It's The Economy, Stupid

As anyone who has posted a comment here knows, I have to approve the comments.  I had to take this step a few years ago after certain anonymous commenters had introduced a level of lingustic nastiness that was unacceptable to the readers here.  I post any comment, no matter what position is taken, as long as it does not involve personal attacts or foul language.  I have had to add bizarreness to the list as certain people have taken to trying to get fairly crazy comments posted. 

In addition to the occasional crackpot and conspiracy theorist, I am now getting a number of comments from spambots that are mimicing almost real comments.  For example, there were a bunch coming in talking about how insightful and valuable my blog posts were – no kidding.  Because this raised my suspicions I looked a little closer and sure enough it is Mumbai or Russia based spammers looking to be ‘approved’ so they can serve up some more spam in the future.

I guess that’s a reality of running a moderated blog these days.  A ficticious lady named Rosanna just sent me a comment “You have done it once more. Incredible read!”   It was too good to be true.

Between the busty porno ladies signing up for my Twitter feed and the flattering spambots posting to my blog, I have to be a little more on my toes than I would prefer.

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The former head of UNB gave a speech over the weekend where he called for dramatic change.  He thinks we need “new institutions” and that the “role of government needs to be retaught”.   I only met Dr. McLaughlin a couple of times and I found him to be an interesting guy.  He seemed to get the inter-connectedness of UNB with the success/failure of the wider NB economy and not just in the submission to government for funding sense.

I might be getting more cynical in my old age but while I agree with most of his points I don’t think he or anyone else has made the case that systemic, broad-based change is necessary.  We say it – I say it on a daily basis - but nothing changes ergo the people don’t seem to want it.

You could easily make the case that NB doesn’t need to change a thing – it just needs to float along and drift with the winds of change.  If the feds cut back transfers, you cut back the budget a bit, raise some taxes a bit, hope the restart of the economy with generate more revenues.  The system in Canada won’t let a province collapse.   Just promise to cut ambulance fees, reinstate a ferry or two, talk vaguely about budget management and public engagement and you will get elected.  And this is definitely a non-partisan issue.

For me this goes back almost 15 years when a senior advisor to Frank McKenna told me that economic development-issues rank 5th or 6th on all their internal polling.  Even back when unemployment rates were very high this was the case.  The only time that economic development raised higher on polls than potholes was after a flashpoint issue like a major plant closure but in general the public never really made the link between government action and public policy and economic development. 

But there is not much need rehashing all this stuff – it all comes down to practicality.  Most New Brunswickers don’t like change.  The ones that are in good public and private sector jobs are doing just fine.  They have a relatively low cost of living and a pretty good quality of life.  The folks that are struggling could have left for Alberta but haven’t so they are likely not leaving unless there is no other option.  And the rapidly growing group of retirees or close to retirees have no interest in change. 

People over 60 were against the NB Power sale two to one over people under 25 (although that one poll had a high margin of error).  I get myself in hot water when I say this because I do have a lot of respect for the older generation and I am very thankful for the massive changes of the 1960s and 1970s on the social front.  New Brunswick made massive strides in those decades in social policy but now that very same generation is highly resistent to the kinds of economic change that we need right now.  Many of them – based on my interaction – are the most resistent to attracting investment and even immigration.  You must remember the rant in the Telegraph-Journal recently from a guy who had moved back to Saint John and didn’t want it to become “Los Angeles”. 

Well, no one in the world is talking about transforming Saint John into Los Angeles but this is symptomatic of the broader reality.  What demographic group in New Brunswick would wholly embrace the kind of change Dr. McLaughlin is talking about? 

How about the government sector?  There are 90,000 people working in public administration, health care and education in New Brunswick.   When people come in talking about ‘rightsizing’ government and better management of costs – which one of the 90,000 is going to put their hand up and say me first?  

How about the seniors?   I was in a smaller NB community not that long ago where the local economic development officer wanted to make some pretty impressive changes like expanding the industrial park, etc. but the older people were by in large against it.  When he said “your property taxes will have to go up if we cant build up the commercial tax base” they responded “put our taxes up” we like things as they are.  It’s hard to fight that logic.

How about the younger generation?  I appreciate some of the initiatives such as 21Inc. to raise awareness among young people but my sense of it is they aren’t getting all weepy about the state of NB’s economy.  If they have a great job here – most of them are content to stay – if not they are content to leave.   It’s been a preoccupation of mine in recent years to try and understand what makes a culture sticky – what things need to be in place for people to want to stay or to really miss a place once they leave (think Cape Breton or Ireland)?  Do we need more Anne Murrays?

How about the small business sector?  Are they standing up demanding full bore economic development?  Not in my experience. 

Who then is going to champion a broad-based change initiative that re-invents a smaller, more nimble and successful government?  Who is going to champion an economic clusters strategy that might mean saying no to the current model of sprinkling taxpayer dollars across the province across dozens of industries?  Neither the Tories nor the Libs have done so in the past so I think it is unlikely they will in the future.

It a bit of a longer rant this morning but I really think that change in society – true change starts with a clearly articulated view of what that really means and finding groups in society to help generate broad-based support. 

Change will come to New Brunswick but it will be forced on us by outside influences.  The Feds will cut hundreds of millions out of their transfers to New Brunswick over the next few years (maybe not in hard cuts but cuts in the growth of transfers which amounts to the same thing) and there will be no call centre sector to channel in thousands of new jobs.  So public spending will be cut – no matter who is in power they will have no choice and we can look forward to a decade of anemic economic performance and population stagnation or decline.

But if it is forced upon us – people will grumble but they will accept it.  If a provincial government tries to initiate it without being able to blame the federal government, I think they will not accept it.

I’ll keep pounding away here, though.  It’s kind of fun and what else am I going to do?   I earn a living working with a wedge of folks in this province that are trying to change things from within and I am happy to do so.  It’s just hard to see how these folks will ever get any real traction without a broader collective will to change and I don’t see that happening.

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This is kind of interesting.  File it under taking sector development seriously (cluster development):

Grade 11 students at Three Oaks, Kensington and Kinkora Regional high schools near Summerside, PEI will be able to register for the Aviation-Aerospace Academy Diploma program. Students will have the opportunity to acquire the skills necessary to pursue a career in the aviation-aerospace sectors at the various work placements they will be required to complete.

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From 1981 to 2008, this is the net loss of people aged 18-24.  Specifically it is the total number of net people in that age group that left the province over the 27 year period.  Assuming those folks earned the average income for a full time worker, that means an annual loss to the economy of about $1.2 billion per year. 

In the most recent five years I have access to the data, the net loss in those five years (2003-3008) is nearly double the net loss in this age group from the early 1990s.

Of course I am only talking about the net loss.  Over 97,000 people in that age group have moved out during the 27 year period which really represents the folks we haven’t been able to keep here.

But don’t worry there is a strong net in-migration of people… over the age of 60.

There has been a pile of ink spilled in the past few days about whether we should force young people to volunteer.  I think we should probably spend a little more time thinking about how to keep them here in the first place.

Hey, maybe the politicians should mandate they stay here.  Because of the lack of jobs they can volunteer.

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The TJ has a story this morning talking about NB’s robust forecast for exports over the next couple of years. I have no problem with the content of the story up to this point when the expert states:

“New Brunswick is punching above its weight in both years. That will help the province get back on its feet in a big way after suffering in 2009,” Hall said.

I prefer to take the oil refinery out of my analysis of exports because it massively distorts the picture and leads experts like this to paint a false picture.  If the value of Irving refinery exports comes back to 2008 levels, that will add $2 billion worth of exports – with hardly a single new job created and yet Mr. Hall says this will help the province get back on its feet in a big way?  How?

There is a far greater link between the forestry industry and “getting back on its feet” as every million in incremental forestry exports generates direct jobs harvesting trees, trucking, sawmills, etc.  The Irving Refinery is a great economic driver for Saint John and New Brunswick but that is not reflected in the export data and in fact allows politicians to crow while distorting facts.

Remember Kirk Macdonald crowing that exports rose by “a billion with a ‘b’ Mr. Speaker” after the new refinery expansion came online while the total value of the rest of exports declined – he never mentioned that and it was (and is) a serious problem.  You can expect Liberal politicans to talk now about leading the country in export growth without ever mentioning that exports from New Brunswick not including oil and gas are down 31% over 10 years.

I have actually heard EDC presentations on exports in New Brunswick and can’t recall the economist ever mentioning the economic impact of certain kinds of exports versus others.

From the article:

Prince Edward Island, meanwhile, will see its exports grow by a “modest” two per cent this year and by six per cent in 2011.

This is Exhibit A of my point.  PEI has built a whole new aerospace industry that has created 900 new jobs (adjusted for population that would be the same as 6,000 new jobs in New Brunswick) and we get the message that NB is booming and PEI is modest.

It’s a mistake.  We need to start assigning economic impact to certain categories of exports.  LNG natural gas exports from New Brunswick generate far less value to the province than indigenous natural gas exports because the latter generates E&P activity and royalties.  The oil refinery has 800 (?) jobs (anyone know the real # here?) whether the value of exports is $5 billion or $8 billion (admittedly there may be some job losses – I am not sure.

It’s time to start aligning the value of exports with the economic impact in the province.  Journalists as well should draw this distinction when writing stories about exports.  Telling New Brunswickers we will “get back on our feet” because of the increased value of refined exports is not the right message.

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This is a good step.

http://www.gnb.ca/cnb/news/edu/2010e0804ed.htm

We talk about a bilingual society and then spend almost all our time and effort keeping French and English apart. Our schools, media, cultural instututions, and just about everything else is either English or French. It’s easier for my kids to get a French speaking penpal in France than in NB.

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The subject of my column today in the TJ.   I find predictions of the future fascinating because they are almost never right.  I heard a guy over the weekend on a Big Ideas podcast saying that the UN population forecasts starting in the 1960s were always wrong by an order of magnitude.  

We have talked about Faith Popcorn and David Foot and others that made interesting forecasts based on past trending and turned out to be wrong. 

But these forecasts add value to public policy.  Foot predicted a demographic disaster so the government just cranked up the immigration tap and, presto, demographic disaster at least delayed.  Did Foot have a hand in that?  Who knows but certainly his warnings were the subject of great debate in the 1990s.

But back to my prediction.  I think we will be moving off the global economy model by 2050.  People are already starting to realize the huge environmental costs associated with a) ever increasing conspicuous consumption and b) the offshoring of production to the furthest corners of the world just to lower labour costs. 

But history is clear that predicting the future is almost impossible.  This Big Idea’s guy suggests a global pandemic is coming that could kill hundreds of millions of people.  That will upset the apple cart in unanticipated ways as countries literally close themselves off to try and immunize themselves. 

There is always the spectre of war – nuclear war and other now considered unlikely but history says is likely.

We were chatting about this in Halifax yesterday.  The Chinese model of a dicatatorial, planned economy is starting to get serious interest in certain parts of the world such as Africa and certain areas of Latin America.     The messiness of democracy – in some peoples’ minds – is holding back development in emerging economies and stifling transformation in advanced economies.  In China, if they wanted to green the economy – they would just make it so.

So, it is conceivable, we could be looking at the emergence of more totalitarianism in the next 50 years – particularly in places of the world where people make the case that democracy is holding back progress.  It starts with a democractic mandate (like in Nazi Germany) and then morphs into full fledged totalitarianism.

And totalitarianism could lead to wars – particularly over resources – and then we are back into the old cycle once again.

Who knows?   I prefer to operate in the here and now with an eye to the future.

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During the Hydro-Quebec debate, many of the opponents of the deal that I talked with were adamant that this was a deal cooked up just for the large industrial users and that NB Power should not be sold just to keep these large users happy.  When I asked what should be done about the escalating cost of power for large industrials some took the hard line – they should leave the province if their power costs are too high – in fact, several (including one I debated in public) suggested these firms were a problem and the government should not support “sunset industries”.   Others with a little more sensitivity to economic development suggested to me these large industrials should be encouraged to do deals with Hydro-Quebec themselves and the government should help them – rather than sell NB Power outright.

Now that the deal has been scrapped, we are stuck with this very real problem of uncompetitive power rates for large industrials and a viable option would be to let them do more self-generation or find other mechanisms to lower their rates or at least keep them from escalating further.

But as the new CEO of NB Power has said multiple times – he absolutely needs these customers.    The loss of revenue from the large users (including PEI) could seriously screw up the utilities business model.  There might be some marginal savings from lower fuel purchase costs during peak times but across the year the loses – in his words – would be consequential.

So the gordian knot remains.  At power rates 40%-70% more than other competitive jursidictions like Quebec and BC, how long can these large users remain reasonably competitive here?

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Simple math for economists is a little harder to grasp for us mere mortals.  The TJ has a good story today on the need to bring the NB government a strong measure of fiscal discipline.  I don’t disagree one bit with the premise of the story.  We will have to reign in public spending which has been running at an average of six per cent per year growth for almost a decade.  But there is one quote which I think is emblematic of New Brunswick’s reality:

Craig Brett, the Canada Research chair in Canadian public policy at Mount Allison University, said politicians and New Brunswickers will have to confront these serious challenges before the election this fall. “The government keeps saying that people in New Brunswick don’t want to have service cuts,” he said. “That leaves you with two options. You either keep running deficits or bring taxes back up. It’s only simple math.”

Dr. Brett, conveniently, leaves out the third option just – I presume – to keep his simple math simple.  Newfoundland didn’t generate huge supluses and pay down its Equalization deficit by either running deficits or bringing taxes up.  Alberta didn’t run up billions in surpluses by bringing up taxes or running deficits.  Saskatchewan didn’t cut services, raise taxes or run deficits while running up among the fastest growth in public spending in the country.

I raise this because it’s too easy in New Brunswick to ignore economic development.  Dr. Brett could have easily stated that New Brunswick’s private economy has struggled to generate the tax base the province needs to provide public services and that a focus on generating new economic activity would be a third option to the simple math.

But in New Brunswick it is simpler to ignore the economic dynamic.  I know some of you will say I am being petty - that the economic option is a given/implied here.

But I don’t think so. 

New Brunswick does need to reign in its spending and probably does need to find ways to be smarter in service delivery but the long term viability of New Brunswick as a province and as a place trying to have successful communities where people can enjoy a good quality of life will be tied more to its economic development than efforts to chip away at social programs or tweak tax rates up or down.

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We have a paradox on our hands.

The Canadian Learning Index used by Macleans magazine to tell us what places are smart and dumb is saying New Brunswick has the lowest percentage of household with access to broadband.

The NB government is saying New Brunswick is “Canada’s leader in providing high-speed Internet access”.

Sometimes when it comes to statistics we haggle about degrees.  This is an all out war.  Either we are the worst for broadband access or the best.  Which one?

Does anyone have a theory?

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