It’s The Economy, Stupid

The TJ outlines their recommendations for a makeover of BNB.  I would offer one more piece of humble advice to the new Minister of BNB.

I think it is time for a retrospective audit of economic development outcomes in New Brunswick.  I don’t think this would be extremely difficult to do depending on how wide you cast the net (scope).

The idea is simple.  Look at all the agencies that are funded by government that have as a primary mandate economic development.  Think BNB, Enterprise Agencies, Innovation Foundation, IRAP, certain RDC programs, etc. (not to mention the federal organizations ACOA, Industry Canada, IRAP, CBDCs, etc.).  Do an audit of every single company that has received support (funding or otherwise) and conduct a simple ROI on the government economic development efforts.

The provincial government alone has spent easily over a billion dollars over the past 10 years directly on economic development (not including loans/loan guarantees and other funds it expects to get back).  The exact number would be easy to calculate.

You then conduct a full survey of all the companies that have recieved support to try and determine how many jobs, at what wages and how much tax revenue has been generated as a result of the government support (this is fairly easy to estimate if you ask the right questions).  That number over the 10 years should be far more than one billion dollars (or whatever the total spent was) or the economic development effort did not generate a positive return on investment.

Economic development is about the only government spending that can and should be tied directly to a tax generation ROI. 

There are those that say that tax generation lags economic develpoment effort (i.e. today’s efforts payoff in three years).  Fine.  Then add a lag time to your model.  There are others that say what about all the good work that doesn’t directly lead to new tax revenue (retention efforts, general promotion efforts, etc.). 

That doesn’t cut the mustard.  Even if you believe that things like retention are economic development, over time economic development spending by government must lead to a positive return on that investment or what is the point?

Then, after doing the first retrospective audit, I would conduct an annual survey of all companies touched by all economic development agencies in the province each year.  This might cost, on the outside $50k per year but it would be well worth it.  The IDA in Ireland tracks all of its companies and provides an updated total on job creation, taxes generated, etc. each year.  That is what we need because remember, the jobs created at UPS back in 1994 are still generating tax revenue for government.  For me, that is fair game to claim on an annual basis.  We need a rolling total.

This would achieve at least three powerful results:

1. It would shine a light directly on the system as a whole and help government understand if it is even working at all.  Because it is hard to deconstruct the component parts, a system-wide view would be the ultimate measure of success.

2. I think it would show what companies (or more accurately what type of companies) use government support to truly grow and what companies (or more accurately what type of companies) use government support to fund daily operations.  I have said here before that there are number of companies in the province that have been accessing various government funding programs for 20 years but are still about the same size they were 20 years ago.  We need to use government support as a catalyst for growth - not to help specific companies get through a cash flow crisis.

2.  It would clearly define deliverables for the leadership in these economic development groups.  If the heads of these organizations know that they will be held to that simple standard (for every million spent on economic development, we expect $1.5 million in new tax revenue) they would be laser focused on generating more tax revenue.

Uncategorized

I’m convinced more than ever in the importance of good economic development policy and efforts.  Brazil is one huge test market for such things and some have been successful and some have failed spectacularly.

The fundamentals are the fundamentals.  Education matters.  Transportation and communications infrastructure matters.  The rule of law and good government matters. 

Beyond that, there are basically only two ways that places like New Brunswick can be economically successful (defined as moderate population growth and that generate enough own source tax revenue to pay for government services).  Either you hit oil or some other high royalty natural resource and you milk that (i.e. Alberta, Saskatchewan and Newfoundland) or you create through good economic development policy and efforts the means by which it is attractive for other non-location specific industries to grow and thrive.  This is the Ontario way.  That province generates very little from natural resources relative to its overall budget.  It generates massive tax revenue and wealth from non-location specific industries such as auto manufacturing, aerospace, ICT, pharma/biotech, film/animation, head offices, etc.  None of these industries have any natural reason to be in Ontario.  They are there because over time it became a great place to be.

That must be New Brunswick’s path.  I have chatted with folks involved in the early stages of a number of Ontario’s growth industries and I continue to be amazed at how much government was involved.  Through direct grants and tax incentives through to R&D funding onto targeted industry specific workforce development efforts, Ontario has been a model for government-supported economic development.  Going back to C.D. Howe and before.

But now we are told by the experts that New Brunswick should cut taxes, cut regulation and cross our fingers.

I don’t agree.  That is not how Alabama built its auto mobile manufacturing sector from nothing to over 100,000 direct and indirect jobs in 20 years.  That is not how British Columbia built one of the most successful film/animation clusters in North America and it will not be a recipe for economic development success in New Brunswick.

10,000 kms away from New Brunswick but never far from thinking about economic development.

Uncategorized

The NB Securities Commission has a survey they would like interested folks to fill out on investor information in New Brunswick.  I think this is important and if you are interested in such things, I encourage you to fill it out.

Uncategorized

Premier Shawn Graham has decided to save money rather than replace the provincial government’s representative in Ottawa.  Cutting the Ottawa office will save $150,000 a year, the cost of rent, phone, supplies and salary and expenses. New Brunswick had shared space in a downtown office tower with the representative for Manitoba.

Quite frankly, I never really understood the importance of having a lobbyist type person in Ottawa when there is a whole department of Intergovernmental Affairs and established relationships at the political level.

Notice Donald Savoie’s comments in the article.

Uncategorized

Quebec Premier Jean Charest and New Brunswick Premier Shawn Graham today announced their desire to step up their discussions with a view to developing partnerships in the energy sector. The premiers have directed their energy officials, as well as representatives of NB Power and Hydro-Québec, to explore opportunities for co-operation, particularly in the areas of accessibility, supply, transmission, market opportunities, and greenhouse-gas reduction.

Quebec has lots of cheap power.  Hopefully this new agreement will lead to lower power rates here.  I am not an energy expert but weening off the high cost and polluting coal/oil power and using hydro power from Quebec might make good sense.

Uncategorized

22 hours from leaving Moncton to arriving at my destination here in Sao Paulo, Brazil.  11 million people in the city.  20+ million in the metro area.  Wall to wall traffic.  The recession doesn’t seem to have had much impact here yet.

I see Victor Boudreau is the new Minister of BNB.  I think this was a good move.  It’s time to have a good navel gazing session over there and a new Minister and potentially new DM will help.

Uncategorized

I just wanted to follow up quickly on one more point relating to my previous mini-rant. 

These guys at AIMS and Fraser, et. al. are now constantly talking about how we need workers to move from areas where there are no jobs (i.e. here) to areas where there are lots of jobs (i.e. Alberta, Ontario when there is no recession, etc.).  When I quiz them (as I have) up on this they will say that it is only natural.  Canada is one big happy country and people should move freely around from places where there is limited or no work to places where there is lots of work.  Government, they say, shouldn’t try and impede this free flow of labour in any way.

When I respond by saying how come the same principle doesn’t apply to tax revenue, natural resources royalty revenue, investment, etc.  they response is someone different.  In that case, we are told, provinces need to jealously guard their revenue/royalties, etc. from those pikers down in the Maritimes.

This doesn’t make sense to me.  Policies and efforts that lead to even faster depopulation in this region will only exacerbate the need for more Equalization and transfer payments.  Shouldn’t these think tanks be advocating for a beefed up Equalization program to offset?

No, this isn’t about one big happy family at all.  This is is about emptying out our population and cutting off any efforts to transfer wealth from strong economies within the country. 

It’s a bit hard edged but maybe that’s what happens when economists get to run the place. 

If AIMS issued a 10 point policy paper tomorrow that advocated everything they stand for (cutting equalization and EI, forced migration of those from weak economies to strong ones, etc.) but also turned their intellectual horsepower towards a serious economic development solution in the weaker economies, we would have the basis for a serious conversation.  As it is right now, to misquote Captain Renault in Casablanca “the conversation is a trifle onesided”.

Uncategorized

David MacKinnon, senior fellow in the Atlantic Institute for Market Studies, serves up another doozy in this Op/Ed piece called “Ontario can’t be Canada’s ATM”.  I’m not going to cut and paste his content because I think you know what is coming.  Have a look for yourself.

I would chuckle about this stuff if it was not so bloody serious. 

National governments around the world use various tools to try and ensure reasonably equal access to government services around the country.  As I have stated before, an expert on Iraq once said that if that country had Canada’s natural resource revenue distribution system, there would be civil war.  But if you were to say (as some tried in the 1970s) that natural resource revenue shoudl be divvied up around the country you would have civil war but it would come from Alberta (and now Danny).

As for Ontario, the ATM for Atlantic Canada’s largess in AIMS’ view, Ontario built much of its success on the back of Atlantic Canada.  With the federal government’s help, billions were spent to cut off Atlantic Canada as a trade route to central Canada (the St. Lawrence).  For 100 years or more, many of Atl. Canada’s most educated and talented folks have left to take jobs in Ontario.  While people are takers from the government (youth and seniors), they stay here.  When they are contributors (taxpayers), many move to Ontario.

Of course, we won’t mention that almost all of Atl. Canada’s wealth (pensions, RRSPs, etc.) flow through the great Ontario. 

And, let’s not forget the huge federal government spending to prop up economic development in Ontario.

I would suspect that New Brunswick could be the ATM for Ontario if the federal government had adopted a completely reverse policies over the years.  How about using trade barriers to force Ontario to trade with New Brunswick and not Michigan?  That’s exactly what the feds did back after Confederation.  It cut off our natural trading relationship north-south to try and force and east-west.  How about an Auto Pact with the industry centered in Saint John/Calais, Maine instead of the GTA/Detroit?  Obviously I could go on ad nauseum but you have heard it here before.

There are two basic ways to achieve economic development.  Strike oil (or other natural resources) or build globally competitive industries.  Ontario has built - with the massive support of the federal government going back generations CD Howe and before - very successful global industries - pharma, aero, auto, plastics, finance, IT, and on and on. 

The problem is that there is a grain of truth to the AIMS message.  Equalization and EI have resulted in some unintended consequences.  They have been used by the federal government as cover for not taking economic development here seriously.  That is true.  But AIMS, Fraser and all the other stink tanks never talk about serious economic development policy for this region.  It’s always cut and run.

Now it’s cut and run or you will sink Ontario.  That is a  powerful message coming from Halifax’s AIMS.

I think this is a rising tide that cannot be stopped.  50 years ago, half the people in Ottawa had some direct connection to Atlantic Canada - parents, uncles/aunts, etc.  now it would be down to maybe 25%. Within 20-30 years, almost every elected official in Ottawa with the exception of those from Atlantic Canada will have no connection here and most will have likely never even visited this place.

The idea that Equalization is enshrined in the Constitution is laughable.  They have ‘tweaked’ it multiple times in just the last 15 years.   Eventually they will force the AIMS/Fraser solution on the Maritime Provinces and it won’t be pretty.  There will be huge social unrest.  There will be serious dislocation and community collapse.  Then there will be a Royal Commission on the Maritime Provinces problem’ and that will lead to forced Maritime Union and an even further scaling back of government in the region.

This will likely happen by 2030 or so if current trends continue.  If there is sustained economic hardship in Ontario, expect it to happen within 10-15 years from now.

I believe there is an economic development-based solution that would avoid this outcome.  That would result in a place like New Brunswick having a strong economy that was generating enough tax revenue to cover its own freight.  A place with strong regional economies anchored by urban centres and supported by rural communities.

But we have to take an Ontario-style approach to economic development.  The way CD Howe built Canada’s military industrial complex in the Windsor-Montreal Corridor we need to have some similarly successful economic development program for the Halifax to Moncton Corridor.  Or the Belledune to Edmundston Corridor or whatever.

The way the feds pablum fed Canada’s technology industries (remember all the telecom, internet and satellite infrastructure was initiated and funded by the feds and based in Ontario), we need early stage support for growth industries down here.  I remember a guy from the NRC giving a presentation on Montreal’s pharma sector.  He said the Feds had been plowing millions into that cluster since the early 1970s and as of 2005 it was a multi-billion dollar industry in the province.  What multi-billion dollar industries have the feds supported in New Brunswick since the early 1970s?

I’m done ranting.  Gotta get ready for vacation.

Uncategorized

I’m not a huge fan of tourism as an economic development driver but I do realize there is a place for it in the overall scheme of things.

It’s interesting that the Telegraph Journal is reporting that New Brunswick is a Canadian hotspot for geocaching a growing tourism niche market that has been around for over five years.

I searched the Tourism New Brunswick website and found only one obscure reference to geocaching.

I’m not sure that governments are particularly good at leading sector development activity.  It seems to me that if geocaching could mean thousands of nature-based tourists in the province each year plunking down hundreds of dollars each, shouldn’t the Tourism department be all over it?  At least as much as promoting a big fake lobster in Shediac?

I have hiked Yellowstone, Jasper, Grand Canyon, and dozens of other natural areas across North America and New Brunswick, while very beautiful, cannot compete with many of those areas for raw beauty.  But maybe this little niche of geocaching could end up drawing folks here.

Tourism is a bit like other sectors.  You can get in on the front end and win early market share or you can wait and let the whole thing pass you by.

Uncategorized

Funny, New Brunswick has been in the nuclear power business for decades and it is Saskatchewan Premier Brad Wall who is moving to build a nuclear reactor and transform his province into a producer of medical isotopes – and a player in atomic research.

It’s like a mantra around here.  If you want to use energy as a serious economic development engine, it must be far more than just a couple of power plants and a refinery.  After the construction cranes pack up and leave, the value added left behind is relatively limited. 

Leapfrogged by Saskatchewan.

Uncategorized