major plant for Moncton? How about the Federal government providing $500 million (that’s how much they are giving the auto sector in this round of incentives) to start an auto sector in Atlantic Canada?

Not a chance.

Easier to give us EI and welfare.

Until McGuinty blows his top.

Now what?

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