It’s The Economy, Stupid

My column in the TJ this a.m. comes at it from a different angle. My intent with the column is to systematically make the points that I try to convey on this blog: the underfunding of economic development; the misallocation of scarce resources to prop up bad business models for political reasions; new economic sectors with high growth potential; making the most of the resources you have; effective immigration; etc.

But this morning, it’s more about setting the table - as I do here on occasion. Providing the masses with a little taste of the kind of data they rarely see in print or hear in the media - but that are critical to understanding the structural challenges in the economy. An understanding that is the basis on which actual change can be predicated. For example, why do we still have 100,000 collecting EI each year? Sure, between 3k and 5k are maternity leaves and probably a few thousand more are actual EI between jobs - the the rest are seasonal workers. Why do we need to foster seasonal work when we have low unemployment? Total EI income in New Brunswick is up 29% from 2000 to 2005 while total employment income in New Brunswick is up 19%. I thought things were booming? Samuel LeBreton told us last month that things were so hot in the labour market that he was expecting things to cool off. What a crock.

The new government funding program for small biz still provides dough for seasonal tourism jobs. After all we have learned.

I told you before but it is worth reiterating that there is value in work. That statement should be axiomatic but it is not anymore. Even the father of the US welfare state - FDR - was worried that just giving unemployment men money would be a disincentive to work so he made all the unemployed workers (that were able to work) work for their unemployment cheques. Some of the most impressive public works in U.S. history were built by people that were unemployed during the Depression.

In the 50s and 60s in New Brunswick, people working in seasonal industries would just rotate around. Guide in the summer, work in the woods in the fall and plow snow in the winter. Then, with EI, we started making each of those a discrete job and we formalized through government funding a permanent seasonal workforce subsidized in their off months with their neighbours EI premiums.

I think we now have an opportunity to rethink this. To look at someone having a summer job and a winter job.

This is more than just about EI. It’s about income and productivity. To have 100,000 workers idled for periods ranging from a couple of months a year to six months a year is deeping draining on productivity and income and breeds a large underground workforce.

It’s time to get on with it.

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This is from a recent report out of B.C.:

Over the last five years, British Columbia has led the country in growth in the number of small businesses. Between 2001 and 2006, the count of small businesses in the province surged 11.0 per cent, more than triple the national growth average of 3.6 per cent. Alberta (+7.6 per cent), and Manitoba (+4.8 per cent) were the only other provinces to exceed the Canadian average. Declines among other provinces ranged from 1.4 percent in New Brunswick to 11.9 per cent in Saskatchewan.

They cut small business taxes to the bone, the CFIB cheered loudly, the Chamber of Commerce was grinning from ear to ear…..

…and the number of small businesses dropped.

Lovely.

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It turns out that the New Brunswick government is prepared to give large scale incentives - just not to good projects. NB Taxpayer (with hand shaking on the mouse) sent this link.

$78.5 million to prop up 365 jobs. That’s $215,000 per job.

Or almost exactly the amount that the Alabama government paid to get this:

http://www.edpa.org/pdfs/Automotive%20Industry%20Profile.pdf.

They claim the auto industry in Alabama now features 45,000 direct jobs and 79,000 indirect jobs and a payroll of $4.8 billion.

This is what you get when you attract C grade projects. We should have made the effort to attract A grade projects.

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Someone sent me an email yesterday, talking about New Brunswick’s GDP per capita has performed well in recent years and that I should stop spinning out distorted economic facts.

So, this morning, I will give you a little lesson in what not to do when looking at economic data.

New Brunswick’s GDP growth in the past seven years underperformed the national GDP growth for six of the seven years.

However, because the population has been stagnant or even declining, some tricky political spin hacks, have compared GDP per capita over time (Lord’s guys were good at this) to show how great things are.

So, here is my position on the thing. You compare “per capita” at a specific juncture in time to adjust for the size of the economy/population (i.e. GDP per capita adjusts your economy to a per person basis to allow for meaningful comparison). You do not compare “per capita” against yourself over time. If you take two seconds to think this through you will likely agree with me. If the population actually declined, your GDP per capita would look better - but what’s the friggin’ point? To me this is just a way for political spin guys to actually take bad economic data and spin it out as good economic data.

It’s a joke and should be ignored. The facts are that New Brunswick’s GDP growth has underperformed the national average for decades - with the exception of the years where there was a very large public sector capital project like highway twinning, the Confederation Bridge, Lepreau refurishment, etc.

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The TJ is reporting this morning about the efforts to attract skilled workers back to New Brunswick. The Minister of BNB is leading a delegation of economic development guys/gals and business leaders to Montreal and Toronto to highlight “Up to 500 jobs that pay between $40,000 and $80,000 a year [which] are available in New Brunswick’s information technology sector”.

I like this initiative. When I was in Ontario two weeks ago there were billboards in several cities telling people about the wonderful jobs available in Saskatchewan.

But I sincerely hope they have actual jobs and not theoretical jobs. Don’t forget that former Premier Lord did these road trips and they were met with outright scorn by some and frustration by others. The media reported at the time about several people who went to the session and then went to the jobs web site that the Premier was promoting only to find call centre jobs.

There is nothing wrong with call centre jobs per se, but don’t go to Toronto and try to woo IT workers back to call centre jobs - it won’t happen. If you really need call centre workers, there are ways to find these folks - although it is harder. You could recruit in places like Winnipeg and Sudbury (I often see advertisments in the T&T for call centre jobs in Nova Scotia and PEI). You could target Indian immigrants, etc.

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Happy anniversary, Frank. This is the 20th anniversary of Frank McKenna’s coming to power in 1987. A lot has changed since then, some good and some decidedly bad. In celebration of McKenna’s anniversary, let’s take a little look back at 1987 and compare it to today:

1987 - 9,600 births, 5,300 deaths
2006 - 6,700 births, 6,600 deaths

1987 - Net interprovincial migration -2,016
2006 - Net interprovincial migration - 1,114

1987 - population 710,000
2006 - population 729,000

1987 - population of Westmorland/Albert counties (Greater Moncton) 135,000
2006 - population of Westmorland/Albert counties (Greater Moncton) 160,400

1987 - population of Northumberland county 53,000
2006 - population of Northumberland county 48,800

1987 - population of Gloucester county 87,000
2006 - population of Gloucester county 78,000

1987 - Canada’s population 25.3 million
2006 - Canada’s population 32 million

1987 - New Brunswick’s Equalization payment: $723.5 million
2006 - New Brunswick’s Equalization payment: $1.45 billion

1987 - New Brunswick’s Equalization per capita: $1,000 per person
2006 - New Brunswick’s Equalization per capita: $2,000 per person

I guess that whole “boot straps” thing didn’t really work out after all. Then again, neither did the Prosperity Plan. Maybe we’ll have better luck with the Self Sufficiency plan.

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NB Taxpayer has been particularly cranky lately calling me names, questionning my objectivity and my taste in clothing. However, in the spirit of goodwill and no hard feelings, I have decided to pass on here the contents of an email that I received yesterday (and that he/her might like to get his/her hands on). And, I feel compelled to point out that this is not a joke:

THE CANADIAN SUBSIDY DIRECTORY:

Updated yearly with a listing of more than 3,200 sources of financing and government programs, the Canadian Subsidy Directory is the most complete and up-to-date Canadian business publication available for anyone searching for Canadian grants, loans and government programs.

Canadian Subsidy Directory (All Canada, federal + provincial + foundations)
CD-Rom (Pdf file)………………………………………$ 69.95 Printed + free cd (430 pages)……………………..$ 149.95

Also available for each province on CD-Rom only………..$ 49.95
Alberta British Columbia New Brunswick Newfoundland & Labrador Northwest Territories / Nunavut / Yukon Manitoba Nova Scotia Ontario Prince Edward Island Saskatchewan

==========
ORDER NOW!
==========

Call toll free:

1 ( 8 6 6 ) 3 2 2 - 3 3 7 6

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….to my last post.

How many times have you heard (or said) the following style of statement:

You have to have a good education system to foster economic development.

You have to have a good health care system or people won’t move to the community and you won’t have economic development.

You need to have safe communities to have successful economic development.

Good highways are critical to economic development.

You need a competitive tax regime to foster economic development.

And on and on. Remember our erstwhile gym teacher/Premier said recently that we needed to be in good shape to become self sufficient.

In fact, it really is one of those [insert your pet issue here] kind of scenarios. You need [industrial parks] to have economic development. You need [an arts and cultural focus] to drive economic development. You need [successful small biz] to have economic development.

But how come nobody turns it around? IMO, that’s an even more important analysis.

You need successful economic development to [have the funds for health care]. You need successful economic development to [have the funds for education]. You need successful economic development to [properly fund safe communities].

The reality here is that it is essentially an eco-system that feeds on itself. Education supports ED, successful ED leads to better education outcomes.

So, with that as the premise, why have we increased provincial funding in every one of the areas I mention above - except economic development?

Something to think about.

Okay. All of this stuff makes some level of sense.

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1,517 blogs spread over there years.

Over 6,000 comments.

300+ graphs and charts.

I started with my first blog on October 28th, 2004. You can read it here to get a sense of what I was trying to do. I think, political context aside, the message is still on the mark.

So, for my little stab at profundity, I will tell you what I think is the most important learning from the past three years.

Ready?

Here it is:

It is far more easy to get money from the Federal government for non-economic development related activities than for economic development related activities.

If you want funds to top up EI, no problem (thanks Stephen!). If you want more health and social dough, no problem. If you want to twin a highway, no problem. If you want more Equalization, no problem.

But if you want money to invest in economic development, problem. Federal spending on direct economic development in New Brunswick is down - and down significantly - in the past 10 years as a percentage of total program spending (and on an absolute basis).

Money to help bring an auto plant here? Fat chance.

Money to support a serious data centre strategy? Fat chance.

Money for more R&D to bring NB up from it status of having the least R&D in Canada? Fat chance.

Federal government jobs moved here to support economic development? Fat chance.

Federal dough to build serious cluster strategies for the province? Fat chance.

Now, even my right wing readers will see the unfairness of cranking up economic development spending in other provinces (for example the recent hundreds of millions for Centres of Excellence, the billion+ dollars for biofuels in the West, etc.) and down in New Brunswick - one of only four provinces with almost no oil & gas revenues.

Why this is uniquely important at this juncture is this issue of Atlantic Gateway. The feds are likely going to throw $500 million in to Atl. Canada under this umbrella over the next five years. The province of New Brunswick has a very tight window of opportunity to figure out what it wants from this initiative. It will likely default to twinning the SJ -St. Stephen highway.

I say it should push for a major inland port and a serious strategy to get the rail infrastructure from Halifax into New England working effectively. I don’t even know what that means but if that cargo coming through Halifax could go directly to markets in the U.S. eastern seabord it would be far more relevant to all of the Maritime provinces than the system in place today.

But further than that, I think the province should trick the Feds. The next $70 million Equalization cheque - instead of plowing it into health care, how about a strategy for data centres? Or animation industries? Or financial services back offices?

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The T&T is selling dreams of oil & gas exploration powering the NB economy. Once again, Al Hogan loves to hype stuff up with no facts. The McCully field is producing and is profitable (as I understand it). Last year, the field led to the export of $53 million in natural gas. By way of comparison, NS say $870 million, Manitoba $775 million, Sask $5.8 billion, B.C. $4 billion and Albert $55.5 billion (in the words of Kirk Macdonald “that’s billion with a b”).

So, economic developers and government policy makers need to chill out and stop selling pipe dreams. They should aggressively promote New Brunswick for oil & gas exploration but to expect that anytime in the next 20 years there will more than a couple of hundred million in export sales (of which NB would take a few million in royalties - tops) - is pipe dreaming.

They should have tried to use that gas to power economic development right here in New Brunswick - but it’s too late for that.

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