It's The Economy, Stupid

Natural resource industries will continue to play an important role in New Brunswick but will likely never be as important to the economy as in the past.   This idea of loosening up the rules around mining exploration and crossing our fingers – is not particularly encouraging.

No, we need to get beyond natural resources as an economic development engine.  Miramichi Bay du Vin MLA Bill Fraser nailed it in this article in the T&T today.  Fraser said “he’s excited about the future of Miramichi, pointing out that the presence of Norwegian solar energy firm Umoe Solar, which purchased the provincial assets of UPM-Kymmene in January, along with the continued development of manufacturers like DEW Engineering, Sunny Corner Enterprises, Dolphin Steel, and Atcon Development.”  What is the common thread through all these companies?  None are based on the local natural resources.  

That is the future, boys & girls.  Figuring out how we get a value proposition that is beyond just what’s in or on top of the ground or in the water off our shores.  We have a number of good examples and need to figure out how to multiply that many times over.

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Given the resignation of Steve Dempsey from the Greater Halifax Partnership and the fact we have an acting DM at Business New Brunswick, I thought I would dust off and tweak my qualifications for running a large economic development organization.

#1 – Top Qualification – Uber sales guy/gal: The head of an ED organization should be a top salesperson.  They need to be out front of all their staff like Mel Gibson’s William Wallace in Braveheart.   First on the battlefield, the CEO of an economic development agency to spend much of his/her time on the big files working to attract firms here and helping our local firms land large contracts.  If an NB firm is out pitching a multi-million contract, the CEO of the ED organization should be right there alongside – arm in arm – telling the prospective client that partnering with an NB company is partnering with the government of New Brunswick (or the City of Halifax or you fill in the blank).  Kind of like that guy in the Verizon advertisments that has the thousands of people standing behind him.

#2 – Ability to lead public servants (or quasi-public servants):  This is a different skillset – just as Eloi Duguay.  It’s not about profits – it’s about the public good – a little harder concept to nail down.  Leading public servants requires more carrots and less sticks than in the private sector.  They are working for something greater and need to have that constantly reinforced.   I believe that strong leadership skills and the ability to cast a vision is fundamental to the CEO of an ED organization (second only to sales skills).

#3 – Related to #2 – Typing skills:  I’m not kidding.  Back in the early 1990s someone asked Tom Peters (that former hot rod management consultant) what the top skill he would look for in a CEO and he responded “typing skills”.  His point was that the modern CEO (circa 1995) needed to be constantly interacting with his/her troops providing motivation, encouragement, pointers, etc.  This could be done, most effectively according to Peters, via this new ‘email’ technology.  Fast forward to 2009, the CEO of an ED organization should be Twittering, blogging, etc. – not just to be trendy but to cast a wide net.  To engage a broad group of stakeholders into the vision and be constantly reinforcing this vision on a daily basis.  I think that there are hundreds if not thousands of New Brunswickers (or you fill in the blank) that would follow a Twitter feed from the CEO of BNB if he/she was providing insightful content on the process of economic development.  “Just met with the CEO of a large Korean manufacturing firm.  Can’t tell you much more but it looks very good….”.  “Grabbed the Premier and went with the CEO of company x to pitch a $30 million project for community y to a company in Mississippi.  I believe we have a shot….”

#4 – Ability to cast bring the wide group of stakeholders to the table:  Everyone knows that successful economic development is never about one single organization like the GHP or NSBI or BNB.  It is about a network of stakeholders and resources pulled in as needed.  The CEO of a large ED organization must be networked up the ying/yang with educational institutions, other government departments, local stakeholders, supply chains in growth industries, federal partners, industry associations – you get the picture.  The ability to marshall these resources quickly as needed is a powerful ED tool.

Then there are all the other yadda yadda yadda skills. You hire someone with these four skillset and I’ll give you someone with the potential for real success (assuming the infrastructure and political/community support is in place).

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How come I am forced to read this headline in the T&T:  “Retail drives Metro’s success“.

I can’t believe that this article quotes a UdeM economist suggesting that Moncton’s economic success is due to retail – although I find the piece a bit confusing like the writer wants to extrapolate.

If you are doing a serious economic analysis on the retail sector you might come to a different conclusion.  Retail is among the lowest (if not the lowest) economic value sectors of an economy (value added).  It is also among the lowest paying. 

We need retail.  I agree with economic developers attempting to attract niche retailers.  But it is silly and dangerous to say that retail drives Moncton’s success.  And if this kind of crappy reportage leads to economic development agencies focusing more on retail and less on industries with real economic value, it’s a loss.

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The Globe has a couple of stories today about how rich provinces in Canada handle economic tough times.   It’s a bit like when Spock does the Vulcan mind meld on the Horta.  “Pain, Pain!”.

Story #1: B.C. Premier demands single standard for EI ‘Canadians are Canadians, and they should be treated equally,’ Gordon Campbell asserts. 

I actually agree on a national standard. I have said on these pages that EI should not become a substitute for serious economic development effort and it has in New Brunswick.  If the money the Feds have poured into this province for seasonal EI wage support over the past 20 years had been put into economic development (somewhere north of $12 billion) think of the highways, the business parks, the job creation, etc.  I think BC, Ontario and Alberta viewed EI with a wink and a nod to placate the poor Atl. Canadians.  Now they are struggling and want their share – give it too them.  But having said that, it is easy for Premiers to fall into the ‘culture of welfare’ that former Premier Harper talked about (I don’t subscribe to the term personally).  When things are great – they thumb their noses down here but when things are going down they want their share.

Story #2: $1.4-million for every job saved
With the latest forecast pegging the overall auto bailout bill at as much as $13.5-billion, Konrad Yakabuski writes, politicians are testing the limits of Canadians’ tolerance.

Exhibit B – the auto bailout.   Forest products plants have been falling like dominos in New Brunswick and the best we get out of the Feds is some ‘transitional’ money to help communities cope and a few bucks for silviculture.    I guarantee on a relative basis, the forestry decline in New Brunswick is at least as impactful as the auto sector in Ontario but……

$1.4 million for every job saved.   That’s an interesting number.

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I am a big believer in a return on investment approach to economic development.  I don’t know how else we can justify spending tax payer dollars in this area unless it can be shown to provide a return on that public investment.  If we spend a million, we should get back two or three million in incremental tax revenues?  If you look at it from a business model perspective, the multiplier on investment would have to be 2,3 or even 4 times investment because each new job creation adds additional social costs (health care, education, roads, etc.).

At some point, then, the auto bailout ROI turns deeply into negative territory.  The G&M is reporting this morning that the bailout is now up to $10 billion (or more than 40 times as much tax revenue as every corporation in New Brunswick combined pays every year).

Supporters will say that the money is a ‘loan’ and not a ‘grant’ and they will cite the example of the Chrysler bailout in the 1980s as proof the government can make a return on this type of investment but I think most people that study these things are getting nervous. 

We are definitely into uncharted territory here.  If we look at what the feds/prov gave Honda and others to set up in Ontario, at some point you have to ask yourself should that money be used to invest in new auto companies rather than bailing out the old.  Electric cars?  Indian cars? 

Just a few months ago they were talking about three billion dollars.  Now it is $10.  I hope we are reaching some type of end.

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I still think we haven’t had the proper discussion about french immersion in the schools and about bilingualism in general.  For the past 40 years or so, bilingualism in New Brunswick has meant a serious effort to ensure there are services, infrastructure and institutions for the French speaking population.  While there is certainly room for improvement I think that enormous strides have been made.

But this is not about bilingualism – it is about ensuring services, infrastructure and institutions in English and French.

We do not have bilingual radio stations, newspapers, cultural institutions (very few), schools, etc and we aren’t making much effort to encourage bilngualism.

My kids are all in French Immersion and they all speak French quite well but unless we force them they never speak French in a social situation – ever.  We live in Moncton and they never interact with Francophones and never engage French language media, institutions, etc.

In fact, it seems that the only reason to learn French for English kids in this province is the threat that the best jobs will be closed to them without it. 

And that is not – by far – a healthy reason to learn a second language. 

Our kids need to celebrate the historical development of two languages in this province and the important role that the Acadians have played here in our evolution as a province.

It is amazing to me that the Grand Dérangement is not taught in English schools in this province and Acadian history in general is hardly mentioned.

Particularly in Moncton but in the province as a whole we need to get beyond a conception of bilingualism as a legal and human rights issue and evolve to bilingualism as essence of community.  I’m not naive.  I realize that the english language is pervasive and efforts need to be undertaken to protect the minority language. 

But as I have said before the best way to protect French is to encourage its use more widely in society.  Over 2/3 of the people moving into Greater Moncton are anglophones or non-French speaking immigrants.  No matter how draconian our language ‘laws’ we will have far less French spoken in Moncton (and New Brunswick) in 30 years without an effort to get more anglophones and immigrants speaking French – not as some sword of damocles handing over their head if they want a good job – but as a social and community communication tool. 

I say open it up.  Have kids from French and English school districts submit joint assignments in French.  I say set up project teams where middle and high school kids interact (in French).  I say make watching French language TV programming and reading French media part of the curriculum.  I say offer French language training (maybe Web-based as a start) to all English speaking people in the province for free.  I say we encourage our English language institutions to foster the use of French – slowly over time this could have an effect.  I still chuckle when I think about that group of old timers at the Baptist church learning French once a week in the church basement.  We need more of that.

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You know me. I love to stir the pot a bit. The following table (taken from Stats Can) shows the average annual employment income (from the 2006 Census) for three jobs: general doctors, senior government managers and everyone.  These figures are for those that worked full time/full year.  The spread between the docs and everyone else is indeed well above the national spread (docs versus everyone else).  The average GP in NB makes 220% more than the average worker compared to a spread of only 189% across Canada but the spread between senior government managers is even higher. The average big wig in the civil service (fed, prov and local combined) makes 116% more than the average NBer.

Now we have to view the GP data with some suspician because it is reported employment income and since many doctors are actually incorporated businesses what they report as employment income does not necessarily translate into total effective income.  However, the same can be said for docs across Canada as well. 

Minister Murphy wants the docs to take a two year pay freeze.  Probably reasonable given there is a recession going on and that they are alread paid far more relative to the average NBer than in most other provinces but I guess they could tell the minister to turn the guns on the civil service as well.

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Jacques Poitras over at the CBC has brought political journalism in New Brunswick into real time.  He live tweets (twitters?) from the Legislature when it is sitting.  The Spin Reduxit blog is also a reflective look at the politics of the day. 

I realize this is a hard mix to balance for journalists.  They are already under deadline pressure from the traditional publishing side but I think it would provide interesting incremental value for journalists to be tweeting out relevant insights on key stories in real time.  Does it add massive value - particularly to the mass public?  Probably not – but we live in a real time culture now.  We order our TV when we want.  We listen, read and watch when we want so why not have commentary on David Alward’s troubles up North in real time?

That suits me just fine.

As a side note, I was a Page in the legislature the first year that the CoR party was there.  It was a raucous time for all.  Between Vroom Vroom, big Liz Weir (she was taller than virtually all the MLAs)  and Danny Cameron and the Boys you had an unlimited source of real time tweeting material.  Imagine if we had these technologies then.  My interesting in politics and the process of politics stems from that time.

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In my opinion this is a pretty impressive powerpoint presentation/video on Greater Moncton’s evolution over the past 15-20 years.  Have a look.

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I’m a big believer in the importance of a strong opposition in the Legislature to provide oversight and keep the governing power on its toes.  I had hoped that once the NB Tories elected their new leader, we would see some new and innovative economic development ideas percolating up from the Opposition.  Or, at least, the Opposition grabbing some of the major themes in the media and adopting them as policy ideas.

Whether anyone likes it or not, there are a pile of economic development policy options swirling around out there (some good and some not so good) that the Tories could easily adopt.  For example, the idea of migrating BNB to more of an NSBI or Investissement Quebec model with a CEO and a private sector board.  Or how about the idea of the tax credit program for the animation/new media sector.  Other policy options that have been discussed include: industrial electricity rate incentive schemes to attract large industry such as data centres, increasing the investment tax credit program to stimulate new investment in productivity improving technologies and equipment, etc.

But the Tories revert back to the same old, tired model they used under former Premier Lord.  The so-called “made in New Brunswick” solution to economic development.  From Bruce Fitch’s commentary in the TJ this morning:

The Canadian Federation of Independent Business’s 2009 budget recommendations point out that lowering the small business tax rate and increasing the small business threshold are the best ways to stimulate the economy.

Fitch should know that 97% of these ‘small businesses’ (of which I am one) generate their revenue exclusively in New Brunswick.   In other words, their markets are local.  They are hair dressers, janitorial companies, construction workers, electricians, consultants, etc. etc. etc.  The Tories cut their taxes to the bone when they were in power and according to the Fraser Institute New Brunswick went on to have one of the worst SME growth rates in North America.  These 97% of SMEs need a growing market, not a small cut in taxes, to growth their own businesses.

That’s why it is surprising that the Tories don’t just adopt in principle – as red meat – a lot of these ideas floating around out there.  Reverting back to the same old ideas gives us no real opposition thinking in the area of economic development which, I think, has a negative impact on the province’s potential economic growth.

And, by the way, not to beat a dead horse but cutting small business taxes to the bone is far more beneficial to the province’s high income earners than cutting the personal income tax rate.   When former Premier Lord cut the small business tax, several thousand unincorporated self-employed persons migrated to being incorporated self-employed persons to take advantage of this lower rate.  Doctors, lawyers, many construction workers, dentists, etc. are all ‘small businesses’ because you pay less tax as a corporation than you would as an individual.

So when you read Mr. Fitch talking about the deep tax cut for the ‘richest’ New Brunswickers, tell him to look in the mirror.   I don’t mind a debate about tax rates but I dislike people that try to mislead New Brunswickers about the issues.  I haven’t done a full analysis but my suspicion is that cutting a small business tax (and increasing the threshold) is likely more beneficial for most high income earners than a cut in personal income taxes.   Of course, cutting the personal income tax rate is beneficial to those that cannot incorporate such as senior civil servants, middle and senior managers in big companies, etc.

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