It's The Economy, Stupid

Hey, our universities are getting in the game:

The Association of Atlantic Universities is holding its semi-annual meeting of the council of university presidents at Mount Allison University in Sackville this week.  There will be discussion of the challenges facing Atlantic Canada and how universities can help manage those challenges. For example, the need to increase population in Atlantic Canada is always an important issue and one universities believe they can play a role in fixing. [Executive director] Halpin says the 17 member universities attract 6,500 international students annually and 30 per cent of those apply for permanent residency status.

There is certainly some linkage between international students and immigration to the region.  I have promoted this idea elsewhere but if the universities really want to ‘play a role’ in fixing the population, they will put some of that cranial power to good use on the economic development file.  They can churn through a million international students but if there are no jobs here for them they won’t stay.

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EI Claimants for July 2009 per 1,000 population

Newfoundland and Labrador 94.0
Prince Edward Island 64.2
Nova Scotia 36.9
New Brunswick 48.7
Quebec 25.5
Ontario 20.6
Manitoba 12.6
Saskatchewan 13.9
Alberta 16.6
British Columbia 21.1

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An interesting press release from Friday:

The government of Alberta said today it plans to spend $241 million in the next five years to develop land for new housing and industrial uses near Fort McMurray, the site of Canada’s oil sands. The government will spend C$166 million to develop 450 acres (182 hectares) of state-owned land that will include more than 2,000 new homes and accommodate 6,500 people, Premier Ed Stelmach, leader of the ruling Conservatives, said in a statement today. The balance of the money will be used for road and utility construction for a second parcel of land adjacent to Fort McMurray, about 750 kilometers (466 miles) north of Calgary.

When was the last time New Brunswick spent $241 million on one economic development project?  Of course this is an exaggerated example but I still think it is instructive.  In order to facilitate the further growth of the oil sands, the government is investing almost a quarter billion on housing and other costs.

New Brunswick doesn’t have oil sands but we should still be very deliberate and intentional about investing in the sectors we want to see grow here – just like Alberta, just like Ontario, just like B.C. and so on.

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I know this is a recurring theme here but when the newspaper runs a story with the lead “Start-ups: the way to develop an economy” I feel compelled to reiterate my point.

For over 25 years the Business New Brunswick (and its precursors) and ACOA have been far and away disporportionately focused on small business support.  There are hundreds of people working on this issue compared to only a handful working to attract industry here.

There are dozens of programs from youth start up funds, to trade assistance to training support to loan guarantees – the vast majority of which gets flowed to businesses with less than 50 employees.

But there is no evidence that this focus has led to a robust economy.  In fact, in the last 20 years Atlantic Canada has witnessed an excelerated out-migration of people and has become more reliant on Equalization (with the exception of NL).

In addition, a few year ago I concluded research that found the changes of a small business becoming a mid or large business is far greater in Ontario, Alberta and BC where there are far less programs to support small business – than in New Brunswick.

So the title of this story is fundamentally wrong.

Of course this is a semantic issue in some respects because Gerry Pond, the person the story is built around, is not talking about fostering more ‘small business’.  He is talking about fostering more ‘entrepreneurship’ – or companies that will start here but take their products and services to national and then international markets. 

But, unfortanately, when policy makers and politicians see this they think “we must pump more money into the small business sector”. 

As I have repeated here ad nauseum, 98% of all small business generate their entire business revenue from local or provincial markets.   If we are to focus on ‘small business’ it must be the 2% that have potential beyond our borders.

Government lubricated start ups are not the way to grow an economy. 

Now maybe Gerry would say that I am wrong. May Gerry believes that the government should discourage growing firms and large firms and try and induce even more small businesses.  Maybe we should encourage a dislike of large businesses in favour of some Pollyannish world of small business.

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Once and a while you read a good theory that seems to make good sense but then the author uses examples that actually disprove the theory.  Such is the case with the commentary today from a Canada West Foundation editorial in the TJ.

He writes:

Governments in Canada routinely seek to lure economic development away from other Canadian jurisdictions by offering subsidies and tax breaks. The end result is a race to outbid one another for something that should not be bought in the first place.

See, that sounds like a good idea.  But then the example:

The latest example comes courtesy of the Ontario government, which is offering subsidies to video game developers and publishers to move to Toronto, likely at the expense of the existing video-game industry in Vancouver and Montreal.

Oops.  Mr. Roach forgets to mention that Vancouver and Montreal built their large video game industries on subsidies – lucrative subsidies.  Ask any NB company in this biz (the few) and they will say that we can’t compete with either Vancouver or Montreal (let alone Toronto).  So all Ontario was doing was leveling the playing field – something that Mr. Roach forgets to mention.

 As businesses are lured from one part of the country to another, the national economy becomes less competitive and resources are wasted as governments compete against one another.

Again, another good and realistic point.  But without total subsidy and tax break disarmament, why should one jursidiction let another one get ahead?  What if the business being ‘lured’ was initially ‘lured’ by huge subsidies?

Ultimately this kind of stuff leads places like New Brunswick not be competitive because subsidies and tax incentives are built right into the competitiveness of a jurisdiction. 

I have pointed out on many occasions that subsidies are not a critical part of attracting investment but they are a small part and if other jursidictions are way out front on tax incentives or subsidies, they will win the business and New Brunswick will lose.

Until all provinces and states stop offering tax breaks and subsidies, New Brunswick should be in the game.  Unilaterally disarming will end up costing us much needed investment.  We will hold are heads above the fray while we sink in the quicksand of not enough economic development.

The last point here is that agriculture is the most subsidized industry in Canada – by a wide margin and we don’t hear the Canada West Foundation talking about that.

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Stephen Lund spoke to the SJ Board of Trade yesterday and his key theme was one of focus.

A top business development guru says New Brunswick must pick a single industry and brand itself as the best in the world if it wants to build its economy. Enlarge Photo Stephen Lund “You’ve got to pick winners or the losers will find you,” said Stephen Lund, president and chief executive of Nova Scotia Business Inc., the private-sector led business development agency for the bluenose province. “Why be mediocre at everything when you can be the best at a couple of things,” he added. “You can’t be all things to all people.”

To paraphrase Bryan Adams, I have been saying that tell my fingers bled but it’s a hard message to get through.  Most economic development agencies are still trying to ‘sell’ some general value proposition centred on ‘cheaper’ and ‘good workers’.   

Usually when I talk like this to folks in the economic development world, they will say we can’t focus on one or a small group of industries.  We can’t pick winners and losers.  Every other industry group will complain, etc.

The problem with that logic is that runs completely counter to our own experience over the past 15 years.

From 1996 to 2006, the province added about 37,000 net new jobs (increase in employment – using Census data).  We also know that around 15,000 of that increase can be tied to publicly funded jobs – government, health care, education which leaves around 22,000 net new private sector jobs.  We also know, again roughly because there is no ‘customer contact industry’ in the NAICS classification, that there were close to 15,000 jobs created in the customer contact centre sector during the decade. 

Or about 68% of all net new private sector job creation over a ten year period.

Now we can haggle over the numbers but even if it was 50% – it would be amazing that one single sector created at least half of all net new jobs in the entire province.

So, in point of fact, New Brunswick had the most concentrated sector focus – probably in the history of the universe – and just didn’t realize it.

And that industry has crested.  So where will the next 15,000 private sector jobs come from? Remember that construction, retail, etc. are reactive – i.e. they do not stimulate primary economic growth – they react to growth.  If a 500 person customer contact centre sets up in your town, you need 300 new housing units (roughly).  You don’t build 300 new housing units and hope that a customer contact centre comes to town.

The fact is that the customer contact centre industy was a gift in that the province did very little to build the value proposition.  It pre-existed.  Lots of large, empty buildings for cheap rent, good telecom network, lots of available bilingual workers and incentive programs that provided close to 50% of start up costs.  A tailor-made value proposition that was off the rack.

We don’t have that for biosciences, or ICT, or even increasingly the forestry sector. 

We need to figure out the next big industry (or handful of industries) with potential here and make investments. 

The NB government spends hundreds of millions on education each year.  It could easily align that with a targeted growth industry.  The fed/prov governments spend millions on R&D.  That could easily be tied to a targeted growth industry.  The province spends hundreds of millions on roads, bridges and other physical infrastructure.  That could easily be tied to a targeted growth sector. 

The province just slashed corporate and personal tax rates.  That could have easily been tied to a specific growth sector (s).  Why not a tax break for workers moving to New Brunswick into the specific growth sector?  – $3,000 personal tax credit for five years to help seed a new growth sector.  It’s been done many times before (just not here).

NB Power could easily adjust its rate structure to province an incentive rate to a targeted growth sector.

BNB spends over $50 million per year.  That could easily be targeted to a specific growth sector (s).

RDC spends over $200 million per year.  That could easily be targeted to a specific growth sector (s).

There are over 400 economic developers in New Brunswick – one for every 900 employed persons in the province – they could easily be focused on developed a specific growth sector (s).

An EDT ADM asked me one time ”why would Nortel ever want to set up a manufacturing plant in New Brunswick?” This was back  in the 1990s when everyone wanted to attract Nortel.  I was flummoxed. Here was a guy in leadership in the department tasked with growing the economy and he couldn’t see why a company would locate here.

Cecil Freeman told a legislative committee that when he was the head of investment for BNB he essentially had nothing to sell.  We put a guy in charge of attracting investment to New Brunswick that thought we had nothing to sell.  Imagine having a VP of Sales that didn’t believe the product was worth selling.

Well, if we focus, if we build a strong value proposition, guys like Freeman will have something to sell.

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Back in the saddle today after an eight hour fight with my 18 month old computer.  I had to reformat the hard drive, reinstall all my software, back up gigs of data, etc.  Fun stuff.

I assume the reader of my column today will realize I am talking about net new job creation over the past 10 years.   There has been growth in certain industries and decline in others but the net new job growth has been 40k over 10 years of which 18k are in health care, education and public administration.

By the way, I strongly believe the premise of my column which is that if communities were witnessing solid economic growth, they would be less angry (I say less) about the rationalization of public services.  After a large plant closure, the worst thing you could do is go in and cut a hospital or other public service.  It’s starts to look like you are piling it on.

I see that the Greater Halifax Partnership has been singled out for its use of Web 2.0 for economic development.

The Greater Halifax Partnership agency began its presence in the Web 2.0 environment almost two years ago with its Facebook page. Since then, the agency has adopted a full complement of social media marketing tools on their site which will play a role in their relatively new marketing plan. Visitors to the site are able to access:
o A LinkedIn profile
o A Facebook Fan Page
o A Twitter feed
o A blog
o A Flicker page
o A YouTube Channel

There are no perfect economic development agencies but the GHP does a nice job of trying to stay ahead of the curve in a variety of areas.  The interesting thing about this is that all those Web 2.0 activities combined are very low cost – if they are done right.  You can leverage video done for other purposes, senior staff can take turn blogging, the Twitter feed can act as a real time feed on related activities.  Good stuff.

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As most of you know I had the opportunity to work with the Business Council on an economic development roadmap for Northern New Brunswick a few months back.  It looks like at least one of my recommendations will be implemented.

I think it is important to reiterate that a new focus on economic development in the North does not mean (or should not mean) less of a focus on the three urban centres in the South.  All three have specific opportunities and need to be at the fore of NB’s economic development efforts.  For me it’s never been an either/or situation.

There was an article in the newspaper last week or maybe the week before that about a group coming to New Brunswick to look at the potential of investing here.  The person quoted said something like this – we intend to tour the province  – we start in Fredericton and then on to Saint John and Moncton.  Northern New Brunswick doesn’t tend to be seriously on the map in terms of attracting business investment but we know from UMOE and Ocean Spray that it is possible.  The value proposition has to be right and I hope that a considerable amount of attention is given to bulking up the business case for investing in the North.

I hope this team in the North is sales-oriented and not banker-oriented.  We need to attract significant new business investment to the region and that will require a new sales effort (towards internal companies and those in the global marketplace). 

I’d like to see tax-based incentive programs but I am not holding my breath on that one.

Finally, to the poster that is worried this is more duplication of all the activity in the North right now, your concerns are valid.  I do think that there needs to be some better coordination – and possibly some consolidation – but the overriding principle needs to be the effort to rebuilt an economy that has been struggling.  Not rebuilding through massive new subsidies or making EI more attractive but through building  a strong value proposition that leads to export-oriented local entrepreneurs expanding and more firms like UMOE setting up there.

In that great movie, Bedknobs and Broomsticks – I think it’s Angela Lounsbury singing – there is a song that is appropriate:
Watch the tiny totters
Inching up a hill
It may seem to you he’s merely standing still
Though the steps he takes are infinitely small
They’re a step in the right direction after all

I have three small kids.  Where do you think I am going to get my musical influences?

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Since yesterday I have had almost a dozen requests to comment on the proposed ‘refresh’ at Business New Brunswick.

I have outlined my thinking on BNB over the years on this blog so I don’t feel the need to rehash everything but I will make a couple of points.

First, there are lots of good people working for BNB and I feel, from talking to some of them, that some think an indictment of the model is an indictment of the people. Not necessarily so.  I also would say that there are a considerable number of voices from within BNB that would like to see a new model.  I don’t have the kind of contacts there that I did 5-6 years ago but the few I talk with would like to see changes.

Ultimately, the model you choose to develop and deliver economic development should be aligned with what you are trying to accomplish.  I know that sounds simplistic but at some point the most complex ideas need to be boiled down to basic elements.

I have never been sure of the raison d’etre for BNB.   It delivers a few programs.  It has a small team of folks out knocking on doors and it has a few financial incentives. 

As you know, I believe the most effective economic development agencies in the current context will be those that can build broad sector-based value propositions where there is a compelling case for investment into specific growth sectors. 

Area Development magazine has a list of 25 key site selection factors and nine important quality of life factors that go into a site selection decision.  In other words, these are the primary factors that drive business investment decisions.  As you go down the list, you see that the majority of them are directly influenced by government policy, regulation, tax programs, etc.  For example, they include highways, taxes, energy availability and cost, availability of skilled labour, unskilled labour, incentives, available land, right-to-work state, regulations, fast track permitting, training programs, airports, universities, railraods, waterways, etc.  All directly influenced by government activity. On the QOL front, it’s low crime, healthcare, public schools, universities, recreational and cultural opportunities.

Essentially, other than things like climate, government can influence the vast majority of the issues on which business investment decisions are made.

In addition, it is my belief that companies don’t make investment decisions based on a generic value proposition.  They make decisions based on the value proposition for their industry in your community or province.

Therefore, my vision for BNB is an organization that has a few highly targeted – high growth potential sectors in which the vision is to create thousands of high paying jobs over the next decade – enough economic activity to drive the self-sufficiency agenda forward.  For each of these sectors, BNB would then go down the list of site selection factors and develop a comprehensive and compelling value proposition.  That might mean tax incentive programs, targeting R&D efforts, getting universities to graduate more people with the skills for the targeted industries, aligning immigration efforts to the needed skillsets, developing telecommunications and energy policies that make the province compelling for these targeted growth sectors, on and on.

So BNB should be organized as a network/catalyst organization that links together all the disparate but related efforts throughout government.  It should also be highly focused on a few targeted growth sectors.  Instead of having one person half-time dedicated to a specific sector, there should be teams of people per sector with deep sector knowledge and serious budgets to get things done.

And it should also be a sales-driven organization.  You can’t catalyze economic development without being sales-driven.  It needs to sell sell sell.  Internally, cross-departmental, to elected officials, to other levels of government, to NB based business and to global business.

This view of BNB as banker of last resort is not the proper vision.  That function should be the smallest part of what BNB is.

It should have a corporate structure.  VP of Sales, CEO, etc.  That is just better aligned with the target market. 

I encourage folks to post.  Not just complaints or criticisms – real ideas.

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I haven’t read Brian Lee Crowley’s new book - it just comes out in bookstores this week – but the reviews tell of a “courageous book”.  Here’s the Amazon.ca summary taken from the G&M:

In the 1960s, Canada began a seismic shift away from the core policies and values upon which the country had been built. A nation of “makers” transformed itself into a nation of “takers.” Crowley argues that the time has come for the pendulum to swing back—back to a time when Canadians were less willing to rely on the state for support; when people went where the work was rather than waiting for the work to come to them. Thought-provoking, meticulously detailed and ultimately polarizing, Fearful Symmetry is required reading for anyone who is interested in where this country began, where it’s been, and where it’s going. “Founder of the Halifax-based Atlantic Institute for Market Studies, Brian Lee Crowley has written a courageous book with absolutely unique analysis and interpretation. Part lament, part celebration, Fearful Symmetry is most of all a profoundly optimistic book. Why? Rush to read it as soon as you can. ” – Globe and Mail .

Wrapped up in Crowley’s thinking is a grain of truth.   But his attacks always end up blaming the system while never really proffering any solutions.  Crowley used to advocate that Atl. Canada become a laissez-faire region within Canada without ever saying how this could possibly work. Now he advocates that Canada become a laissez-faire country without ever saying how this could possibly work. 

We cannot unilaterally disarm.   That’s what Crowley doesn’t seem to understand.  We live in a globalized world.  If every country agreed not to bail out the auto sector, that would be fine.  Then the auto sector would have to figure it out.  But if virtually every other country bails out the auto sector and Canada doesn’t – and loses the jobs – what did we gain?  If Atlantic Canada says we will forgo giving grants and loans – while the provincial government and the Feds pile on billions in Ontario – how is that to the benefit of Atl. Canada?  I could go on but I think the point stands. 

And as for that crack about people waiting for the work to come to them, again there is a grain of truth but there has been a steady stream of workers out of New Brunswick for 140 years – with little interruption.  Those that are remaining and clinging to their seasonal jobs in the fishery are a hold out.  Hundreds of thousands of New Brunswickers have left this province for work over the past 100 years.  We are now in a string of 15 straight years of net out-migration.  The idea that everyone is waiting for the work to come here, is a Crowley fantasy.

The last point here and then I will stop.  Canada is far less ‘socialized’ today than it was even 30 years ago.  Back then governments owned coal mines, oil companies, telecommunications firms, and a whole list of other parts of the economy.  I don’t have the numbers in front of me but the government share of GDP has been steadily going down for the past 15-20 years.  I suspect this year it will turn upward but there was a time when the government in Canada was something like 35% of the national economy.

It’s almost like Crowley is locked in time – back to when he first read Hayek, Bastiat and Von Mises.

A long time ago, the famous American Socialist John Dewey drew this final conclusion about Leon Trotsky: “He was tragic.  To see such brilliant native intelligence locked up in absolutes.”

I think that applies to Brian Lee Crowley.  He is smart.  He even has a unique and interesting set of ideas that have merit but that must be filtered through the context of the real world.  But he is so locked up in absolutes that he will end up appealing to a fringe group rather than playing a real legitimate role in the public square of ideas.

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