It's The Economy, Stupid

This is a recurring them either directly or indirectly on this blog and it is not just an issue for New Brunswick.  In fact, I had a long conversation in a colleague in another province and he sees the same thing.  So with no specific jursidiction in mind here is my position.

I think that some economic development agencies at the provincial and federal level see themselves increasingly as banks providing funding to companies.  Loans, loan guarantees, grants, etc. 

I have said that any financial assistance programs should be a minimal part of what an economic development agency does.  In fact, I prefer tax-based incentives which don’t involve cash at all.  If there is cash going out the door I think it should be extremely objectively applied. I worry that politics intrudes when we dole out money (no specific jursidiction in mind).

Economic developers should be about development – i.e. developing projects and industries that lead to the growth of the tax base and the creation of good paying jobs and career opportunities.

If economic developers become bankers (or account managers for clients looking for money), then they abdicate the more important functions of their role – development. 

Further, I think that bureaucrats (some of them) much prefer the role of banker because it is easier than the role of economic developer.  It is far easier to decide like Solomon who gets access to the piggy bank than to work hard and try and attract investment here or try and convince federal agencies and national companeis to do R&D in this province or to work on industry-specific infrastructure development.

Those things are hard.  Doling out money is easy. 

Furthermore, it flips the role of the economic developer from an advocate for development to a decider of a business’ fate.   That’s not my definition of economic development.

Economic development agencies should be far more than just gatekeepers for the public till. 

Let’s get back to the business of economic development and get financial programs back to where they belong – one small part of a broad and deliberate economic development strategy for the province (with no specific jursidiction in mind).

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A Richard Florida derivative index has been developed called “Next Cities“.   It’s put together by a US consultant and seems to use Canada’s CMAs (although Moncton is not included).    Here is the ranking of Next Cities in Canada.

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I am wound up this morning and it is before my first cup of coffee.  There is just so much content to blather on about.

Take this BDC annoucement.  Its venture capital division has been ranked among the world’s top 100 venture capital funds.

Problem is in its entire portfolio there are only four NB companies and three of them are NBTel offshoots (a large company that fostered an internal entrepreneurial spirit that spilled out after the deconstruction of the company).  There is only one NB company not in the IT area that has received VC from the BDC.

You know my position on this.  Attracting investment into our growing firms is every bit as important as attracting greenfield investments (companies setting up operations here).    We are not doing a good job of attracting companies and we are not doing a good job of attracting investment into our companies.

New Brunswick has the least number of publicly traded companies of all the provinces (or maybe second lowest?).  All of the big VC firms in Canada have almost no investments in New Brunswick.

We aren’t attracting investment.  Period.  Outside of a few large projects (like the potash expansion) and government projects (like highways and bridges) we are not attracting investment. 

And that is what is holding up economic development.

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This is exactly what is wrong with economic development in this province. You want a case in point, read this article interviewing the eminent Université de Moncton economics professor Pierre-Marcel Desjardins.

Desjardins suggests politicians re-jig their strategies around a “less sexy” agenda, promoting startups and growing small- and medium-sized businesses.

“Hitting a few home runs is nice but having very strong and very vibrant small- and medium-sized businesses will give better dividends,” he said.

One economic development officer he spoke to of late said allowing for the creation of four firms employing 20 people is better than netting one company employing 100; if the one company falls, all the jobs are lost.

This is what happens when an economist weighs in on economic development. Pierre-Marcel Desjardins wouldn’t know economic development if it hit him in the face. Reread my column from this week. 95% of all government effort in the area of economic development is designed to promote startups and growing SMEs and it hasn’t worked.

I don’t want to revisit all my arguments here. You have read them over and over again. But the truth is that somehow these anti-investment advocates have convinced people that the government is only focusing on attracting big business to the detriment of small business.

Let me tell you something. The Graham government has attracted less jobs from national and multinational firms in its first three years than the Lord government. And you Pierre-Marcel Desjardins and CFIB are going to force them to go even deeper underground with all this crap.

I dare the CFIB to debate me in front of its membership on this issue. I would argue the $300 million in new direct payroll from attracting industry to Moncton over the past 15 years is far more beneficial to the CFIB membership than tweaking the tax rates. When former Premier Lord cut the small biz tax rate, New Brunswick went on to have the second worst rate of new business start ups in North America.
Sigh.

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I always chuckle when the EI data comes out every month.  When you read the release, the worsening EI picture in Alberta is mentioned no less than a half dozen times in one release.  You would think that the employment situation in Alberta has dropped off a cliff.  Nowhere is it ever mentioned that Alberta still has one third the people on EI as New Brunswick.

EI Recipients per 1,000 population (May 2009)

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Industrial R&D spending in New Brunswick is up strongly in recent years.  NB companies still spend a fraction of the big four provinces on R&D but we are moving up.  Don’t forget this is only industrial spending.  Overall R&D spending in NB (industrial, government and institutional combined) is still, I believe, either dead last or second last in Canada among the 10 provinces.

 Total intramural research and development expenditures – per capita (2007)

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The TJ has an editorial today recommending we push New Brunswick’s IT advantage.

I guess I am getting old and cynical but I think we need to define what we want from a statement like that.

I’m thinking back to the launch of eNB (remember that?).  Premier Lord got up and said this initiative would be the catalyst for the growth of the IT industry. It would ensure that all New Brunswickers get to take advantage of the Information Highway (or something to that effect).

A few months after launch I had coffee with one of the guys involved with eNB.  He told me it had no mandate and no money.  It fizzled out after a couple of years and nobody cared one way or the other.

Having a strong telecom infrastructure is fine but it is, as the editorial states, what you do with it that matters. 

I worry with government that they think the journey is the destination.  Build a highway, invest in telecom infrastructure, etc.  and make sure you mention in the press release these two words “economic development”.   But without strategies to directly foster economic development you may as well work in these two words “white elephant”.

The Moncton-Fredericton four lane highway was laced with talk of “economic development”.  It seems to me there are less trucks on that road these days than ever.  I haven’t seen the traffic counts but I do know from my research that traffic counts are down on the Cobequid Pass in Nova Scotia since the four lane.

There is no “build it and they will come” economic development.  Not with IT infrastructure.  Not with road infrastructure.

You need to set the table.  You need to order the food.  Then you need to invite the guests.

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I just read that Jamie Irving and another senior person at the TJ are out over this Harper/Wafer story.  It seems quite severe but I guess I don’t know the full story (back story). 

I just met Irving for the first time a few weeks ago.  I bumped into him at an event and we chatted about (what else?) economic development.  He seemed to have a good handle on the issues and I could see that the TJ was an ally in my quest to get the discussion about economic development more broadly into the public square in this province.

I still remember back to the release of the 2001 Census which showed that New Brunswick’s population had formally slipped into decline for the first Census period since records have been kept in this province.  It should have been the clarion call for a serious economic development effort but it was treated by the media as just another story.   I remember the Premier lamenting our ‘demographic’ problems and then moving on. 

14 straight front page stories about the lack of a ‘cath lab’ in Moncton.  Over two months of hammering people over the head about the unjust nature of toll highways.  On and on.  The greatest problem ever in the history of this province, a couple of stories, an obligatory quote or two from eminent professors and then on to the real news – property taxes are on the rise (weeks of stories).

Of course, I am referring to the Times and Transcript back then and not the TJ but the point is still valid.  Newspapers on their front page and their opinion pages take stands on the issues of the day.  The TJ has become a serious and important advocate for deliberate and sustained economic development in New Brunswick and has done a good job of keeping relevant stories in the news and on the opinion/editorial pages.

There have been times when the commentary has been sharp and I am sure that Maurice Robichaud has more than once spilled his coffee after reading an editorial but from where I sit most of the commentary has added to the conversation.  The government itself set out the most ambitious economic development agenda in the history of the province with its self-sufficiency agenda and should welcome the TJ’s efforts to keep the agenda front and centre.

I hope that tradition continues post-Jamie Irving.

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As kids we used to pick on our old Grammy.  She was getting old and deaf and we would whisper outrageous things in her ear.  Her response?  Always a skeptical “maybe”.

That came to mind when I read another article about Frank McKenna bringing many of the movers and shakers of the world to Fox Harbour for a round of golf and networking.  This type of event normally leads people here to puff out our chests and revel in the fact that these people would deign to come and visit little old Atl. Canada.

Listen to Frank McKenna:

“It just makes Atlantic Canada glow,” he said. “Everybody who has come here, from all over North America, tells us we’re the luckiest people in the world to live here.”

Tell that to the tens of thousands of people that have been forced to move out of New Brunswick over the past 20 years because of a lack of economic opportunity.

The implication is that somehow having influential people come to Fox Harbour or Larry’s Gulch or to fish salmon on the Miramichi will rub off on the region.  That some magic pixie dust will fall off George Bush’s cape and lead to massive investment and prosperity here.

In the words of my Gram: Maybe.

The truth is that these global elites look for remote places to visit where they can get away from it all.  Places like Wyoming or New Brunswick.  Far from the centres of commerce.

If McKenna wants to really help New Brunswick, he should set up a Davos-type meeting in New Brunswick.  A global think tank that attracts the world’s intellectual elite and power brokers to debate the issues of the day.  Me thinks that would be better for New Brunswick than a round of golf at Fox Harbour.

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I talked with a couple of university based researchers this week (I won’t mention their names because it’s a relatively small community but they are not in New Brunswick) and received confirmation once again the bias against any attempt to attract large multinational firms to this region.

The example is the A.I.F. which has been biased towards small local Atl. Canadian firms.  In two cases that were relayed to me this week, the small firms went bankrupt before the AIF project was even completed leaving the university partner scrambling to find a substitute.  I was told by both researchers that the AIF prefers they partner with local firms rather than a big, established firm outside this market.

This is nuts.  I am sorry but this reminds me of a conversation I had lately where a senior person in the federal economic development system in Atl. Canada told me flat out that they were there to help smaller firms that really need help not the big firms that are well established.

Many of these AIF projects had the potential to attract world class private sector research dollars and capacity to Atl. Canada but we would rather fund small start ups – at least two of which went under before the AIF project was even completed.

The AIF is supposed to be a catalyst R&D in Atlantic Canada.  If a university researcher can get a world leader in a specific area of research to partner with them on an R&D effort in this region, we should be jumping for joy. 

I am all for providing R&D support to great, small companies in Atl. Canada that have reall good ideas that need commercialization research.  Sure.  I am not opposed to that but I am deeply opposed to a bias against reserach projects that would end up familiarizing a world leading company with this region and give them a starting point for eventually investing in this region.

It seems to me we have a bunch of social workers posing as economic developers – and that is a dangerous thing indeed.

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