It’s The Economy, Stupid

We know that a lot of central and western Canadians have skewed perceptions of Atlantic Canada but most of us think the average American doesn’t have any view of Atlantic Canada at all.

I’ll be in Seattle briefly next week. Maybe I should stop into the Seattle Times to try and correct some perceptions. Here is an excerpt from an article in the Times:

Every day, Shell flies a Boeing 727 into the company’s private airstrip to rotate crews of workers from impoverished regions in Atlantic Canada.

This article is actually a pretty good one on the challenges associated with developing Alberta’s oilsands. I just bristle when I read a journalist use ‘impoverished’ and ‘Atlantic Canada’ in the same sentence. There may be companies in the readership area of the Seattle Times that are looking at this region for business investment. Who knows? Do they want to invest in a dynamic, emerging economy or an improverished region?

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Crazy stuff going on in Ottawa these days. I have come to the conclusion (maybe you have too) that our national government is not really really ready to govern without a majority party. We got used to single party led government.

They should be able to do it. Dozens of democracies operate with coalition governments. I think it is more prevalent around the world than the single party-led approach.

The governing party should not use the confidence vote as its only tool for cooperation and minority parties need to understand they need to be about compromise.

I think that Stephen Harper screwed up when he added that little bit about cutting funding to the political parties. It was a blatant ploy to anger the opposition but to paraphrase Minister MacKay’s comments if you aren’t prepared to act when you play chicken, you start to look chicken.

Harper should not have used this unsettled period to put the screws to the opposition. He might pay for it.

But the opposition is equally not ready for cooperative/coalition government. The Liberals still think they are the natural governing party and are just looking for that new great leader to lead them to the promised land. It would be interesting to see the Libs play a strong role leading an opposition - it helps clarify the mind and hone the positions.

But who knows what will happen?

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Looks like someone in Nova Scotia is taking the data centre industry seriously. My fingers are calloused from all my posts about the opportunity of data centres. Who knows?

The current economic crisis presents the Atlantic region with a unique business advantage, said Anton E. Self, founder and CEO of Halifax-based IT startup Bastionhost.

Self, announced his company’s project to put Nova Scotia on the technological map by establishing a system of data centres and digital media storage facilities in the province.
“We can build a new billion dollar industry right here in Nova Scotia,” he said, highlighting the region’s dense and established infrastructure and relative affordability. “But we need to invest in improving and integrating our critical infrastructure here, now, if we are to seize the moment and realize our tremendous potential as a leading global data haven.”

Privacy law expert David Fraser argued that Canada’s and Nova Scotia’s strong privacy laws offer another inherent advantage to the data centre sector, especially since the United States passed the USA Patriot Act in the wake of 9/11. He said, “we can become an information Switzerland.”

The point here is to find a way to generate sustainable competitive advantage in this sector. Ocean water cooling of the data centres might be one way. Leveraging the the country’s privacy laws - this has been mentioned many times - may be another. Some other cost or ifnrastructure advantage could be floating around.

I hope Nova Scotia gives this guy a wide berth to figure this out. Because it is a billion dollar industry and it is a high paying industry and it could easily be in this region if the business environment made sense.

I get goose bumps.

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The wheels on the bus go round and round, round and round, round and round. The wheels on the bus go round and round and round…..

Check out some of the content in David Alward’s commentary today in the TJ:

Our dependency on equalization payments from the federal government is also rising, despite the Graham government’s talk about moving New Brunswick away from relying on these payments.

..er. Didn’t they also go up every year under Premier Lord?

Our province needs an economic stimulus package to help get the economy moving, across the board tax reductions to help families and businesses, easier access to retirement funds to help New Brunswickers have access to the cash they need, better home-heating assistance to help New Brunswickers make it through the winter and non-partisan co-operation between political and business leaders so that we can develop and implement the best ideas to help New Brunswickers weather this economic storm.

Across the board tax reductions. Sigh.

On Monday, Mr. Alward will host a non-partisan roundtable discussion of the economy.

Non-partisan roundtable. I wonder if that means it will be made of plastic? The table, I mean.

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I got several emails about the last post on equalization so let me clarify again that I am not against the concept of equalization or transfers from a federal government to provincial governments to ensure that a similar level of public services are offered in each province in Canada. And, unlike AIMS, I do not believe that equalization is the root of all our problems. We were underperforming Canada in economic performance before the 1950s and we did after as well. Equalization did allow service provision to rise to a similar level and in fact some in Ontario say service provision rose above that province.

But I do think that the focus on wringing more equalization and transfers out of the Feds rather than focusing on good economic development policy and programs has been a mistake.

The reality is that the debate has shifted away from the substantitive issues of ‘why’ places like New Brunswick need more equalization to whether or not we are getting too much equalization. I’d like to get back to the why.

A few points (reiteration):

Statistics Canada publishes a study last year that shows that Ontario - far and away more than any other province in Canada benefitted from the NAFTA. This is economic development policy.

The Auto Pact almost exclusively benefited Ontario (directly). This is economic development policy.

The St. Lawrence Seaway project almost exclusively benefitted Quebec and Ontario. This is economic development policy.

Canada’s industrial research and development policy is heavily skewed towards Ontario and to a lesser extent Quebec. This is economic development policy.

The Pacific Gateway amounted to something like $2 billion in federal funding to lead to direct economic development - particularly in places that were facing economic challenges - Prince Rupert and Prince George. This is economic development policy.

I could go on and on but the sad thing is that I can’t find any federal economic development policies that have directly benefitted New Brunswick. I guess the Atlantic Accord benefitted Nova Scotia and Newfoundland (or the Harper version). What policies were tilted towards New Brunswick?

AIMS wants a scorched earth approach. Cut everything off. Burn it to the ground and hope that Frederich Hayek comes back from the dead and builds it fresh. I don’t agree. I still think that government matters and that good policy from government matters. Not an absence of policy. Not bad policy but policies and programs that directly lead to the kinds of private sector business investment that we have seen in places like Ontario, British Columbia and to a lesser extent Quebec. I leave the oil and gas provinces out of it because they are attracting investment for a reason we can never replicate.

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David Murrell from UNB is weighing in on the Equalization question. He’s reasonably sensible on the issue - contrasting himself from AIMS.

I have a slightly different view. On the revenue side, instead of focusing on Equalization my focus is on “own-source” revenue. Because as Murrell points out equalization as a percentage of the budget is actually down slightly from 1981 while being up a billion dollars per year overall. However, Murrell forgets to mention that other transfers are up significantly as well.

Now you will say that all provinces get these other transfers as well (like the health dollars) but there is increasing pressure from Ontario to get this normalized as well (NB gets more per capita than Ontario). So you are seeing more pressure to cut both equalization and other transfer programs. Ultimately the only way to mitigate this is to have a larger percentage of your budget coming from own source revenues. Then your economic fortune is not tied to the vagaries of federal politics and the crankiness of Ontario politicians.

And the other huge thing that neither Murrell nor AIMS even touch on and it is huge is what I call the ‘economic development’ spending of the Feds. This includes R&D, Industry Canada, DFAIT, etc. It seems to me that for just about every federal government funding program focused on economic development, Ontario gets a higher percentage of the funds and for every program focused on propping up economies, New Brunswick gets a higher percentage of the funds (Equalization, EI, CHST, etc.).

I have pointed it out before. Canada’s embassies and consulates are essentially the sales arm of southern Ontario. The Greater Toronto Marketing Alliance one year got 37% of its investment leads from the international offices of the government of Canada. Ask BNB how many leads they get from the Government of Canada.

Check out - even on a per capita basis - how much money the Feds put into research in Ontario. You would be - should be- shocked. R&D is critical to economic development.

Then have yourself a long look at all of Industry Canada’s largest funding programs - TPC comes to mind and see how much of that money went to southern Ontario (including Ottawa of course). Then have a look at ACOA and find out that the maximum ACOA can give in funding to a company is $500,000 (Ithink they can go up to $1m with the Minister’s approval) of repayable loans. Guess what the upper limit is on Industry Canada funding to the auto or aerospace industry in Ontario/Quebec is? I have no idea but they have given out $200 million to a single company.

When was the last time the feds (or the provincial government) ever partnered on a $500 million or a $1billion dollar busines investment project (other than the potash mine which was not the same thing)? Never. Not that I can remember.

That’s the problem. Not equalization or any of these other distractions. The problem is that New Brunswick is not generating enough private sector business investment - this is a chronic problem - and it has left us chronically underperforming and relying more and more on federal government transfers.

And when we get the big investments (like potash or LNG), they have very little economic benefit beyond the construction phase so we get into boom/bust cycles. We need long term, large scale business investments that anchor the economy for at least a generation.

That’s the nub of it for me.

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I see that NSBI has attracted two IT companies in the past week. One is based in New Brunswick and the other in Ottawa. I think the key to these jobs is simple. One, they are at salaries well above the call centre sector and two, they are the kind of jobs that people will move back to the region to take.

That’s a key point. If much of the future labour market is based on attracting people to New Brunswick, there have to be jobs here that will be attractive for people.

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You know I am not much of a spin doctor but I just came up with a great new slogan for the Liberals as part of their strategy to attract people back to New Brunswick.

For every 500 people that move to New Brunswick, we commit to hire 3,830 new health care workers.

What do you think? Of course, they will have to borrow that from the Tories because it was actually their population growth to health care worker added ratio from 2001 to 2006 but I think they could get away with it.

This one is pretty good too.

Having trouble finding a family doctor in Ontario? No problem. We commit to hire 320 new doctors for 500 people added to the population of New Brunswick.

That would resonate, folks. That would resonate. Should I quit my day job and become a spin doctor?

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It’s hard to get much out of a speech to the throne. There wasn’t much that looked interesting from an economic development standpoint. I’ll make a couple of points:

Now more than ever, New Brunswick must be competitive in demonstrating that New Brunswick is a great place to be in business. Business New Brunswick has launched an aggressive investment attraction strategy. Your government remains committed to fostering innovation and exploring the potential of promising technology clusters such as advanced learning, health and biosciences.

There are a lot of folks in the ED and research communities waiting for the proverbial shoe to drop. The Liberals were in Opposition for seven years and now in government for two. They have had nine years to ‘explore’ the potential of sectors. They should be just about ready to go beyond exploration by now.

New Brunswickers across the province are saddened when their sons and daughters, their friends and neighbours have to leave New Brunswick to seek out opportunities elsewhere. In two consecutive budgets, your government demonstrated its commitment to bringing New Brunswickers home by doubling funding for the Population Growth Secretariat last year and increasing it by a further 63 per cent in the current year. New Brunswick’s population has increased for six straight quarters and your government is on track to achieving its goal of boosting the province’s population by 6,000 by the end of 2009.

Probably not a bad idea to tell your Department of Finance not to publish these numbers which show a 17 year string of more people moving out of the province than in (interprovincial migration) and only about 1,600 new new population in the past two years.

With its new health plan, your government is putting the needs of patients first today and in the future. There are 95 more doctors working in New Brunswick than in October 2006 - the largest two-year increase in almost a decade.

If we take the Census numbers from 2006, that means 320 new doctors since 2001. Almost no new population growth in the province from 2001 to 2008 but 320 new doctors. At $200k a pop (conservative average level), that is $64 million in more costs with almost no new population. From 2001 to 2006, there were 3,830 new health care workers added to the health system in New Brunswick.

The population grew by 499 people from 2001-2006.

In other words, we added almost eight new health care workers for every additional person in population growth.

And that was under a ‘conservative’ government.

I know the political resonance of health care but someone, some day is going to figure out that we can’t keep expanding health care at such an unsustainable rate. I can tell you this. Ontario politicians and policy wonks know this data - better than we know it ourselves. I heard an angry pundit spouting all this data during an The Agenda podcast (TVO) the other day. He was griping because health care cost per capita in New Brunswick were increasing at some ridiculous growth rate compared to Ontario. That’s not really fair because if health care costs go up by $200 million and the population goes up by 499 that makes the per capita numbers all out of whack.

But the point is valid.

Your government has kept its commitment to build the best education system in the country through our bold education plan, When Kids Come First. Recent results of reading assessments showed, among other encouraging results, a seven percentage point increase among Grade 2 students across the province since 2006. This year, 76 per cent of students met or exceeded the standard for literacy proficiency, compared to 69 per cent in 2006.

When did we get the best education system in the country? Did I miss a memo? This should probably read the government has kept its commitment to have a plan for the education system - but that whole best education system in Canada is a few years off, don’t ya think? In addition, I think there are hundreds if not thousands of parents that didn’t appreciate the hatchet job on French Immersion. Blaming French Immersion for the poor outcomes in our education system is a very controversial thing to do.

I suppose I could go line by line and pick it apart but I won’t. I truly want this government to be successful. I realize that the Premier has to spin it out just like Lord and McKenna did before him. The problem with Lord (and some say McKenna) is that the spin became the outcome. After awhile, you start to believe your own PR.

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As you know, in recent years, I have become a big believer that we need to have far more discussion in the public square about economic development and the role of government and communities in fostering economic development.

There are a number of good university-based institutes that are studying issues related to development in New Brunswick and Atlantic Canada. Think of the Canada Research Chair in Atlantic Canada Studies at UNB or the Rural and Small Town Programme at Mount Allison University.

But there seems to be a derth of study and analysis of the most basic, fundamental problem that has been at the heart of Atlantic Canada’s economic woes for a hundred years. That is the fact that this region has witnessed chronically low levels of business investment (domestic and foreign direct invesmtent) - for decades.

Here are some of the current study themes at the chair in Atlantic Canada Studies:.
*How Atlantic Canada Invented the Welfare State
*Community Stability & the Role of Migration in Rural Areas Experiencing Demographic Decline
*Immigrants, Temporary Migrants, Work, and Rural Community Well-Being
*Cultural Diversity and Health in Rural Atlantic Canada

And there are dozens more at these various institutes and very few are focused on that huge matzah ball that is business investment.

It’s almost like we want to dance around the issue - talk about effects - analyze dozens of derivative areas - without ever talking seriously about the fundamental problem.

How about a symposium on these topics?
*Getting the fundamentals right - the role of infrastructure as catalyst for new business investment.
*What are the medium and longer term effects of attracting FDI to stimulate economic development in rural economies? Case studies from Alabama and Ireland.
*Environmental technologies - New Brunswick’s next ‘call centre’ level growth engine?
*Why manufacturing is on the decline in New Brunswick - and models for growth.
*Attracting venture capital - the good, bad and ugly.
*People follow investment - getting the sequence right when looking at immigration and repatriation.
*Using energy as a competitive advantage for the attraction of business investment.

Or even more specific academic level analysis of trends such as:
*FDI into New Brunswick - a 20 year view.
*Why we need more Bricklins - the case for targeted industrial development.
*Has the 25 year policy of fostering small business creation in New Brunswick led to more entrepreneurship or more people with lower earnings and without pensions?
*The long term effects of out-migration - the loss of human capital.
*Why New Brunswick is not an export-intensive economy - debunking a popular myth.

I’m not trying to be nasty here. Is it because these academics are mostly historians? Or social scientists? Is an economic development track not compatable and even integral to the discussion of virtually all of these broader issues?

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