It’s The Economy, Stupid

It’s no secret that ACOA, the provincial government and local economic development commissions in New Brunswick (and about a dozen other smaller economic development organizations such as the CBDCs, aboriginal groups, etc.) have been focused on creating ‘entrepreneurs’ for many years now. Back in the 1950s, 1960s and 1970s most of the effort was around attracting industry or at least helping established businesses grow through increased trade.

I have a theory on why this changed. Actually I think it was a multifaceted issue including things like the lack of success attracting industry here back then, the recessions in the 1980s/1990s and more recently the obsession by Industry Canada in the 1990s on Michael Porter and his clusters (he was paid an egregious sum of money by Industry Canada and came to the conclusion there were no - count ‘em none - clusters in New Brunswick). If Porter is your guru and Porter is obsessed with growing clusters and you have none in New Brunswick, well, you do the math.

Anyway, I digress.

I think that governments decided in an era of 14% unemployment that encouraging unemployed people to start their own businesses would be a good way to reduce unemployment and actually limit their costs. You pay a guy 10k as a startup loan for his little new business and he comes off the EI rolls - at least for now. When I was at the Greater Moncton Economic Commission, I would say the majority of folks coming through the door were unemployed, couldn’t find a job and so they wanted to start their own business.

Bill Gates in the making.

Actually, all jokes aside, I thought this was crazy. I applauded the guys that turned these would be ‘entrepreneurs’ away because of a terrible business plan or not having thought anything through. In fact, I wanted the economic development officer that had the most rejections to get the prize compared to the guy who had the most new business startups.

The reason for this is simple. We have an 80% failure rate in small biz start ups in New Brunswick (within five years). Most of these people start small businesses. Most end up either going bankrupt or earning even less money than they earned when employed. Most - certainly not all - would have been far better off working in a medium to large sized firm that offers good pay and good benefits (hopefully a pension).

And, if economic development organizations had flipped their priorities (now 80% effort on small biz creation & growth/20% on attracting good quality, multinational firms) and put the majority of effort on attracting firms, we may have had good jobs for many of these folks instead of a shattered dream lubricated with false expectations and government funding.

Why am I mentioning this? Because in an era of 7% unemployment and people leaving the province in droves, I started to believe that our governments were figuring this out. Figuring that after almost 30 years of spending ultimately billions on ‘entrepreneurship’ and ‘export development’ New Brunswick still has the second lowest rate in Canada for small business startups that survive and grow. Figuring out that after 30 years of trying to help small NB companies ‘export’, we still have the second lowest rate of value added exports in the country (non-resources based). Figuring out that the best way to truly uncover and foster entrepreneurship is to have a healthy medium and large sized industrial base. These firms end up annoying some of their best and brightest, they leave and start competing businesses (look at Nortel for cripes sake - half the spinoffs in Ottawa are disgruntled Nortel workers).

In New Brunwick, we take kids with no experience (the BDC’s Young Entrepreneur Award winning and now defunct Skate to Snow in Moncton) and convince them they can be great. Or we take folks that are unemployed, scared about their future and we stuff a brochure in their hands telling them they can be an ‘entrepreneur’. Madness.

But now I hear there is going to be stepped up efforts to create more ‘entrepreneurs’. I hope I am wrong about this. At the same time, I read about a new RBC survey that found almost a quarter of a million (230,000) Atlantic Canadians are making plans to start up their own businesses, and 25 per cent (60,000) of these aspiring entrepreneurs hope to become their own bosses within the next year.

Groan. More people without pensions. More people trying to compete with Walmart for retail goods and McDonald’s for the restaurant biz.

We have created a monster. The entire workforce in Atlantic Canada is only 1.2 million people. 230,000 of them want to start their own business.

Groan.

I’ll finish with this. There are lots of great small businesses. I was at the Farmer’s Market this morning and made purchases from several. They are most lifestyle business owners. That’s fine. But you can’t predicate economic development strategy on this. Come on. Be serious.

Attract a few good 1,000 employee manufacturing plants or animation studios. Then all these restless souls that want to set up a cafe or make necklaces or have a bed and breakfast may have a market. But don’t encourage the setting up of cafes, making necklaces and establishing bed and breakfasts and hope that leads to the attraction of 1,000 employee manufacturing plants or animation studios.

Madness.

Uncategorized

I am coming off the fog of a fairly significant bout of the flu but I did have to rub my eyes a bit when I heard about the provincial government surplus. On the heals of the $14 billion federal government surplus, it seems the provincial government has a $236 million surplus.

Apparently running a surplus is ‘embarrasing’ (according to Bruce Fitch). Times are changing, I guess. At one point, governments would have killed to have a surplus. Now they are embarrased by one.

I don’t know what to make of these surpluses. Newfoundland is running a large surplus because of oil revenues and out-migration is increasing. The Feds are running a large surplus. New Brunswick is running a surplus.

There’s an old saying about making hay while the sun shines. Yet our governments are spending less than ever on investments that will support economic development for our province into the 21st Century.

Uncategorized

Yesterday, someone sent me a long winded email in response to my post recently about the government needing to hire real salespersons to promote New Brunswick. These guys/gals should be both in-market (as per the recommendations in 1955) and here in New Brunswick. They should be highly professional, properly remunerated sales folks - not functionnaires brought in to ‘manage files’. The first test for a BNB employee should be 25 cold calls to potential investors in New Brunswick.

This person told me that I don’t know what I am talking about because the government can’t afford to hire good salespersons at the existing wage scales.

My response to him and you is this.

We can pay a 30% premium for adminstrative workers in the government but pay a 30% discount for sales guys/gals?

Hmmm.

Why is it that the government overpays for admin and support salaries and underpays for professional staff?

For me, that’s more an issue of political will. If you are having ’structural’ problems hiring sales guys/gals, move to an NSBI model. I don’t know what Lund is paying but he’s got a crackerjack team down there.

Uncategorized

I wanted to clarify the comment I made responding to Danny D’Amours about Ganong. Certain people in economic development circles are crapping on New Brunswick’s manufacturers that are paying lower wages (say in the $8/hr to $12/hour range). They complain that these jobs are not good enough to retain workers in the province and they do not offer wages high enough to provide meaningful contribution to the province’s tax coffers for use on public services.

I don’t want to be one of these people. I respect Ganong and other companies and what they have accomplished over the years. But I do think that over time (not mentioning any specific company), lower wage manufacturing environments - even in rural New Brunswick - will be increasingly squeezed. Squeezed by the high dollar. Squeezed by China and other offshore locations. Squeezed by the fact that an increasing number of blue collar oriented young people are moving away for $20-$50/hour jobs elsewhere in Canada.

Eventually, we will need manufacturers that pay more (less than urban Toronto but more than today) and base their business model on high productivity, niche products, stuff that it is logistically hard to get produced offshore.

And as for government policy, I return to my earlier post. I think governments should be encouraging the growth of manufacturing here that shows an ROI to the public purse (i.e. a demostrated increase in the taxes paid - personal and corporate).

For me, there would be very few cases where I would be supporting government incentives or training grants, etc. for jobs that are on the low end of the wage scale. I understand the political rationale and I am not trying to be callous here - but we do have to get wages up in New Brunswick.

Uncategorized

I think I have mentioned in the past that I have a somewhat, let’s say, eclectic taste in music. Well, I have a similar dysfunction when it comes to movies.

For example, I went through a Rutger Hauer phase. I couldn’t get enough of his movies: Hitcher, Wanted Dead or Alive, LadyHawke, etc. I have since tried to dust off those movies and they were quite cheesy. Then again, I used to walk around in a green trenchcoat with a ponytail and black army boots. So, I guess cheese is relative.

But I digress.

I was just watching the PM-in-waiting Jim Flaherty boasting of the $14 billion surplus run up by the federal government this year and a scene from a Rutger movie popped in my mind.

In this scene, Rutger has a bad guy by the throat and the latter is saying something like “I got you the gun, I got you the money, what more do you want?” and Rutger replies in that eerie maniacal voice “More” (the link is to another weird clip).

Anyway, that’s what I felt like when O’Flaherty pumped his chest. When he said with all nobility that paying down the debt was his duty to future generations of Canadians in Toronto, Calgary and Vancouver (oops, I ad libbed that last part).

I thought why not a little ‘more’ for Atlantic Canada.

Oh, I know it would be downright anti-Conservative to give grants to companies (unless you are an auto plant in Ontario, an aerospace plant in Quebec or a biofuels plant in Western Canada) so how about a little more ED related funding in other areas? Ontario gets three times as much R&D funding as New Brunswick (in per capita terms), so why not a few bucks there? Maybe if we had some real life sciences R&D going on we could stimulate more private sector investment.

Or how about funding the Atlantic Gateway? Maybe it might help redress that whole St. Lawrence seaway project that turned the Port of Montreal into the busiest port in all of Canada. Maybe we could see an inland port in Dieppe or some such thing. After all, wasn’t it David Emmerson that bragged about the $575 million in federal dollars for the Pacific Gateway and said “this is just the start”?

Heck, why not a little 50/50 economic development side deal with the ever chipper S. Graham? They put in a couple of hundred million, you put in a couple of hundred million and you hold your nose and put your Ontario MPs on hold when S. Graham attracts an auto plant with those purly whites and that razor sharp nose - er wit, I meant wit.

But no. If we did that (O’Flaherty would say), we’d have to give it to ‘them all’ and we wouldn’t be able to reduce the deficit. And afterall, you ungrateful Maritimers should quit your complaining. I topped up the EI program by $50 million and gave you a new Equalization deal. What’s your problem.

Back to Rutger. At the end of the aforementioned movie (not the Hitcher, Wanted Dead or Alive), our hero trots out the terrorist with a grenade in his mouth. Rutger, naturally, has his finger in the pin and is walking Malik al-Rahim along like a dog on a leash. Then he asked the FBI what the bonus is for bringing old Rahim in alive. $50k he is told. Rutger, in a line that should’ve gone down in movie lore says “F$%# the bonus” and pulls the pin.

There’s no point to that little ditty. My blog. My boring movie stories.

Uncategorized

Statistics Canada has just released its population estimates. New Brunswick dropped 2,094 from its population from 2005-2006 but added back 557 from 2006 to 2007.

Everything is relative. Canada grew by an estimated 326,544 people from 2006 to 2007. If we had just had ‘our share’ of Canada’s population growth, we would have added 7,421 people - just to have the Canadian average level of population growth.

But at least it is a ‘growth’ figure.

However, I would point out the difference between the population ‘estimates’ and the ‘Census’. The Census shows that New Brunswick’s population is now hovering around 725,000 people (a drop since 1996). I don’t know when Statistics Canada is going to get around to rectifying the difference between the estimate and the actual. One assumes the Census figure is considered ‘actual’ while the ‘estimate’ is considered, well, the estimate.

With all the bravado around about ‘worst to first’ and ‘leading Canada’ and ‘a model for the rest of Canada’, one wonders if any politician would ever promise just the national average for population growth……

…My guess is absolutely not since it has never happened since Confederation.

Other interesting highlights:

Outmigration from New Brunswick is at recent highs. Almost 16,000 people moved out last year. But at the same time almost 15,000 moved in. That makes 15 straight years of net out-migration but it also means that the province is attracting more people. We just need to limit the out-migration.

Immigrants are up - 1,600 in the last year compared to an average of 800/year during Lord’s tenure. However, you have to remember that upwards of 50% of immigrants to New Brunswick leave, so the retention of 800 immigrants across all of New Brunswick still could be classified as, well, pathetic.

Births are down. 6,728 in the last year compared to 7,100 in 2003. That’s a bit disturbing considering that across Canada births are up 7% since 2003. Every province in Canada except all four Atlantic provinces has witnessed an increase in births since 2003. I, however, don’t think a baby bonus is what’s needed. We need jobs that a) keep young people and young families here and b) better paying jobs that all one spouse to have the option to take the time off needed to start a new family.

Oops. I just veered into social policy. I probably should stick to my knitting, eh?

Uncategorized

Remember the $250 million forestry industry incentive package announced by the Lord government a couple of years ago?

It seems to have worked (tongue firmly planted in cheek). Two more sawmills have been shuttered (Petitcodiac and Freddy) bringing the number to a staggering 13 mills. Then there’s the shutdown of the UPM mill in Miramichi. In addition, several furniture manufacturers are downsizing.

Money well spent, I guess.

Here’s a weird idea. Why wasn’t that $250 million spent to diversify us out of those problem sectors? There’s hardly a dime for developing new sectors but $250 million to try and prop up a dying sector. Hmmmm.

Even within the forestry sector why not try and convert into more value added products? Pellets for consumer energy in Europe? Other value added stuff?

I know that some will decry an Irving conspiracy. Who knows?

I did hear something interesting. It’s totally unconfirmed but I heard the Irvings are bring up trees from Latin America to use in their pulp mill.

Uncategorized

I had to chuckle when I read the media reports of Donald Savoie’s ‘transparency’ and ‘openness’ in government report. It’s my experience - based on my limited exposure - that much is done to try and hide stuff. A couple of years ago I was hired to do a comparative analysis of economic development activities and results of over a dozen provinces/states. It was almost impossible to get any real data on the jobs, wage rates, investment levels of the ‘economic development’ in New Brunswick.

Sure, BNB published a number 4,532 or some such thing - the jobs created and ‘retained’ by their efforts. But a breakdown of the companies, the wage rates, the investment levels? Nada. In fact, in the reference period that I was looking at, there were 4-5 press releases announcing about 500 new jobs. I couldn’t find a whiff of where the other 4,000 were created (retained).

The best practice jursidictions that I looked at actually published the jobs - the time it would take to ramp up the jobs - the starting wages, the wages at full ramp and the total investment.

I don’t remember a press release from the government of New Brunswick actually mentioning wage levels in years. I have to admit that I don’t read every one but when I did that review, nada. And this week’s ATCON announcement? No mention of wage rates at all in the government press release.

It is incredibly important for the government to be open and transparent about the wage rates of companies they are attracting to New Brunswick. The Self Sufficiency plan calls for an overall 20% increase in wage levels and if they companies they bring in are below average, the public should no.

Now, there is one reference that I can find to wages regarding the ATCON project. Tt was in the Times & Transcript:

Dorothy Innes, communications director for Atcon, said depending on the position the jobs will pay anywhere from $45,000 or more. About 25 per cent of the jobs will be welding positions, she added.

This is a bit obtuse to say the least. Will secretaries make $45,000? Sure, the IT guys will make $45,000 but will the welders? I suspect the answer will be yes - but I am not clear from this comment.

It is likely, the overall wage levels will be lower than the UPM Mill. I don’t have a problem with that per se. But I think the public has the right to know.

I talked with a guy this week who knows someone working at the mill in Nackawic. Apparently the overall remuneration package is considerably lower than it was under the previous owner. Again, that should be front and centre.

I mentioned it before but it is worth repeating. A few years ago - I believe it was on the same day but I may be romanticizing it a bot - Bernard Lord was in a rural town announcing 50 new call centre jobs (he never mentioned the wage rates but we know they are around $9/hour). At the same time, Jeannot Volpe was announcing in Fredericton that because of his great work, all New Brunswickers making less than $15,500 would not pay any income taxes.

Now, $9/hour working 37 hours per week = annual salary of $17,500. Essentially, the Lord government was paying upwards of $7,500/job in tax dollars to create jobs that generate no income tax dollars for the government.

Now, how is that for an economic development strategy? Create jobs that don’t pay any taxes? It’s no wonder our need for Equalization has skyrocketed.

So, in closing, a note to the government. Be very transparent in your economic development activities. Be clear in your reporting. Be open about wage rates/benefits offered by firms. Be clear about the duration of the jobs (if it is a contract). Be clear about the investment amount. Be clear about how much taxpayer funding is going into the firm.

And to the media, why not ask the question? Please tell us the number of jobs by category and your expected wage rates? This should be a precursor to any public funding.

Otherwise we’ll be in the Volpe dance again where we are attracting jobs (and by the way there were at least 3,000 jobs under the Lord/Volpe regime in the $9/hour range that were funded with taxpayer dollars) that will never generate any payback on the tax dollars invested.

At least half of the jurisdictions I studied had some form of wage threshold to be eligible for incentive programs. In most cases it was something like the wages had to be 25% higher than the average full time wage in the broad sector (like manufacturing).

That might be a good model.

Uncategorized

This is a good initiative. I am sure that there will be “Toll Busters” trying to bring it down. I couldn’t believe the Atl. Provinces Trucking Association was griping about the ‘toll’ part of the highway.

It will save a trucker 4+ hours to get a load from the Maritimes to central Canada. At $150/hour - they could pay a few bucks for a toll?

I think that a fully government funded four lane highway such as this is a few millenia away (even though northeastern Maine has the distinction of being the poorest part of the entire USA). The reality is that U.S. geopolitics is similar to Canadian geopolitics. Northern Maine has very limited political power.

But this is a private sector led initiative.

Uncategorized

The construction of a bridge 4,000 kilometres away from Miramichi is part of the provincial government’s strategy to rebuild the economy of the northern New Brunswick city. The building of the Deh Cho Bridge in the Northwest Territories by the Atcon Group Inc. will add 150 jobs to the Miramichi economy thanks to the construction of a new $21.5-million steel fabrication plant.

This is good news for the Miramichi. I suspect that that jobs will be well paid.

But, I do have a comment.

The province is providing $7.5 million to the project or 35% of the set up costs of the plant.

A few years ago, I was involved with a project called Project Cougar (we think it was Michelin) that would have provided 1,200 high paying jobs. This was a $300 million project. The total ‘package’ offered by the provincial government (training grants, free land, etc.) was $23 million.

….or 7.6% of the total set up costs of the plant.

Needless to say, we lost that plant to the southern US.

Why is it okay to pay 35% of a small ATCON project (that, by the way will end when the bridge is done) and only offer 7.6% to a large, multinational project that would have provided 9 times as many jobs and a long term, viable project?

The Government of New Brunswick has got to start thinking bigger. Oh, but we can’t afford to attract those big plants.

Hmmm. Yet, you can put $67 million in government loans into a Nackawic plant with a few hundred jobs offering limited benefits.

Uncategorized