It’s The Economy, Stupid

I just read Rodney Ouellette of Atlantic Cancer Research Institute’s commentary in the TJ. He is making the case for New Brunswick to invest more money in health research. He affirms what I have reported several times that on a per capita basis, NB is last in the country when it comes to receiving health research funding.

But I hearken back to a comment made by the Deputy Minister (i.e. the head) of the Dept. of Health a few years ago. She said (I heard it with my own two ears), that she’s interested in ‘health’ not ‘economic development’. ‘Economic development’, she said, was none of her business.

A little birdie told me yesterday that Energy Minister Jack Kier is looking to set up his own economic development team within the Dept. of Energy. One would assume this is out of frustration with BNB.

The truth of the matter is that most departments in government think that ‘BNB’ is the only department that should have anything to do with economic development.

This is a laughable thought. In fact, I am laughing right now.

If we really and truly want to turn New Brunswick towards self-sufficiency (whatever that is), the greatest resource we have is our government. It is by far the largest economic engine we have (six billion spent - almost all here - except for the debt servicing, etc.) creating directly tens of thousands of jobs each year and several billion in wages (direct and indirect). Further, it is a huge importer of money into the economy through its Equalization payments from Ottawa.

So, that is why Brian Dick, as head of the Self-Sufficiency Program, should be about trying to leverage this massive economic engine for more economic development. There should be an economic development person in every department of government. Maybe even a team where warranted.

Just think if we could leverage the massive spending on health each year into more economic development through concepts such as health research, possibly medical tourism, innovations in health delivery that are exportable, the use of technology in health that is exportable, etc.

In fact, just about every major decision of the health department, the energy department, the supply and services department, NB Investment Corp., certainly training and education, should be run through what I would call an ‘economic development filter’ or screen.

When making a major purchase such as an MRI machine, the first thing is signing on the dotted line. The second is a visit to the California company that makes the machines by a sales guy/gal pitching the merits of setting up in New Brunswick. At that distinct point in time, you have a window of opportunity.

This attitude should pervade all levels of government in New Brunswick. That’s why having a Tsar of Self Sufficiency makes good sense.

I hope that Brian Dick and I see eye to eye on this.

Don’t forget to dump www.davidwcampbell.com into your RSS reader and read my musing as they are posted. To infringe on the copyright of the Comedy Network, it’s truly Time Well Wasted.

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I see that the Premier has named Norm Betts as the interim Chair of NB Power. I always liked Norm Betts although his getting turfed from his riding (my parents live in his riding) was inevitable. In that riding you don’t get elected because you are smart, or a senior Cabinet minister or a university professor - in fact those things may play against you. In that riding, you get elected by shaking hands, having tea with old ladies and just making people feel like they count for something.

I hearken back to the successful 80s sitcom, Cheers. Every time Norm came through the door, everyone yelled “Norm”.

Not a bad idea to yell “Norm” for the NB Power job - but it seems he won’t be there long.

In fact, a little birdie told me that the permanent Chair of NB Power will be someone a little more red by persuasion. Kind of like Brad Pitt’s character in this movie.

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I suspect just about everyone is aware of “The Secret” by now. Which, come to think of it, doesn’t make it much of a secret.

Anyhoo.

I haven’t actually watched the movie or read the book. I didn’t actually see the Oprah interview. So, I am not overly knowledgeable about this. My wife tried to watch the film but turned it off after 20 minutes or so.

As I understand it, The Secret is based on the Law of Attraction which has three required steps—”ask, believe, receive”.

Essentially, if you want something bad enough and you believe it, you will recieve it. I saw a woman on TV saying that she really wanted a BMW and lo and behold, not long thereafter, she got her BMW.

Now, I am not going to debate The Secret. I feel bad for the poor schmucks in Africa who didn’t “ask, believe and receive” the rain they needed to stop the drought. Or the HIV/AIDs. Or the poverty. I guess it’s their rum luck they didn’t watch Oprah.

No, I am going to say that I hope Shawn Graham, Brian Dick and the Self-Sufficiency gang aren’t watchers of Oprah or believers of The Secret.

In my opinion, just wanting economic development - even really bad (oh, I wannnn it, puleeeeze), ain’t going to cut the moutarde as we say in French.

In about the first full year of the Graham government, there have been less jobs announced than just about any year in the last 10 (this is not a precise science because they actually use different ways of announcing jobs). In addition, there has been no major change in policy, direction and no major leadership shuffle at BNB. In fact, BNB’s budget is lower now than it was last year - and as a percentage of the provincial budget is only a fraction of what it was 10 years ago.

The Self-Sufficiency task force report said we needed to create 100,000 more jobs and raise average incomes by 20% to reach the goal of self-sufficiency. I have said before that this is, in my opinion, a low end estimate.

But let’s assume that the 100,000 is a good estimate. If you go through the BNB news wire service back until the last election, you will see that the government has announced about 700 jobs of which 660 were call centre jobs. In addition, the majority of the jobs were just expansions of existing New Brunswick operations. The number of new companies attracted to New Brunswick you can count on one hand (even if you have lost fingers in an industrial accident) and the number of jobs that pay above average wages - is, I think, zero or close.

Now, supporters of the government are going to say it takes time. They were left with ‘a mess’, I am told by several people close to the situation. They are working it out, I am told.

Fair enough. I am not close enough to it to know one way or the other. I just observe. And my observation is that there has been almost no change in direction, less funding and basically no results - beyond a few more call centre jobs.

So, in conclusion, my advice to the folks involved is to throw away your signed copies of “The Secret”, purge your mind of its insidious influence.

Real economic development in New Brunswick is going to take time, hard work, significant public investment, among the best leadership team in New Brunswick and commitment from the Premier on down the line.

Get crackin’

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For the most part, I try to avoid politics as a topic of discussion on this blog - I figure that there are already a wide variety of political bloggers in New Brunswick and persons of just about any taste can fill their boots. Expect - and that’s a big exception - the intersection of politics and economic development. I still maintain that government has a role to play in supporting an environment that is conducive to economic development and as such blog on related topics on a frequent basis.

But today I am revisiting a familiar political theme for those of you that have read this blog off and on over the past three years.

What is a Tory?

My political roots are Progressive Conservative. My parents and grandparents on both sides of the family were Tory - in fact - some quite active in the party. My grandfather on my mother’s side was one of those guys who got a good government job when the Tories were in and got fired when they were out.

And today, my two brothers are staunch Tories - or let’s say conservatives - in their viewpoint and would never dream of voting any other way. My sister, I assume, is a Republican.

So, I am a natural adherent to ‘conservativism’ whatever that is these days. But since I came back from university in the states I could never figure out what it means to be a Progressive Conservative in New Brunswick. It is true that Frank McKenna was not exactly a stereotypical Liberal leader but for me that just raised the level of confusion.

And, quite frankly, the Lord/Volpe brand of Toryism just confused me even more. Yes, there was some minor emphasis on cutting taxes but beyond that anything to do with economic development was anything but ‘conservative’ - at least in my way of thinking. They ran up public expenditures as fast as any other province in Canada. They become significantly more reliant on Federal transfers such as Equalization. They showed almost no interest in industrial development.

And things are not changing. There’s an article today in the TJ that says this:

Opposition Leader Jeannot Volpé is warning the Liberal government may be designing a new system of power rates that will benefit the province’s largest industrial power users to the detriment of others.

Now, right away, you can see my confusion. First, former PC Premier Hatfield developed the energy sector in New Brunswick specifically to support industrial development with lower power rates. Now, current PCs are complaining about using power rates as an industrial development tool?

They are just sowing more confusion among the electorate and it is just plain sad. The role of the Opposition is to oppose - but not everything - not stuff they supported before.

Once again, Jeannot Volpe is playing on stereotypes and entrenched biases in the media and the public that are the single most important reason for New Brunswick’s economic problems. Our attitude. Those nasty multinational firms - we need to support our own, Volpe says. How dare you provide cheaper power to those big, bad large firms, he says (never mind that without those firms we would be screwed).

I really hope the Tories elect a leader that has a real vision for economic development in this province. A real strategy for reversing the 14 year trend of net out-migration. A real strategy for building new 21st century industries in New Brunswick (unlike the Lord/Volpe strategy of building more government jobs). We need an Opposition party that will bring forward good ideas to move the province forward - not just fearmonger about these age old prejudices.

I, for one, fully agree with subsidized power for large industrial users as long as it is tied to good paying jobs. Cripes, under Lord/Volpe the IT industry in New Brunswick showed virtually no growth at all while growing by hundreds of thousands of jobs in the rest of Canada. Now, Volpe wants to crap on the blue collar jobs that are left?

I have said here that maybe we should offer cheap power to attract large scale data centres (one of the fastest growing industries in North America). These are high paying jobs in the new economy. I have further said I don’t see the logic in exporting $1.9 billion worth of electricity to the US over the past 10 years when it could have been used to support jobs and economic development here in New Brunswick.

But apparently the Tory position is not to use energy as an economic development driver.

Finally, let’s not forget that the only ‘non-market’ reason why power rates are increasing at such a fast pace in New Brunswick is the Orimulsion project that under the stewardship of the Lord/Volpe government wasted well over a billion dollars in taxpayer money. The other reasons for power rate increases (increasing cost of fuel, need to reinvest in infrastructure, etc.) would have occured in any province or any utility. Now, I am not arguing that NB Power is well run - I have no idea. But if the public wants to know the only source of power rate increases that could have been avoided, they should knock on Volpe’s door.

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Anybody read this yet? I’ve been looking for a good book on the Irvings.

Twenty-first Century Irvings explores the modern family business, the powerful players behind its continuing success, and the myths that are spread about the wealthy empire. Author Harvey Sawler exposes the truths behind those myths, and predicts the transformation of the family, like the Rockefellers and the Morgans, from industrialists to philanthropists. A business story, a family story, and a Maritime story, this is a book for anyone interested in or affected by the Irving empire.

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I just read Corporate Knight’s latest list of Canada’s 50 best corporate citizens. Royal Bank tops the list. I don’t think there are any Atl. Canadian firms on the list at all.

Apparently there are a number of criteria used to determine a good ‘corporate citizen’ including the amount of taxes paid, corporate philanthropy, environmental stewardship, etc.

But I would like to propose one more criterion for Corporate Knight’s: support of sustainable regional development in Canada.

Now, before you hyperventilate - hear me out on this one.

How come a company can be a good corporate citizen by putting $100k into some worthy charity in Bathurst but get no similar accolade for putting a manufacturing facility there?

Canada is the headquarters of some very impressive global companies: banks, insurance firms, aerospace firms, auto manufacturing, consumer goods, information technologies, telecommunications. Major players on a world scale.

Consider some examples:

Bombardier recently announced a major aircraft assembly plant in Northern Ireland. Yes, the U.K. government gave them incentives to go there but what are the chances that Bombardier will ever put a major manufacturing plant in the ‘Northern Ireland’ of Canada?

In New Brunswick, TD Bank, with Frank McKenna as Vice Chair, employs 4.9 people per 10,000 population - the second lowest amount of employment (adjusted for population) of all ten provinces in Canada (according to their own corporate social responsibility reports). In Ontario, TI employs 26 people per 10,000 population - over 5 times as many as in New Brunswick. And the story is similar with the rest of Canada’s big banks.

How about GM Canada? The company sells thousands of cars every year in the retail market in Atl. Canada - but outside of retailers how many employees does GM have here? Squat. In fact, they just closed their small warehouse in Moncton.

And the list goes on. HBC/Zellers, Walmart, etc. do hundreds of millions of dollars in business here each year but beyond retail (necessary to get the business) what are they doing in Atl. Canada?

How about the big insurance firms? Aerospace firms? Yes, there are a few in Halifax - but not many.

Back to financial services. How come it is easier for Halifax to attract hedge fund administration firms from Bermuda and New York easier than Toronto? How come Toronto-based financial services firms are actually retrenching from Atl. Canada while growing at a record pace in Toronto?

The truth is that the vast majority - almost all - of Canada’s titans of industry use Atl. Canada as a small retail market and that is it. Manufacturing, almost all warehousing, product development, R&D, information technology, head office administration, etc. - for virtually all of Canada’s Toronto or Montreal-based corporations are done anywhere but here (1).

And, as icing on the cake, many of the lobby groups for these titans of industry - the Canada Council of CEOs, the Canadian Chamber, etc. can be found grumbling about the effect of Equalization on Canada’s ‘productivity’ and how the government needs to lower taxes to be more competitive.

Here’s a little hint.

If corporate Canada spent just a few more hundred million in investments down here every year in non-retail operations, that would go along way to reduce our dependency on Equalization, firm up for them a small but important retail market, and allow them to crow about how they are supporting a strong and vibrant Canada - from coast to coast.

A lot of people complain that the federal government should put more of its employment in the provinces (and idea cut off by Canada’s New Government TM).

But I don’t think that corporate Canada should be let off the hook, either.

And as for Corporate Knights, maybe they should rethink the criteria used to determine a good corporate citizen. I, for one, think that putting a 100 person manufacturing facility in Truro is a far better contribution to Canadiana than just about anything else.

Now, before you freak out and say that I am some form of socialist - suggesting that corporations make capital investment decisions based on non-market factors (i.e. a new form of philanthropy) - calm down. I am just saying that if Halifax is good enough for Bermuda financial services back offices, maybe it just might be good enough for Toronto financial services back offices. Or animation studios, or e-Learning centres, or manufacturing facilities, or warehouses, etc. etc.

Bombardier bragged about their commitment to supporting regional development in their Northern Ireland press release. How about one bragging about their commitment to regional development in their home country? The country that has given them more tax dollars than any other company in history?

1. The exception, of course, is call centres. RBC, CIBC, Scotia have fairly large call centres in the Maritimes - but overall something like 80% of call centres are not from firms based in Canada.

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I read this morning that the Province of Ontario and Research In Motion co-CEO Jim Balsillie are giving The Waterloo-based Centre for International Governance Innovation $34 million - to “dispense economic research and advice to the government, businesses and the general public. The research institution plans to focus on how other countries are meeting their energy needs, economic growth in China and India, and Canada’s relationship with the Caribbean region”.

I have said before that one of New Brunswick’s biggest problems is the lack of good research on how to grow the province’s economy. I am talking about research tailored specifically to this province and as free from vested interests as possible. I know that we all come at this thing from a specific ideological viewpoint but I still believe there can be relatively unbiased research.

Look at Ontario. They have so much research in this area that it is coming out their ears.

There is some research done in this area for New Brunswick but it is limited.

Here are some research topics that are woefully lacking:

-The role of FDI in revitalizing an economy such as New Brunswick. An unvarnished view of the pros and cons of FDI and the interplay with local business growth.

-Trying to support small business growth as the main pillar of economic development. A 30 year review of the experience of New Brunswick. Has it worked? A comparative study.

-Studying out-migration. Impacts - specifically on New Brunswick.

-Applicable models of successful rural development. Innovative approaches.

-Real statistics. FDI, real entrepreneurship, capital formation, venture capital - New Brunswick economy.

-Series of working papers on best practices in local economic development - with specific application to New Brunswick.

-Best practice models of economic development organization and funding models.

Too bad we don’t have any benevolent billionaires willing to cough up $17 million.

So you will have to settle for biased bloggers, vested interests and disinterested media.

Begin the Beguine.

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After hearing the provincial government announce 200 call centre jobs in the Miramichi to replace manufacturing jobs, I got to thinking. Why is it so hard – it seems – to attract good manufacturing jobs to New Brunswick?

Some people say that the manufacturing sector is in decline – but that’s a myth. There are certain types of manufacturing that are being moved offshore but there are many manufacturing sectors in North America that are experiencing strong growth. In fact, when I look at Site Selection magazine’s database of new announcements last year, the majority are manufacturing! Semiconductors, plastics, wind turbines, biodiesel, auto parts, aerospace, some metal fab – all in growth mode.

So why not New Brunswick? There are a few old, tired excuses about our distance from major markets – but the fastest growing manufacturing centres in the U.S. are far from the ‘major’ markets as well.

I think we haven’t really thought it through.

Certainly energy costs are huge for the manufacturing sector. Yet, NB Power would rather export surplus electricity than figure out how to develop an incentive rate structure that would attract specific manufacturers. There has been $1.9 billion in wholesale electric power exports over the past 10 years. No one ever asks the question whether or not it would be better to use that power to stimulate economic development in New Brunswick rather than ship it to support economic development in the U.S. One would think that the wholesale rate for electricity would make a good incentive rate for large users (but I don’t know the wholesale rate for sure).
Then there was the aborted attempt to build a natural gas-based energy park in Sussex attempting to attract manufacturers that need low cost natural gas. No, it would seem that we think the best use of that gas is to get it out of New Brunswick as fast as we can.

Some economic developers will say that we just don’t compete on ‘incentives’ (whether that’s power rates or training grants or other incentives). I don’t know - we used to compete (think Michelin in Nova Scotia) and we still do when an industry is almost dead (think pulp mills). But to craft an aggressive incentive program for a manufacturing firm with a good business model doesn’t seem to get the interest of anyone these days in New Brunswick at least.

The truth is that substituting manufacturing jobs with call centre jobs is a potentially dangerous public policy in a place like New Brunswick. Manufacturing jobs – the type backed by multinational firms – tend to be much more capital intensive than call centres and that makes them less vulnerable to closure (you invest $500 million in a plant, it’s hard to turn around and close it). By contrast, the long term sustainability of call centres is somewhat questionable. They will always be needed (at least in my lifetime) but as more and more of this work shifts to the Web, they may be needed less. In addition, there is the whole outsourcing thing.

At a social level, we are just forcing our blue collar workforce to leave for Alberta. Some will get retraining but most will not leave a $25/hour mill job for a $12/hour call centre job. They will leave. This will put increasing pressure on the workforce and it will be hard to attract immigrants and migrants into $12/hour call centre jobs.

So, why haven’t we tried to take a real crack at nearshore manufacturing? Shaping energy policy to attract manufacturers. Shaping economic development policy to encourage – say alternative energy manufacturers. Shaping educational policies to encourage people to move into this sector. Look at attracting immigrants into manufacturing.

Presumably manufacturing is suited to smaller city and town environments which would bode well for Miramichi, Bathurst, Campbellton, etc.

What’s the economy going to look like when it is 30,000 call centre workers, 30,000 tourism workers, retail/wholesale, biz/personal services and the public sector?

I could be wrong but I’d like to think that manufacturing is still a viable alternative for New Brunswick. Let’s not take the troubles being felt in certain segments of manufacturing and extrapolate that to the whole industry. There are opportunities but they are highly competitive (most jurisdictions understand the wide ranging spinoff potential of manufacturing). New Brunswick would have to make key investments and become highly focused on a few sub sectors where we have some advantage if we wanted to compete.

Just hanging out a shingle and running the flag up the flagpole ain’t gonna do it.

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I read this morning that a call centre is opening up in Miramichi:

Hostopia.com Inc. will open a call centre to provide technical support for its customers across North America and Europe, producing 207 jobs in a city that has been rocked by mill closures that will leave a total of 800 people out of work by August.

I have said on these pages that we have to get beyond ‘call centres’ as the only economic development tool we have. But, of course, there are call centres and then there are call centres.

So, I hope when this thing is announced this morning, they will tell us:

-Exactly the type of work that will be done.

-Exactly the wage rates (these have been missing in recent job announcements).

Because a high end, Tier II technical support centre paying $50k per year and up is one thing. A call centre that signs up new members and basic support paying $12/hour is another.

The central theme of the self sufficiency strategy of the government is that by 2025 the province will generate enough ‘own source’ tax revenue such that it won’t need the $1.6 billion in Equalization.

Based on this, they must support the creation of jobs that raise the average wage rates (and therefore the taxes paid).

I don’t know what a mill job is worth these days but it must be at least in the $20 to $25/hour range with good benefits.

We can’t replace these jobs with $9/hour, seasonal tourism jobs and $12/hour basic call centre jobs. This will be in direct conflict with the core element of the self-sufficiency strategy.

In fact, replacing $25/hour jobs with $12/hour jobs will lower own source revenue and lead to more dependency on Equalization.

Now, my economic development folks will tell me to stop complaining. That $12/hour is better than no $$/hour. And that there are no alternatives.

But I have to disagree. The call centre strategy and attract program was developed and implemented almost 20 years ago. There have been whole new sectors that have come and gone and New Brunswick has done nothing to even try and mimic the call centre success.

Digital media, alternate energy, data centres, financial services back offices, pharma back offices, niche nearshore manufacturing, e-Learning, language translation, aircraft MROs, etc. are just a sampling of some sectors that a) can pay much higher wage rates than most call centres and b) that New Brunswick has some nascent competitive advantage(1).

The problem is that it will take more work. More thinking. More creative. More investment and more sales efforts to get New Brunswick on the map for these or other sectors.

So, in conclusion, I say congratulations to BNB for attracting this firm to Miramichi. Please fully disclosure the nature and payscale of the jobs. And, for goodness sake, do something to get beyond call centres.

1. Take aircraft maintenance and repair operations as one example. The NBCC has been pumping out graduates for this sector for years and the majority of them end up in Montreal or Halifax or somewhere where there are actual jobs for them.

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I was involved a few years ago with David Jonah making a pitch for a ’smart city’ project.

Now the problem with David is that he seems to be just a little bit ahead of the rest of us and that can be problematic.

The date was something like 1998 and David was talking about ’server farms’ in his part of our proposal. We all scrambled to figure out what the heck he was talking about. I googled the term and only found a few obscure references. This was particularly problematic as our proposal had to be bilingual. Imagine trying to find the right French term for server farm in 1998. I think I ended up with something like “ferme de serveur” or some such thing.

Anyway, it’s all server farms these days. Iowa, upstate New York, Oregon, South Carolina. Not New Brunswick.

A different kind of farming to be sure.

Maybe we should put Jonah in charge of things.

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