It's The Economy, Stupid

The New Brunswick Federation of Labour is meeting in Moncton to plan its strategies for the next year. On Friday, new figures published show that union membership in New Brunswick is way down. I am not sure that beyond negotiating lucrative agreements for public servants, the union movement is doing anything to help New Brunswick’s economy (some would argue that massive wage increases for health care and education workers has a net negative effect on the economy but that’s a debate for another day).

I wrote a thesis on the union movement over 15 years ago in university that examined why the union movement had still not evolved from an adversarial model to a partnership model where the workers are part and parcel of strategy and unions adjust their expectations up and down based on market conditions. A flexible union model could continue to provide benefits to its members but also the employers and the community at large.

However, here we are in the 21st Century and unions continue to be only about wages. Beat the employer into submission. Never mind the serious economic challenges facing New Brunswick, our role (the union) is to squeeze out as much as we can from the government while the light’s still shining.

This is sad, in my opinion. It’s not that public servants don’t deserve more money. It’s that the posture of the union movement as a whole doesn’t seem to care about the bigger picture. Instead of being a powerful force to support growth, it continues to be adversarial and hostile.

Here’s an idea. Why doesn’t Buzz Hargrove negotiate a new automobile plant for New Brunswick (considering he is from here after all) when he is negotiating with one of the big auto makers? In the 1990s, virtually all of the new auto plants were put in the “New Brunswicks” of the United States – Alabama, Kentucky, South Carolina, etc. but not in Canada. All the new plants were put in good old southern Ontario. If Buzz negotiated 20% lower salaries in New Brunswick and the government kicked in a few bucks, I guarantee they would come. That would be an example of a positive role that a union could play.

But that will never happen. The unions will continue to push for more Employment Insurance in New Brunswick and more auto manufacturing jobs in Ontario. They will continue to negotiate lucrative public service wage increases without ever admitting that the outlook for the public service in New Brunswick is bleak – 15-20 years out – how many public servants will we need to support a senior citizen-heavy population of 500,000?

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Does anybody think that Environment and Local Government Minister Brenda Fowlie will actually step down for allegedly violating a Liberal MLA’s right to privacy? No matter how many times the Times & Transcript will run this story, I can guarantee there will be no resignation. Did anyone resign over th $800 million Orimulsion scandal?

Move on, T&T. You should know by now.

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I keep hearing about tax cuts and ‘reducing the burden’ on New Brunswick taxpayers. Yet, my electricity bills keep going up, my vehicle registration costs went up and now I hear we will all pay a buck or two per month for 911 service (depending on how many telephones we have). Add in increases to other fees and the gas tax and sometimes I think that government purposely tries to confuse people as to what there are really paying in taxes.

So, I did a little personal calculation the other day. I looked at federal income tax, provincial income tax, HST, property tax, gas tax, EI premiums (which I can never benefit from – but that’s a topic for another day), and I began to process all of the various fees that I pay from drivers licenses to vehicle registration to hunting permits.

At the end of the day, I was somewhat shocked to find out that I pay, conservatively, 40-45% of my total income in all of these taxes combined. Now I fully understand why some folks are calling for a flat tax. Let’s stop trying to confuse people. Just get it out in the open. If you are a middle class worker, making middle class wages, you can expect to pay 40% or more of your income in taxes (when you look at all taxes and fees). So charge me 40% – once. That’s it. No taxes on gas, clothes, my house, my car, my just about everything else.

So my advice to goverment? Stop with the ‘marginal’ tax cuts that save me almost nothing and are more than offset by the increases in other government fees and use the few bucks that you would have given in tax cuts to try and grow our economy. Hopefully, if you have some success, over time, you will be able to seriously reduce taxes – or more importantly, raise collective income – to the benefit of all.

This last point can’t be understated. Albertans have the lowest tax rates in the country but pay the most taxes. Why? Because their total income is so high. I would gladly pay 40% if you would double my salary.

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I’ve often said that most things in life can be boiled down to Seinfeld moments. There are many occassions when I stop and think that I am in one such moment. Recently, I was in a situation where the phrase “Look to the cookie Elaine, look to the cookie” flashed through my mind.

In this episode, Jerry says to Elaine:
“The thing about eating the Black and White cookie, Elaine, is you want to get some black and some white in each bite. Nothing mixes better than vanilla and chocolate And yet somehow racial harmony eludes us. If people would only look to the cookie all our problems would be solved.”

However, after a recent talk with a colleague about Memramcookers (or ‘Cookers’), I would change this statement to Look to the Cookers (change the theme from racial harmony to economic development).

You see, a lot of people are grumbling about the work ethic of New Brunswickers. We all get EI and don’t work 9 months of the year. A lot of upper Canadians think we are lazy. However, ‘Cookers’ have a reputation for being very hard workers and taking on the toughest jobs. It’s ingrained in the culture.

In order to be a growing and successful economy, we need to have a workforce that is know for its work ethic. For a desire and a passion for work as a tool to support quality of life.

“Look to the Cookers Elaine, look to the Cookers”.

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I have discussed in previous blogs the growing resentment – mainly in Ontario – of the Equalization formula that takes money from rich provinces and gives it to poor ones. The largest straw on this camel’s back was the lump sum payments to Newfoundland and Nova Scotia to cover offshore oil & gas revenues. But the festering straw and the one that might jab in deeply is provinces like New Brunswick claiming balanced budgets and offering tax cuts while Ontario is running major budget deficits. Some would say how can New Brunswick cut taxes while Ontario taxpayers subsidize hundreds of millions of dollars worth of New Brunswick’s budget?

Both the editorial boards of the Toronto Star and the National Post are supporting the Premier of Ontario’s campaign to convince his citizens that “they are being taken to the cleaners, by virtue of the now-famous $23- billion gap” according to National Post columnist Andrew Coyne.

Coyne sites a weekend editorial that confused the equalization program with Employment Insurance (“In some parts of Atlantic Canada, for instance, it is the norm for workers to work three months a year at a fishing plant, then spend the rest of the year on the dole).

If the most read newspapers continue to hammer home this point, how long will it be before Ontario gets its wish? And who will pay for that? All you have to do is look at the last recession in the early 1990s for your answer. New Brunswick and all the other ‘have not ‘ provinces will pay for Ontario’s desire to claw back some of this equalization.

But, in fairness to Ontario taxpayers, it must be somewhat annoying to pay billions more in taxes than you get in government services and your provincial government is running huge deficits and raising taxes/fees. Ultimately, something’s gotta give.

That’s why I think that Daulton McGinty should be the biggest supporter of a revamped economic development plan for Atlantic Canada. He should be leading the fight for more funds to support long term, sustainable economic development that will ultimately lead to less dependancy on Ontario taxpayers.

But rationality doesn’t necessarily factor in here. If you were giving your brother-in-law $600/month out of your pocket to help him cover his monthly payments and he came and asked for $1,000/month – with the promise that sometime in the future your monthly payments would go down – would you ante up the cash?

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Now I finally understand. For years I have wondered why the Times & Transcript almost never writes a negative ‘economic’ story and when the topic is remotely negative, they always put a good spin on it. You can reread my previous blogs to assess my frustration with this issue.

T&T editor Al Hogan stated this weekend in Focus 2005 that this is called ‘advocacy journalism’. He lumps his fanatical editorial obsessions (consider toll highways, cath lab, etc.) into this category of advocacy journalism and I’ll let you be the judge of that. I will only focus on the economic aspects.

Now I know that the Times & Transcript’s unwillingness to tackle the economic problems facing New Brunswick in a direct and meaningful way is ‘advocacy journalism’. The average T&T reader will never hear that New Brunswick has had a net out-migration of people for the past 13 straight years and 18 of the last 20. The reader will never view in the pages of the T&T that immigration in the early 1970s was two to three times greater than today – even though we are in a real population crisis. The reader will never read in the pages of the T&T that economic growth (GDP growth) in New Brunswick has underperformed the national average for 17 of the last 20 years.

Why? I think now I know. Al and the gang over at the T&T think they need to project a ‘positive’ image. Consider the number of times they have used the words ‘boom’ or ‘booming’ associated with Moncton in the past few years. They think this is ‘advocacy’.

I think it’s crazy. The newspaper with the most readership in the province has taken an ostrich approach when it comes to the economy. Projecting a positive attitude is a key part of economic development – I agree with this wholeheartedly. But when the T&T and other newspapers don’t challenge the government on economic issues – they get backburnered as they are right now in New Brunswick.

Consider my statistics above. Out-migration of people 18 of the last 20 years. This should be an in-your-face appeal for action. But no, on the pages of the T&T, we get more ‘boom’ articles.

Wouldn’t it be something to get a cath lab-toll highway focus on economic development? How about 20 straight days of front page articles on the economic crisis facing this province? Wouldn’t that be ‘advocacy journalism’?

New Brunwick’s economy is stagnating. Governments are reducing their expenditures on economic development here while increasing them elsewhere (consider the recent announcements of $250 million for aerospace in Montreal and the billion for automobile manufacturing in Ontario). Well, on the bright side, we did get $100 million for EI top ups.

Advocacy journalism. If the T&T wanted to be real advocates, they would get serious about our economic challenges. They would realize that the current retail and construction boom in Moncton is a lag effect from strong growth in the late 1900s. They would realize that Moncton’s economic future is tied to the province’s future and if the latter is in crisis – it will have consequences for Moncton. They would realize that less and less effort is being put on attracting new business to New Brunswick.

They would ‘advocate’ for fixing this. They would advocate for 75% of all new funding going to fixing our economic problems and not our health care problems. Even journalists should understand that the strength of the economy drives the government’s ability to provide social programs.

Advocacy journalism. I guess my blog fits nicely into this category.

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I just finished reading the Times & Transcript report N.B. government faces financial ‘perfect storm’ published this weekend which outlined the massive increases in the cost of government payrolls in the next few years (so much for the government’s ‘hard line’ against the unions – but that’s another story).

The article quotes probably my favourite regional development thinker, Donald Savoie. Mr. Savoie is one of a handful of people around that really understand the economic challenges facing a place like New Brunswick.

But after reading this, my thoughts turned to a recent example in Nova Scotia that should be instructive to us all. In the mid 1990s, a study was done in Nova Scotia that predicted a looming shortage in teachers for rural Nova Scotia schools. The authors of the study concluded that if nothing was done there would be a massive shortage of teachers in our neighbouring province.

That same study was updated recently and the authors reached a different conclusion (I covered this in a previous blog but it is well worth repeating). They now conclude that because of the significant decline in students the province will not face a shortage of teachers afterall.

Now that’s a relief.

The rapid out-migration of our youth from rural towns is considered to be good news from a public policy perspective. Although there are no studies to confirm this, the same approach is being taken in New Brunswick. Let the rural towns die. Keep the workers that are there on life support (i.e. Employment Insurance). Hope for the best.

The problem, and my central thesis, is that a shrinking or stagnant economy is not supportable in New Brunswick, Nova Scotia or anywhere else where we need massive subsidization from a few small, successful urban areas in Canada. All we are doing is postponing an inevitable collision between increasing government services costs (as outlined well in the Times & Transcript article) and shrinking or stagnating economies. When this collision occurs, the province will be forced through a ‘right sizing’ exercise that will be painful for all of us – from the overpaid public servant (that’s not me talking, a recent study found the average public servant in New Brunswick makes 20%+ more than the same job in the private sector), to the average citizen that thinks they are ‘entitled’ to Employment Insurance, a hospital within 15 minutes, no wait times, excellent schools, great highways, cheap electricity, etc.

That is why I was so disappointed with the predictable conclusion of the Times & Transcript article. The author concludes there are four options to pay for the spiralling costs of public services in New Brunswick: PPPs (public private sector partnerships), increased taxes, user fees and downloading. All of these measures mean that the average taxpayer will have to pay more even though our real incomes are shrinking.

I am completely puzzled why the author didn’t add economic growth as a fifth option. In the private sector, if a company needs to increase its profits it can increase its prices (the four options mentioned by the T&T) or increase its sales (more sales at the same marginal cost leads to more profits).

My conclusion is the most policy makers, media types and experts believe in their hearts that New Brunswick is in an inevitable state of decline. Why else would they talk like this? Alberta is doling out billions in new funding for public services. Arizona (where I sit right now) is doing the same. Why? Because they can.

I subscribe to a different view. I believe that New Brunswick could significantly increase its share of foreign business investment. Could lead the country in economic growth. Could build whole new industries and attract top notch companies to move here. I believe this. But it seems that no one else does.

Frank McKenna did. He was on a mission to make New Brunswick the back office of North America. You dial 1-800 and you reach New Brunswick. You have a technical problem with your computer. Dial New Brunswick. You want to take a university course online? Go to www.newbrunswick.com. But that vision died a slow death with the media complaining about low wages (while paying the the majority of their people less than the average call centre worker) and dead end jobs. So the government went sour on the idea. And the vision tanked.

That’s too bad. Ireland’s economic reaissance began with that country begin the back office for Europe.

This is my last post from Phoenix. I will be back in New Brunswick this coming week and will continue to chip away at the notion that New Brunswick is a dead end province. To chip away at the belief that we can’t compete. To chip away at the notion of inevitability.

To chip away.

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Another dispatch from Phoenix. A couple of lessons can be learned here, I think. In the past 15 years something like one million people have moved here – Mexicans, Chinese, other Latin Americans, other Americans. There was no formal immigration ‘strategy’, no relocation team, nada. The economy is booming, people move here.

There’s a lesson for New Brunswick in there somewhere….

However, I tend to believe that despite our redneck tendencies, we are still a much more tolerant society. In Arizona, there are now ‘volunteer’ border patrols made up of Arizona citizens that are monitoring the border for illegal aliens trying to sneak into the U.S. Funny, none of these border guards have names like Gonzalez or Lopez.

And yet they move here (legally and illegally) in droves.

Here’s an idea. Let’s get New Brunswick’s economy growing again and invite those Mexicans to move up north. Climate aside, there will be less chance of the kind of racial intolerance preached by Lou Dobbs and the other immigrant bashers down here.

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Usually when I expound my theory to people that New Brunswick has to attract much more business investment from outside the province, the typical response is “Why would anyone want to invest in New Brunswick?” (I have also received this type of response from people in the economic development business in New Brunswick – the folks that should be the true believers – but that’s the subject for another blog).

They will say that New Brunswick is far from major population centres, an inhospitable climate, not on any major trade route, and with no particular attributes that can be leveraged into additional growth (like oil & gas in Alberta).

Funny, that sounds just like Phoenix. It is over 400 miles from the nearest major urban centre (Los Angeles) and has a very inhospitable climate – for business – it’s better for pleasure . In fact, Phoenix only became a city 75 years ago because of the harsh climate. Phoenix is not particularly on any major trade route and has almost no natural resources to leverage (no fish, no significant agriculture, no wood, not much mining). However, it’s population is up 60% in the past 15 years.

Go figure.

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After my recent blog about the fast growth of Phoenix, some of you are probably saying: “Growth, who needs it. We are perfectly happy with things the way they are.”

Don’t get me wrong. Growth is not the issue. There are some examples of countries and regions that have remained at a similar size for many years and are still strong and viable economies. The problem is that with New Brunswick, we are not strong and certainly not viable as an economy. We need, as I have stated many times before, significant economic growth just to bring our taxation levels to the point where we can pay for the level of government services that we now enjoy. Currently, we require hundreds of millions of tax dollars from other parts of Canada just to pay for a basic level of government service (otherwise known as Equalization, Employment Insurance, etc.). New Brunswick needs a sustained period of very strong economic growth just to get to the level of Saskatchewan or some other ‘have’ province.

By my calculations, and they are very weak, I estimate that we will almost have to double the size of our workforce with limited increase in government service costs just to get to a point where we are breaking even (i.e. crossing the line to a ‘have’ province).

Why is this important? While we are so dependant on other areas of Canada to pay for our government services, we have virtually no ‘economic sovereignty’ meaning that utlimately much of the decision making about what government funding will be in the province is driven by people outside New Brunswick.

How are we going to generate this sustained period of very strong economic growth? In my humble opinion, we will have to attract significantly higher business investment from outside the province – just like what is happening in Phoenix and many other regions in the United States.

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