It's The Economy, Stupid

I just finished reading excerpts from Jeannot Volpe’s response to the Speech from the Thone yesterday and was reminded of why this blog exists in the first place. For those of you that have not read this thing for a long time, I will give you the thumbnail sketch of why I do what I do.

In 1999, I was toiling away at the Greater Moncton Economic Commission trying to attract industry to this region and having some, measured success. We were continuing to attract call centres and I had just landed OAO Technology Solutions which was a major coup. OAO is an IT firm that has 120 people in their Moncton office. At that time, they were projecting as many as 300-400. Anyway, Moncton was in a battle with Freddy Beach for this project and I got a call from the provincial government rep on the file who told me to ‘let it go’, that this was a done deal for Fredericton. Maybe not, we had a few tricks up our sleeve and they came here.

At that time, I was also working diligently with Bob Camastro, VP of Virtual Agent Services. VAS had a wacky idea of putting small call centre ‘pods’ in rural communities all over New Brunswick and linking them together as a ‘virtual call centre’. Little did we know they would end up with 17 of these pods throughout New Brunswick and are now the second largest call centre in the province.

But then came the election of 1999. Opposition leader Bernard Lord uttered for me the three most dreaded words in economic development. He called for a “made in New Brunswick” solution for economic development. He decried McKenna’s efforts to attract industry and said “we can do better”. That was the beginning of the end for me. About 18 months later I had left GMEC in frustration over the lack of interest in any real economic development at the province and started doing some consulting. In 2004, David Jonah convinced me to take the message to the general public through this blog which has evolved into the TJ column and numerous other mass media commentary.

Life is full of little ironies and one of the best for me is that more call centre jobs were created under Bernard Lord than Frank McKenna. Sure, the majority of them were from companies that had decided to come here before Lord arrived on the scene but that didn’t matter. Lord supplemented the 10k call centre jobs created during his time in office with another 17-18k public sector jobs and boasted of the success of his economic development policies.

In reality, economic development spending dropped by 50% (as a percentage of government spending) under Bernard Lord and more frustratingly, so did over effort and interest.

I often wonder what would have happened if Lord had come in to office claiming that he could “do better” than McKenna on economic development. That he would be doubling the focus on economic development. That he, unlike McKenna, would finally slay the population decline beast and make New Brunswick a place that attracts people as opposed to repelling them. But he didn’t and despite a record level of public sector jobs created and the call centre jobs, New Brunswick slipped further behind.

So, now we sit in 2007. Shawn Graham is almost mimicking the words of McKenna circa 20 years ago. We shall see what he does. Government spending under Bernard Lord went up by an incredible 45% despite a stagnant population growth (from the last budget delivered by the Liberals in 1999 to the current Liberal budget in 2007). The budget has increased by $1.9 billion in that timeframe while economic development spending dropped by $45 million.

So the issue for Graham is simple. If the budget goes up by another $1.9 billion under his tenure (the largest increase during Lord’s time came from Equalization), how much of that will go to economic development investments? Will he cut them further?

One thing is for sure. I’ll stick around and hold them somewhat accountable to their grand rhetoric.

And back to Volpe for a minute. I have to believe there is a lesson in here for the next leader of the Conservatives. It is clear from the Volpe era that governments can spend money willy nilly. It doesn’t matter if population drops. Government spending is almost always going up up up.

What you do with the money, that’s what matters.

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Like a lot of bloggers, columnists, radio talk show hosts, etc. I tend to get fixated on a subject for awhile and then back off. My current target of choice is the CFIB.

The Premier of Ontario goes on a bender last night - a veritable orgy of economic development ‘picking winners’ and I can’t find a single negative comment in any of the Ontario papers from the CFIB. Here’s a few examples:

Setting up the “new Next Generation Jobs Fund, which will create new good, high-paying jobs by developing new clean and green technologies”.

Increase support for the rural economic development fund by 50 per cent.

Increasing funding for festivals and events around Ontario, and expanding marketing initiatives to promote Ontario destinations.

Work with the forestry industry through initiatives like the Forest Sector Prosperity Fund.

Bolster regional economic expansion and jobs in northern Ontario by increasing the Northern Heritage Fund to $100 million, and in eastern Ontario by creating a new Eastern Ontario Development Fund.

Why no outrage from the CFIB in Ontario? Tourism. Forestry, Sustainable Technologies. All ‘picking winners’.

I have an emerging theory that the CFIB was coddled under Bernard Lord and maybe now the bloom is coming off the rose a bit.

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Shipley’s got a piece in the TJ this morning that quotes an expert saying that the intellectual heft at provincial universities should be engaged by the government and its self-sufficiency agenda.

But where others failed, Graham could succeed – if he taps into the hundreds of men and women at the province’s universities who are paid to be critical thinkers, said Kurt Peacock, the Crabtree visiting scholar at the University of New Brunswick. Peacock is a researcher working with UNB faculty and outside agencies on public policy in New Brunswick.

Too often the entire burden of turning political dreams into economic reality has fallen almost entirely on the civil service, said Peacock. “There isn’t that culture of sharing ideas between the academe and the civil service that you see in other parts of Canada.”

You will recall that I have been recommending that the government fund an external economic development research institute – loosely fashioned on the Institute for Competitiveness and Prosperity in Ontario. I would like to see it provide an annual, objective economic report card on provincial economic progress (something that is not available anywhere now). This would be similar to Jeannot Volpe’s economic ‘report card’ only without the ridiculous politics attached.

I would also like it to publish 5-6 major research works each year – with direct, tangible and actionable research for New Brunswick. Topics such as “What works: A review of the benefits of attracting multinational investment – learnings for New Brunswick” or “Evolving from place-based economic development – application to Northern New Brunswick” or “Documenting the symbiotic relationship between large and small business in successful economies” or “Using language as an economic development driver: Best practices” or “Transforming peripheral economies: What can we learn from Wales?” or “Why do New Brunswick corporations contribute less tax to the provincial budget than all other provinces in Canada (except BC)?* – Is there a coorelation between low taxes paid and economic growth/decline?”

And that is my problem with another academic institute. They have no sense of time and little ability to draw a straight line between academic research and much needed policy guidance. Too much “chi squared” and not enough getting hands dirty. If an external economic development institute was funded, I would recommend that tight output requirements be established so that the Phds don’t wander through poppy fields for five years and publish one report with marginally interesting findings.

*This is true. If you look at corporate income and capital taxes paid in all 10 provinces, only British Columbia has a lower % of their total revenue from this source. However, in BC this is more than offset by natural resources revenue.

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I wonder if the CFIB will criticize this. The Association of Canadian Academic Healthcare Organizations (ACAHO), the national voice of Teaching Hospitals, Regional Health Authorities and their Research Institutes has released a report which provides a framework for the country’s health research enterprise.

Oh no. Targeting the health research sector. They are calling for billions in investment in the health research sector. Tisk. Tisk. Why not a tax break for small biz? We shouldn’t be picking winners and losers.

At some point, most sane and rational people will understand the need to focus economic development efforts.

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First, when I compare economic development spending in the column today, it’s not a complete apples to apples comparison. I take economic development, tourism and culture from 1999 and add in parks and compare that to Business New Brunswick and Tourism and Parks in 2007. One of the neat little tricks that old Bernie did in 1999 was to carve up the old EDT so that an apples to apples comparison would be harder to do. However, dropping from $140M to $95M is hard to ignore.

Second, I can’t believe all the negative reaction to focusing on a few key economic sectors. The CFIB dragged out the dreaded ‘picking winners’ analogy. this is the biggest piece of crap I have ever heard. Hasn’t Alberta ‘picked’ oil & gas? Hasn’t Ontario ‘picked’ automotive? Life sciences? Hasn’t Quebec ‘picked’ animation? Pharma? Hasn’t Ontario ‘picked’ financial services? Hasn’t Nova Scotia ‘picked’ financial services and Aerospace? Doesn’t the Federal government have eight strategic sectors for investment attraction? This is just crap. The government has scarce resources to spend on research and development, on industry training, on infrastructure development, etc. Getting focused makes all the sense in the world and these guys with their vested interests will just lead the government back down the road of doing nothing.

Let me tell you about the CFIB. They want the government to ‘pick’ a sector. It’s just that they want that sector to be ‘small business’. They are a vested interest – a powerful vested interest – and I believe have exerted undue influence on the government over the years because small business owners – all 20k of them – live in local communities, vote and employ local voters. IBM or Xerox do not give a rip about local politics. They will set up in Saint John if it makes good business sense.

As I said yesterday, I still can’t figure out what the CFIB’s problem is. The small business sector has been absolutely booming in Alberta and British Columbia – because they have a far better mix of multinational business investment and local business investment than New Brunswick. You would think that they would be the first out of the gate supporting efforts to attract industry.

Anyhoo.

And as for me, yes, I am a vested interest too. I admit to that. Policy makers would be well advised not to just follow any one approach to the letter and would be foolish to just take old David Campbell’s word on it. However, my positions (most of them) here come from 18 years of research and study of some of the most successful regions in the world. They come from pouring over reams of economic data and they come from my experience working with 29 different municipalities.

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I understand that in the Throne speech Premier Graham emphasizes the need to attract business here. This will, naturally, bring out the protest cries from the CFIB, the NB Biz Council, unions, and social policy types. Oh, and the Chamber of Commerce types who have been known to criticize efforts to attract industry.

So, I will put aside my “what are we selling message” to do some clarification for you on the process of generating economic activity.

You basically have six types of businesses. Let’s leave aside government for a minute (but don’t forget about government – it has been a major contributor to employment growth in the past eight years in New Brunswick):

Microbusinesses – 10 or less employees (local market only)
Microbusinesses – 10 or less employees (emerging as potential serious exporters)
Small to medium sized businesses (local market only) – under a couple of hundred employees
Small to medium sized businesses (exporters) – under a couple of hundred employees
Large businesses (local market only) – 200+ employees
Large businesses (exporters) – 200+ employees

Now, we know that 96% of firms in New Brunswick have less than 50 employees. We also know that Irving alone accounts for about 60% of all exports. When you add in the other big boys McCain, pulp mills, minerals and electricity (and seafood) you get up to around 95% of total exports. So that leaves 5% of our exports coming from everyone else.

Translation? Almost all of our micro to medium businesses do not export and therefore derive virtually all their business on local market activity.

Now, how do you grow an economy? This is a complex issue and hard to fully cover here but I have tried somewhat over the past 1,550 posts.

But I’ll pose this question. If you take an economy ceteris paribus and add 50 plumbers (assuming there were enough before), does that generate economic growth? No, that just divides the plumbing business up between more plumbers.

If you take an economy ceteris paribus and add 100 data centre specialists managing data from around the world for Google, does that generate eocnomic growth? Yes. In addition to the jobs in the data centre, you need 0.2 lawyers, 0.15 plumbers, one grocery store clerk and one civil servant.

I put this to my brother once. If you set up 50 small businesses in the Miramichi will that lead to the setting up of a pulp mill? No. If you set up a pulp mill, that will lead, however; to 50 new small businesses.

That in a nutshell is the issue. There are only two ways to grow an economy – attract economic activity here through investment and trade or make the economic activity here more productive. That’s it.

So, if all those economists and policy wonks at the CFIB would look at the successful provinces in Canada, they would see a symbiotic relationship between the small to medium sized local business and the multinational firms. When you attract international business (and I think you can actually overdo it – but New Brunswick has never been close to that except with call centres), they use local suppliers, their employees shop in local stores, their homes are constructed by local contractors, etc.

Sure, it puts upward pressure on wages. Sure it tightens the labour market. But that is a good thing!

Check this out. Scroll down to the bottom. You will see that only Newfoundland has a lower Ratio of jobs/population than New Brunswick.

We must crank up business investment in New Brunswick. The kind of business investment that leads to taxes paid. The kind that leads to good paying jobs that will attract immigrants and migrants. The kind that will move us down the road to self-sufficiency.

And I’ll debate that until my fingers fall off.

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Now that’s the final straw. Nothing for New Brunswick but Siberia?

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You will have to excuse me this morning. I’m suffering from a kind of cultural whiplash and the collar is making it hard to type.

On Sunday, I saw the Coen brothers’ No Country for Old Men and last night I saw Symphony New Brunswick do Handel’s Messiah.

And the New Brunswickers actually stood up for the Hallelujah Chorus. Oh, the humanity.

We have come along way from when Burt Reynolds’ Smokey and the Bandit was playing in the Capitol Theatre here in Moncton. Now its all opera, ballet and symphonies (although we say SNB in a church).

I am sorry to say we haven’t made similar strides in our economic development. We keep dragging out the same old tired thinking from the late 1970s.

If I was advising municipal officials in all three southern NB cities, I’d declare November 27th the official Call Centre Day because without the 15k cc jobs, New Brunswick would have been hammered over the last 15 years. Our IT sector has languished – one of the worst job creation records in North America. Our manufacturing sector is stagnant if not in outright decline. Our tourism – despite all the yakking is back at mid 1990 levels in revenue. And our boys and gals in Freddy Beach are sitting around crossing their fingers hoping that the Irvings and Sussex gas will save the day.

It is interesting to note that the restoration of the Capitol, the establishment of the ballet and opera companies as well as the Symphony were all led by individuals and not government. Government put a few bucks on the table, by in all cases, the cultural/arts initiatives – Northrop Frye Festival, etc. – are led by the private sector.

It would be interesting to see the private sector get interested in economic development. Not vested interested promotion like the NB Biz Council – but genuine economic development. How about an NSBI model with NB Biz Council types actually leading an initiative charged with attracting firms to New Brunswick. Yikes. They’d have to rip up their position papers.

I mentioned it before but it’s worth repeating that a Ganong in the 1950s was pushing hard for the establishment of an office in England to attract U.K. investment to the Maritimes. I wonder if this generation of Ganongs is making a similar pitch?

As an aside, it’s kind of funny that the SSAP never even mentions setting up foreign offices for investment attraction. Ontario has eight, I believe. I hear Quebec has close to 100 people in France working on investment, trade and diplomatic files. Even Alberta has, I believe, eight offices around the world.

NB has zip. In fact, Atlantic Canada has zip. Maybe we should all just think real hard – you know like the The Secret – and business investment will levitate here.

PS – By teh way Burt Reynolds is one of my favourite actors.

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I see the Self Sufficiency Action Plan is quoting Alec Bruce:

It’s all very well to talk about New Brunswick’s emerging industrial clusters, technology centres of excellence, and innovative economic sectors, but none of it means much when the crucial resource needed to power these initiatives is vanishing. As absurdly simple as it sounds, people, not governments, build long-term economic capacity. They launch businesses, invent new products and services, and employ relatives, friends, and strangers. They inspire others to become entrepreneurs, exporters, teachers, lawyers, doctors, architects and engineers. They enrich and diversify the culture. They buy stuff, and they pay taxes.
Alec Bruce, Voice of the People Telegraph Journal (May 4, 2007)

In my mind, the true test of the success of this government will be their ability to quote Alec Bruce after three or four years in power. When his BS-O-Meter starts to go off, they will likely not be able to find many quotes to use. The flip side of that is if they actually start to do what they say they will be doing, maybe Bruce will be kind.

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I’d like to make a point on the Self Sufficiency Action Plan. I supposed there will be many of these going forward. Anyway, my little Internet stalker doesn’t much care for French. That combined with the seemingly disinterest in leveraging our bilingual skill leads me to this post.

First off, I know that New Brunswick duality of language can be an area of stress. Some Anglophones have concerns as do many Francophones. I am following the debate now in the United States and many respectable intellectuals argue that having more than one language is problematic in a culture and community. I don’t even claim to have the intellectual capacity nor the expertise to debate this issue. All I know is that New Brunswick has made bilingualism a priority. The province (rightly in my opinion) legislatively and formally believes the Acadian people, culture and language is an integral part of our past and future.

So, there will naturally be an economic dimension to this – both good and bad. This will impose a higher cost to society in the areas of translation, education and possibly the lost opportunity cost of unilingual folks leaving the province.

But there is a flipside. Namely, our bilingualism should be a key strength and open up significant economic opportunity.

Depersonalize this for a minute. If the state of Idaho went out and spent the next 20 years and $5 billion to teach every Idahoan Chinese, that would be an incredible advantage for that state. They would have an increased ability to attract investment and trade, provide translation and content localization services, develop software and other media products in Chinese, etc.

Now leave Idaho and come to New Brunswick where we have made that level of investment in the promotion of French and English in our province. We have more than 1/3 of our people that claim to speak both French and English. So, we have leveraged this into serious economic development opportunities, right?

Wrong. Nova Scotia has attracted more French investment. Manitoba has attracted more French entrepreneurs. Alberta has attracted more French immigrants. And as for industry, Quebec has something like 91% of the translation business in Canada. New Brunswick has 2%. One survey has only 1 in 5 call centre workers is now bilingual.

That brings me to the self-sufficiency action plan. No mention of trying to leverage our bilingualism for economic development.

We should be a global leader in French language online learning for skills development in French North Africa. We should be developing French language versions of popular English language software and games. We should be a translation hub for the public and private sectors. We should be providing national technical support for the country’s IT firms. We should be a global centre of excellence in language translation and localization.

Sigh.

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