It's The Economy, Stupid

I attended the Premier’s State of the Province address last night.  I think I have attended 8 or 9 of these things over the years and they are mostly the same – a broad rah rah session to convince people things are moving ahead.  The speech outlined some interesting points.  Graham went out of his way to mentioned a dozen or so local firms but also discussed the expansions of multinational firms here.

I liked his message near the end that the province’s economic progress (self sufficiency) is not just a government thing – it needs to be embraced by the wider population.  I don’t think we will every see real change without that broader buy-in.

Even the opposition.  Somehow a vision for a new New Brunswick - not all that marketing crap – but serious fundamental change needs to be embraced by the opposition as well.

Uncategorized

I know there is criticism of the Acadian Peninsula fund and just about every other fund used for economic development.

I personally don’t have a problem using public funds to support economic development efforts if they lead to tangible economic outcomes (jobs and tax revenue) – i.e. a good return on that investment.  It can help build strong local economies and create the jobs that will keep people here and attract people to our communities.

But these funding programs can easily devolve into an ad hoc source of funds for a wide variety of disparate small efforts.  I am not comfortable with governments just doling out money right and left with no real strategy or ROI.  It becomes a very complicated scenario when companies automatically turn to government to get funding for projects.  I am going to hire a new staff person so there must be a government program for that.  My bank won’t give me a loan without the government loan guarantee. 

There are government funding programs now for training, trade development, staff expansion, becoming evironmentally friendly, succession planning, recruitment and on and on.

I think these things should be used very carefully and they should be mapped to specific strategic objectives.

Let me give you one example.  Both the provincial goverment and ACOA spent a considerable amount of money and time on ‘trade development’.  In New Brunswick, I estimate that somewhere between $2-$3 million spent in this area (both in terms of money given directly to companies and the staff and program administration at the economic development agencies). 

To get a payback on that $2-$3 million, we would need to generate from those efforts at least 400 new jobs and $83 million in new exports.  Here is the back of the napkin calculation for that: at $35,000/year, the average worker contributes around $6,000 to the provincial tax coffers.  You would need 416 of them to reach $2.5 million.  The export revenue per worker is in the range of $200k per worker (not including stuff like oil refining which would be far higher) so that is the $83 million in new exports. 

Now, you would argue that the ‘payback’ on this effort could be over three years (because the tax revenue is generated each year while the cost is generated once) and that is fair as well.  So in this model you would need to generate and sustain close to $300 million in new exports directly from these programs every 10 years to get a reasonable payback on the expense (three year payback).

However, we know that if we exclude energy and pulp, exports are actually down in New Brunswick. 

Now defenders will say that we ‘retained’ or ‘sustained’ existing (or even declining) levels of exports.  In other words, without us it would have been worse.  But that kind of ‘managing decline’ shouldn’t even be considered economic development.

So let me give you an alternative way to generate a payback on your trade development efforts.

What is the biggest export from Nova Scotia (not including offshore gas)?

Tires.

Attracting one large firm (and three plants) called Michelin has led to $819 million in export sales last year and almost $4 billion over the last five years.

You could easily add up all the trade development efforts targeted small firms in New Brunswick over 50 years and you wouldn’t get to that level of exports.  From one firm.

Again, I am not bashing small business here.  I think we need to continue to understand how economies develop and debate these issues without the old time stereotypes.  If we have export oriented firms in New Brunswick and we can use a small amount of tax payer money to leverage a large boost in their exports, giddy up.   But we can’t drib and drab funds out willy nilly with no accountability and no real knowledge if any incremental economic value was created in the local economy.

Uncategorized

The TJ has an article today discussing the Acadian Peninsula Economic Development Fund.  It mostly makes the case that a lot of money has been spent for a very small amount of jobs.

I’m not going to critique this article except to say a couple of things:

1. This type of information needs to be in the public domain even though it does reinforce negative stereotypes of economic development efforts.  No good comes from hiding this stuff.

2. I think there in fact is a role for government to play in the funding of ‘studies’, historic buildings and industrial parks.  Who else is going to fund them?  It is the role of government to act on behalf of the public at large.  We can debate the relevancy of certain expenditures but we shouldn’t pretend there is no role for the government in the area of economic development.

3. The problem here is mandate creep.  I would argue that many economic development agencies (including ACOA) suffer from either bad mandates or mandate creep.  If the Acadian Peninsula Economic Development Fund was set up to create good paying jobs for the residents up there, the monies should have been used to leverage private sector investments that led directly to job creation.  There has been $105 million doled out since the Tories set up these Northern NB funding programs in 1999.  That’s a pretty good chunk of change that could have been leveraged into at least 4,000-5,000 good paying jobs in the North.

That’s why I like clean and neat investment attraction efforts.  There is almost zero politics (i.e. funding gravy train projects in local areas), no rewarding political friends, no funding for highly speculative projects (remember I didn’t like the textile mill projects from the start), etc.  The only politics, I suppose, comes into play when you are working with the companies on where to physically locate their operations – then there is fierce competition.

We need to get back to the fundamental need in the north for significant new business investment.  Every project funded up there should be put through that lense.  Every $50,000 in government spending should leverage $200,000 of private sector spending.

Uncategorized

Stephen Harper has created the Southern Ontario Development Agency (SODA) and given it $1 billion over five years.   It’s kind of funny in a way.  The Conservatives are approaching the challenges in southern Ontario as if it were Atlantic Canada.  They upped the CHT, tweaked Equalization, extended EI benefits and now are setting up the region’s very own culture of defeat agency for Southern Ontario.

Southern Ontario’s success in the last 20 years (and well before that) has been the enormous amount of business investment that has been dumped in the region.  If you think auto, pharma, finance, life sciences, ICT – much of it greased with Industry Canada programs like the TCP.   Literally billions of dollars every year creating more new private sector jobs in one year than New Brunswick would see in 50 years.

What they should have done is just beefed up the international marketing efforts of Industry Canada.  The bulk of their work goes to Southern Ontario anyway.   Canada sucks up $30-$40 billion a year in FDI in a good year and most of it (with the exception of oil investment) goes to Ontario.  You can read about it here.  Basically, outward investment from Canada is fairly proportionate.  New Brunswick’s pension, RRSP and other investment monies flow out about the same as Ontario.  But on the inward side it is massively tilted in favour of Ontario.

Ontario better get back to that model and quick.  If that province becomes a truly have-not region, the Good Lord help us all.

PS – I can already hear my colleagues in T.O. saying that $200 million/year for SODA is still less than ACOA’s budget for a region 2-3 times larger.  Ahem.  SODA is on top of the entire resources of Industry Canada, Invest in Canada and the billions in funding programs channelled mostly to companies in that region (of which the TPC and the auto deal are the two most lucrative).

Uncategorized

I just read Statistics Canada’s new Employment Insurance Claimant report covering November 2008.   The number of regular EI beneficiaries increased in all jurisdictions compared with a year earlier. Ontario (+28.2%), British Columbia (+24.6%), Nunavut (+21.9%) and Yukon (+21.3%) posted the largest year-over-year increases in regular EI beneficiaries.  The number of EI regular beneficiaries increased in most census metropolitan areas in the past year, with the largest year-over-year advances occurring in Oshawa (+99.1%), Windsor (+57.9%) and London (+46.5%).

There is no question those are concerning figures but just to give a little context, below is the number of regular EI claimants for November 2008 by province per 1,000 population. I realize it is cold comfort for those newly unemployed in ontario but to reach the level of EI beneficiaries in New Brunswick, Ontario will need to see the number of people collecting EI more than triple.  Unlikely.

�
Number of EI beneficiaries receiving regular benefits
Per 1,000 Population (November 2008)

Uncategorized

Does anyone know how many New Brunswick companies were at this?

Uncategorized

It will be interesting to see who gets chosen to lead UNB.  I agree with Anthony Knight about the importance of that position and that institution.

However, I continue to be an unapologetic one-trick-pony and I am a little disappointed that Knight didn’t make the direct case that UNB needs to understand its role in the province’s economic development.  He talks about the economic benefit to suppliers (presumably the members of his Chamber) and the value of R&D, but I would like to see UNB ask itself a more fundamental question – specifically, “Why has New Brunswick’s population stagnated and net youth out-migration continued unabated for almost two decades and what could be UNB’s role as a key actor in redressing these challenges (among many others)?”

Certainly, the 21Inc. initiative is interesting as is/was the NextNB initiative.   Professor Frank Collin’s program that puts engineering students in front of real world economic development issues right here in New Brunswick is a good thing.  I’d like to see this thinking extended to virtually all faculties.

It is likely the new Prez will be brought in from outside NB.  I have no knowledge of that but it is likely, IMO.  Therefore, I hope that senior people who have a deep understanding of the broader challenges facing NB and ideas about UNB’s role in changing things will be able to huddle with the new Prez and impress upon her/him early on the need for this focus.

Economic self-sufficiency, prosperity, progress – you choose your label but it won’t happen if it remains just a government document restricted to a few offices in the Centennial Building.  Our major institutions like UNB need to fully understand their role in the future of this province.

Uncategorized Add new tag

In my youth, I wasn’t much of a hockey player. My brother used to say that when he watched me skate he heard in his head the music from that old TV series The Dukes of Hazzard when the boys were putting one over on Sheriff Rosco P. Coltrane.  It was kind of a twangy, hillbilly sound.

I don’t know why but this sound echoed through my head when I started reading the Throne speech just now. Here’s a little excerpt outlining why:

“Your predecessors, too, were summoned to this chamber at times of great crisis: as Canada struggled to claim her independence, in the shadow of war, during the depth of the Great Depression and at moments when great policy division tugged the very bonds of this union.”

So far what has been a light recession.  The PM is equating his time as the same as Sir John A. or the World War or the Great Depression.  Maybe even a hint of separation in those words.

This is crazy.  They are trying to scare people silly so all other considerations (i.e. like bringing down the government) will pale by comparison. 

I kind of like Stephen Harper, personally – but I didn’t think he would have much time for economic development in New Brunswick and so far that turns out to be correct.  Not that Paul Martin and Jean C. were overly keen.  I was in Ottawa one time and a senior guy told me that every once in while a directive would come down from on  high to “do something for Atlantic Canada”.  His voiced dripped with sarcasm when he said this but it is a metaphor for the Federal government and its relationship to New Brunswick these days. 

We need a PM that’s a partner with NB on its economic development.  New Brunswick only makes up something like 2.3% of the national population so in the spirit of McGuinty-esque politic – we only need 2.3% of the PM’s time.  That works out to about to about 43 hours a year.  Just enough time to thoughtfully consider what a serious economic development partnership would look like.

Save the hyperbole.  History seems to indicate that the more wild the rhetoric, the more likely you are to be defeated.   Obama-isms aren’t overly Canadian.

Uncategorized

Let’s call this one your chuckle for the day.  Someone sent me a short email saying “I’ll bet you are changing your mind about the importance of foreign investment now”.  They were referencing a G&M story that Pfizer Inc. was cutting its workforce and that it could affect staff at facilities in Alberta, Ontario and Quebec.  They also mentioned the auto industry.

What a weird piece of logic that is.  New Brunswick completely misses out on a foreign investment wave that brings hundreds of multinational firms to Canada and hundreds of thousands of new jobs over a 30 year period setting up R&D, manufacturing, technology centres and head offices here (mostly in Ontario, secondarily in Quebec and then BC and Alberta) and I am supposed to “rethink” my position on the importance of foreign direct investment because 2-3% of those projects are under stress because of the recession.

Hmmm.  It is true that the provinces in Canada that have attracted these pharma, aerospace, auto, IT and other industries will feel more direct pain than New Brunswick but I’d take our share of that pain any day.  If New Brunswick in the 1970s had decided to develop a pharma industry the way Quebec did and we built up an industry with thousands of employees in high paying jobs, I’d take a little downsizing now as acceptable. 

This actually just shines more light on New Brunswick’s chronic inability to attract foreign investment.  A couple of the call centres are downsizing but beyond that we haven’t had much impact (those beleagured textile mills did not collapse because of the current economic downturn).  In the last few years, our forestry sector has been serious hammered by disinvestment but again, between having generations of good paying forestry jobs and eventual downsizing and nothing, I’ll take generations of good paying forestry jobs.

To quote Principal Ed Rooney in Ferris Bueller’s Day Off “Between grief and nothing… I’ll take grief.”

Uncategorized

The TJ has a piece today about good old RB Bennet, the PM back in the Great Depression who was turfed in 1935.  

You can pull many messages out of this story but my thought was less about the depression itself and more about the impact of these downturns on politicians.  On the one hand, politicians inevitably use the recession/depression to say “it’s not my fault”.  I heard the former Ontario NDP finance minister making this case recently.  It becomes abundantly clear at all levels of politics that the recession becomes an excuse for either non-existent or bad policy making. 

At the federal level, I find it fascinating that the PM was just a few months ago disclaiming the impact of the recession and taking a wait and see attitude.  After the attempted ouster, he became the greatest prophet of doom of all invoking the Depression terminology before anyone else.  My first thought was that this was an attempt to leverage the recession for political gain.  To convince voters that during these tough times you need a ‘steady hand’ but the Liberal leader Iggy has been growing in popularity. 

Based on a cursory review of the success/failure of politicians during past recessions, the diagnosis for sitting governments is not good.  They tend to get turfed particularly if the recession is in full bore during or near the election campaign.

The only thing I can say here is that politicians would be wise to position themselves as investing the public funds wisely these days.  It is likely that no politicans will call for major cuts to spending opting to roll back into deficits instead to limit the political impact.

I think the current government would be wise to put longer term economic development considerations ahead of short term stimulus issues – particularly here in New Brunswick.  If I hear the term “shovel ready” one more time I think I’ll start hitting myself over the head with one.  Politicians can look and act a lot like Lemmings.

Not to beat the point to death but more spending on bridges, roads, etc. will not help NB’s long term economic growth – which is what we must be focused on.

Uncategorized