It's The Economy, Stupid

Bill Belliveau mentions my recent piece on the need to attract more business investment here in his T&T column today. I have never met Bill Belliveau but I enjoy his columns and his CBC panel discussions. I also think he is a very bright guy – part of the Belliveau clan that we could use more of, quite frankly. But I think he, like so many others, has a distorted view of this issue of attracting industry vs. growing local industry. Have a read:

Historically, New Brunswick, like much of Canada has relied on foreign investment, foreign businesses and foreign technology to fuel its economy. This is both good and bad as witnessed by the recent closures of the AbitibiBowater mill in Dalhousie and the closure by United Paper Mills Ltd. of Finland (UPM) of its mill in the Miramichi. UPM, one of the world’s largest forest products company, announced within days of its Miramichi closure, major new investments in Russia.

With all due respect to foreign investors and branch-office firms in New Brunswick, the only businesses that have survived long-term and grown in this province are family-owned businesses like McCain, Irving, Ganong, Pizza Delight, G.E. Barbour and a few shareholder-owned firms like Lounsbury, Blue Cross and Assumption Life.

Our major telecommunications utility (once known as NBTel) has moved its headquarters to Montreal-based Bell Canada Enterprises. The Fundy Cable Group is owned by Toronto-based Rogers Cable. NB Power continues to struggle as a provincially owned utility.

This is not to diminish the contribution of outside business entities and/or investors but only to make the point that we need to reclaim the strong “head-office” economy that existed in this province nearly a 100 years ago, we need to produce goods and services that can be sold around the world if we want to become self-sufficient.

A few things jump out here right away. 1) Belliveau is making the case that you can’t count on global firms to stay in your province and that 2) you can count on the local guys.

Let me take on these points. Belliveau says:

Historically, New Brunswick, like much of Canada has relied on foreign investment, foreign businesses and foreign technology to fuel its economy.

Wrong. We have had less than our share of national foreign investment for as long as they have kept records. And the little we have seen was tied directly to our natural resources – wood and minerals. New Brunswick has not been able to attract companies here (except call centres) based on the merits of running a global business here. The number of multinational firms such as Michelin or EADS or RIM that have set up in New Brunswick is close to zero. We have the walmarts of the world, but they are only here for the local market.

Belliveau also infers that multinational firms come and go while the local guys you can count on forever. The truth is that many studies have confirmed that multinational firms are far more stable that local firms. Far more. Local firms have an 80% chance of going under within five years. Multinational firms have an 80% chance of expanding within in five years (World Bank study).

Final point on this. Of course, I would like more head offices here. Who wouldn’t? They are more loyal, more stable and committed to the province. But you just don’t have global companies spring up over night? In addition, am I the only one who notices that when these guys talk about the great, local firms they cite examples of firms like McCain, Irving, Ganong, Pizza Delight, G.E. Barbour (all mentioned by Belliveau) that all started 40, 50 or 100 years ago? Where are the Barbours and Ganongs in the past 20 years?

Belliveau once again has missed the point. You can’t wait for local firms to get it done and there is no proof you can incubate mroe Barbours and Ganongs. We have a few, think Speilo, but it is a precious few. In fact, the new model for entrepreneurship is to incubate a good idea and then sell to a multinational. I could name hundreds of firms in Canada from small guys all the way up to Cognos – which just sold to IBM. I just can’t name very many from New Brunswick.

If Belliveau, et. al. have a magic wand that can create real entrepreneurs, I’d like to see it. Economic development policy in New Brunswick for several decades has been about nurturing entrepreneurship and we have seen almost nothing.

I have made my point on this in multiple formats and it basically goes on deaf ears. We always come back to the nostalgia. We forget the reality of the new global economy or we think it doesn’t matter here. We cite the closure of old mills in Northern NB as proof that you can’t trust foreign direct investment – instantly forgetting that many of these mills operated successfully for decades employing thousands in high paying jobs. Now we want to replace these high paying jobs and investment with more desperate attempts to grow entrepreneurs.

Why not try it my way. How about a serious strategy to reseed the economic base of our communities with a better mix of large, anchor multinationals? Alabama has done this with good success. So has Ireland. So has Kentucky. I fully believe – and have made this case as well – that the province’s ability to stimulate entrepreneurship will be enhanced with more multinational firms here.

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They say age brings understanding. Maybe. For me, the older I get the more I realize how little I really do know. I had a few conversations over the past week that have highlighted this fact.

The bottom line is that I am trying to cut a wide swath on this blog. Broad concepts around how to do economic development, attract industry and people, etc. But there are folks that focus on discrete little wedges and go infinitely more deep than I do and I listen to them talk with great interest.

But I would say this. Some of the smartest people I know in government, economic development and industry have unbelieveable depth on their specific focus areas but don’t seem to have much idea at all about the big picture.

I have used the word ‘ecosystem’ to describe economies and how they move forward or backward and I think that term is becoming increasingly relevant to me the more I study this stuff.

For example, we just spent 20 to 30 years at both the provincial and federal government levels gearing our economic development efforts towards the creation of and growth of small businesses. Have a look at all of the programs out there from BNB to ACOA and even the NRC. It’s all about the small fry. $10k for young entpreneurs to start their businesses. A few thousand bucks to support the hiring of a marketing person. Trade assistance programs that cost share sending small firms to trade shows. On and on. Entrepreneurship, we are told.

Yet all the data we have shows that small business creation in New Brunswick is among the worst in North America. And after 20+ years of trying to stimulate more small business exports, we still have by my calculation something like 90 – 95% of all out of country exports from New Brunswick done by firms with at least 100 employees (and over 50% by one diversfied group).

If someone had just looked at the areas that have witnessed successful entrepreneurial climates that would have seen that attracting large multinational firms plays a key role. They would have seen that universities and research plays a key role. They might have encouraged those kids and their $10k grants to start new businesses – to actually finish university, go to work for a well established firm to get some experience and then go out and start a business.

So to all the guys and gals that go deep, I ask you to come up for air once in a while. Look across the landscape at how your little wedge fits into the big picture.

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Just got off the telephone with Hal Fredericks, one of the first real economic developers in Atlantic Canada. He read my column and called up. Fredericks cut his teeth in the 1950s with the original APEC and worked for years promoting New Brunswick for economic development.

This guy is an absolute legend in the business of economic development. At 82, he is still going strong, living in Freddy Beach and trying to poke and prod.

We have lost that connection with the 1950s and 1960s, a period in which New Brunswick and the Maritimes was on the brink, I believe, of becoming a serious economic engine in the North American context. Much of the thinking was in place – promoting the region internationally, proactive government policies, infrastructure development, etc. Somewhere we got tripped up. Somewhere we decided to opt for massive federal government investment in our social infrastructure instead of our economic infrastructure and now we sit as the most dependent region in North America on the tax dollars generated in other provinces.

What I wouldn’t give to be back there with what we know now. The feds have spent something like $4 billion on seasonal EI in New Brunswick over the past 10 years. They have also spent – I may be off by a few hundred million – something like $12 billion in Equalization in that same period to make up for the New Brunswick economy’s inability to generate enough own source tax revenue to pay for government services.

$16 billion.

With the right strategies and effort in the 50s and 60s, maybe that could have been $5 billion. Maybe zero. Maybe, just maybe, New Brunswick would now be contributing to the pie (providing Equalization support to Manitoba or something).

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The economic development biz in New Brunswick has lost one of its finest, sort of. Neil Jacobsen, formerly of Enterprise Saint John has been recruited as ADM with the Dept. of Energy. The TJ’s Shipley has a good piece on Neil in the TJ today. Neil’s turning in his tweed sport coat for pinstripes is good news for the energy department which, at least in the past 10 years or so, hasn’t had much of an economic development focus.

Congratulations to Neil. And as for our trade show attendence in Cleveland in the 1990s, let’s just say as far as I am concerned, what happened in Cleveland, stays in Cleveland. The third in our trifecta from that trip agrees.

Good luck.

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Someone sent me a quick email saying New Brunswick doesn’t need Soviet style economic planning. I think they believe that because I am advising that governments and community leaders get focused on existing strengths and look for ways to build new ones that somehow that equates to some form of central planning of the economy.

Nope. I am actually advocating the opposite of government management of the economy. I am advocating the position that communities and governments need to make themselves attractive to industrial development and that being focused in effort has been shown to be a sucessful way to get it done.

But if my thinking on this became pervasive, we would have less government intervention in industry, less subsidization of bad business models and an overall stronger economy. It is precisely the lack of business investment and a strong private sector economy that compels governments to get more involved in bailing out companies, expanding the size of government and begging for more federal handouts.

Get that recalibrated and we will have less, not more, central planning.

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Warning: Rant ahead. Probably among the most caustic I have written in a while. Most likely because it is my 40th birthday this week and almost the 18th anniversary of my taking a job at the NB Dept. of Economic Development. I had sent out over 300 resumes and hadn’t even received an interview and was two weeks away from packing up the ’75 Chev Nova and moving back to Alberta. But I got a two month gig writing proposals for companies looking to move to New Brunswick and I got hooked by the bug. By the notion that communities could come together and turn things around. Move things ahead.

Funny stuff. 18 years of standing on soap boxes. Yelling and screaming to any and all that would listen. And what has changed in 18 years? On the good side, unemployment is down significantly driven by call centres, an increasing bloating public sector and 16 straight years of more people moving out than moving in. Provincial budget deficits are now more or less gone but Equalization and other Federal Transfers are up by over a $1 billion/year. We have just replaced own-source revenue gaps with more federal largess which will undoubtedly some day dry up.

On the bad side, we are nowhere near the economic transformation that McKenna was promising. Not even close to the economic transformation that Lord was promising and sputtering into another round of transformational promise making.

I just finished Poitras’ Beaverbrook piece and my reaction is near anger. Maybe it’s because I am 40. Maybe it’s because I have spent 18 years in the ‘economic development’ business with no impact. Maybe. But I am getting sick and tired of being a charity case for old farts and their money. I am tired of being a charity case for Federal government Equalization. I am tired of New Brunswick being a place where these richies had summer homes and put up monuments to themselves to help the poor farmers and fishermen. Two generations later that same fealty seeking lineage is calling us “a widening in the road”. Frig that.

I want New Brunswick to be place where people move into to make their fortune. Then go spend some proceeds on third world charity. My stomach turned when I read about some of the grovelling that went on by politicians and community leaders to extract a few bucks out of that old Beaverbrook tycoon.

I want to live in a place where the private sector is growing faster than the public sector. Now public spending is growing twice as fast as private spending. A colleague and I drove around one of the posh new neighbourhoods in Dieppe recently. He pointed out the houses. A doctor lives there. A surgeon there. A government worker there. A couple who both work for the Feds over there. Along that street, three out of every four of the $500k+ houses were occupied by people that draw their salaries from the public purse.

Don’t get me wrong. I don’t begrudge anyone their salary and housing situation. If I worked for the feds, I would take the salary without a second thought. This isn’t about that. This is about the fact that something is wrong when the richest people in the poshest neighbourhoods work taxpayer funded jobs. There is something wrong with the private sector when this is the case. There is something decidedly wrong when the richest county (as measured by income levels) in New Brunswick is in Frederiction – where there is by far the highest concentration of government workers.

We need a private sector that creates good jobs. But more than that, it needs to create entrepreneurs. Folks to exploit niches in fast growing economies and make abnormal profits until there is equilibrium. Real, old time capitalism at its best. Not this crap we see now with big bailouts and a few bucks to help kids start skateboarding retail stores.

You know my position on this. I believe that we need a far better mix of big, multinational firms to help spur entrepreneurship, help attract back people and provide a strong economy moving forward.

And I am tired of trying to convince people of this basic and most fundamental facts of economic development 18 years later. My knuckles are bleeding and my eyes are bloodshot folks. And we are haggling over a basic economic precept that the new US south figured out in the 1980s. That Ireland figured out in the 1970s. That Ontario discovered at the turn of the last Century.

Back to A Peasant Girl Gathering Faggots in a Wood. Poitras’ describes visiting this loss. Read about it. I won’t spoil it. But let me say this. If I had the money I’d fly over to that gallery in Manchester and buy it on the spot and bring it back to our province. Poitras calls it a metaphor. He’s right. It is a metaphor. It’s a metaphor for what happens when you think like a loser. Think like a loser. Act like a loser. Be a loser.

I want New Brunswick to be a winner. But it needs to think like a winner. It needs to act like a winner. “We can’t compete with Nova Scotia or Quebec on incentives” I hear constantly. “Why would an auto plant ever want to come here” they say with their noses in the metaphorical dirt paying homage to Beaverbrook. “We can’t attract manufacturing. It’s all going offshore” even has hundreds of new plants were build across Canada and the United States last year. “Come and take animation at the NBCC Miramichi” we are told. “You will have national and international career opportunities”. Just not local opportunities. “Come take civil engineering at NBCC Moncton”, a friend of mine was told. “Our graduates are at work across Canada in Montreal, Toronto, Calgary and beyond”. Big friggin’ deal.

Oh, by the way. Merry Christmas.

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Our old friend Trevor Macausland serves up a think piece in this interesting new blog (only a few posts). I think it’s the same guy?

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My invitation to this event seems to have been lost in the mail. If you are not able to download it, this story covers the upcoming session on growing entrepreneurs put on by the NB Biz Council in February.

A few people have called/emailed me to express their dislike of some of my comments about the Council. I’ll reiterate that I have a lot of respect for the council and its members. They have been key to the province’s success. We just mostly disagree on the importance of attracting industry to the province and a few other points.

Anyway, have a Merry Christmas – I probably won’t post again until after the big day.

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This is pretty juicy stuff. I think I’ll write it up in my TJ column soon but I’ll give you a sneak preview.

The recent release from the 2006 Census provides some interesting data for consideration by economic development professionals. Atlantic Canada remains the region of Canada with a very low rate of immigrant attraction. This is considered by some to be a major roadblock to future population growth.

However, the Atlantic Provinces have a demonstrated capacity to attract interprovincial migrants (folks moving between provinces). In fact, the four provinces have a higher rate of interprovincial migration over the five year period 2001-2006 than all other provinces except Alberta. 6.5% of the population 5+ living on Prince Edward Island in 2006 was living in another province in 2001 – over four times higher than Ontario.

New Brunswick had the worse performance at attracting interprovincial migrants but still well above the national average.

Now, don’t forget this doesn’t show the people moving out. We still have ‘net’ out-migration. But the mere fact that over 31,000 people moved to New Brunswick from another province over a five year period has to be good news and proof that people will move here – one presumes for the ‘right’ opportunity.

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I heard on the radio this am a ‘social’ advocacy group in Saint John decrying any attempts by NB Power to ‘subsidize’ large power users on the backs of residential and small business users. While the fleeting glance at this makes some superficial sense, I don’t see how these guys can’t look below the surface on this stuff.

Where’s the mythical ‘grand bargain’ where social groups support successful economic development in return for the economic dividend of that growth being reinvested in poverty reduction and bettering social programs? I guess that is always a myth. When both economic and social groups can’t see beyond their own narrow ideology, it’s hard to get ahead. Maybe, just maybe, someday I will hear an anti-poverty group saying “we need more economic development”. Unlikely. That’s too bad. I just heard the other day that there are a record number of jobs in the Moncton area for folks with disabilities. The guy was telling me that their quality of life is up and many are feeling part of society in a way they haven’t for years – if ever.

Think deeper about this stuff, folks. Think deeper.

Hey, I read the Premier is finally going to announce funding for the convention centre. It’s about time. Monctonians have been asking for funding for at least eight years. Ooops. Actually the funding is for the Freddy convention centre – which became a priority project just a couple of years ago. There is a lesson in here somewhere.

Can anyone say deja vu? The Gleaner is quoting the Premier as saying the closure of mills and the resulting loss of hundreds of jobs was the biggest challenge he faced in 2007.

It wasn’t that long ago that the former Minister of BNB, Peter Mesheau was saying that the partial salvation of the Nackawic mill was his ‘greatest success’ as Minister.

To the Premier, I humbly say, facing a challenge is not the hard part. Addressing that challenge is. And we haven’t seen anything yet.

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