It's The Economy, Stupid

I’ll have more to say about this in my TJ column tomorrow but I’ll summarize a few points this morning.   First, I think the new population statistics are encouraging so don’t get me wrong here.  The population had been firmly going in the wrong direction for a number of years.

However, the spinners seem to over-spin in the hopes that the moderated version that ends up in the press will still be positive. 

For example, the government press release states ” The largest number of interprovincial migrants since 1990 caused the population of New Brunswick to grow for the 13th consecutive quarter”.   396.  That’s the number ‘largest’ number they are talking about.  No mention of the -127 natural population decline – the largest natural population decline in – I think – forever. 

The Minister is quoted as saying “”Some people say they’re ambitious goals. We feel that it’s important that we set high targets,” Arseneault, also the deputy premier, said in a phone interview Monday.”

It’s strange how in New Brunswick we lower the bar to rock bottom and then any slight move upwards is an ambitious goal.   Having a population growth rate 70% slower than the Canadian average is now an ambitious goal.

It is certainly better than population decline, however.  If you want my thinking on why population has grown – check out my TJ column tomorrow.

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This story in the TJ is one that everyone should read.  It’s a story about the Saint John municipal plan back in the 1970s and the forecast that the area was going to boom driving population growth to a quarter of a million population. 

The article has multi-layered themes that each could be the subject of a blog.  The importance of the long term view, the criticality of large infrastructure such as a port to long term growth, the flight from the urban core to the suburbs, the lack of urban density, attempts to curtail suburb growth by draconian ideas versus making it attractive to live in the urban core (that whole carrot versus stick thing is going to be a central idea related to Saint John’s future, IMO).

I have spend a lot of time over the past few years studying NB’s economic development past.   I have read books -Savoie, Fredericks, etc. reviewed old Census data from the 1940s and 1950s and I have talked to some of the old geezers that still remember efforts to promote NB back in the 1960s and 1970s.   

The Saint John example is very instructive.  If Saint John met its forecast of 250k people, what would that have done to the province?  How much less relaint on Equalization would we be?  Would 18 years of net out-migration have turned to 18 years of net in-migration?    I have long said that a province needs one or more economic anchors that drive economic growth.  There are urban centres across North America that play such a role but New Brunswick doesn’t have a large urban area to do that.  According to the 1970s vision, Saint John could have played that role.

On an unrelated note, I see Microsoft has set up an other data centre in Iowa – a state with one of the lowest rates for industrial electricity in North America.  Note the salary level – $31/hour (with health care in I presume).   We’d settle for $30/hour in New Brunswick and throw in health care as a bonus.

“Iowa Gov. Chet Culver says the Microsoft Corporation plans to move forward with the construction of a modular datacenter in West Des Moines. Culver said Thursday that the $100 million facility is expected to be up and running by next spring. The Iowa Economic Development Board approved an award to Microsoft that will prove tax benefits from the High Quality Jobs program for the creation of 25 jobs. Microsoft says those jobs will pay an average wage plus benefits of $31.04 per hour. Culver says the technologically advanced facility will significantly reduce water, power and carbon wastes associated with traditional datacenter facilities. He says it will also enable a more efficient and higher utilization of computing capacity and productivity.”

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The TJ has an editorial scolding the public servants for watching the World Cup and bringing down the provincial servers.  It’s kind of funny in the context of that Roger’s advertisment that runs all day reminding people they can watch the World Cup secretly while in their office.  The editorial praises David Alward for reacting negatively to the civil servants and wonders why Shawn Graham hasn’t spoken out against it.

I’ll give you two reasons.

Brad. Green.

The Tories were pretty good to the public service.  New contracts had fairly good wage increases.  There were no major shakeups.  Lots of new money flowed into the coffers and when Brad Green got booted out of office in the Fredericton area – he lamented with exactly this point.    One of the reps from the public sector union (can’t remember the name) stated something to the effect that the Conservative don’t respect the public service).

The civil service votes and I expect the percentage that vote is very high.  Piling on the public service in public by a politician is likely to show up at election time.   It may be low hanging fruit to pick on the public service but it isn’t exactly endearing to them.

If there are changes needed to the public service, if there are efficiencies to be had, if there is a need to re-engage them in a broader vision for New Brunswick, it seems to me the strategy should be to bring them along side rather than hack away.  A demoralized and detatched public service is not in anyone’s best interest.

We spending barrels of ink every day demanding that the public service rise to the challenges facing New Brunswick and then we flip the page and load up with stories about how dumb them are.

You can’t have it both ways.

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21 Inc. posted the link to an interesting story on its Facebook page.    It’s another attempt to classify different types of entrepreneurship.  The author suggests that there are four distinct types of entrepreneurial organizations; small businesses, scalable startups, large companies and social entrepreneurs.

He says the entrepreneur who owns a small business wants to “feed the family” while the scalable startup goal is to make lots of dough and implement their vision.  He makes good points about both entpreneurial companies (large) and social entrepreneurs.

This stuff matters to economic development.  As I have said before, most of the focus has been on supporting and nurturing small business writ large when it may be more impactful to focus just on the ‘scalabe start ups’.  Or maybe not.  My point is that either one is a policy objective but if your stated objective is to foster more high growth, export-oriented entrepreneurs than you should target that group (scalable start ups) rather than blanket incentives for all small businesses.

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The oil spill in the Gulf of Mexico is an envrionmental disaster of unprecedented scale.   It is causing massive hardship across the coast of at least four states.

And the interesting thing is the polling data still shows significant support for offshore drilling in those states most impacted by the spill – Louisiana, Mississippi, etc. There was a national poll and almost 60% of Americans said they didn’t care if BP went under but in the area most impacted, it was a fraction of that.  I heard the Senator from Louisiana talking about this on Meet the Press.

Then, yesterday, a judge in – I think it was Louisiana – struck down Obama’s new offshore drilling ban as unconstitutional. 

I think about these things.  Saskatchewan has a large and expanding oil and gas industry.  It is the largest producer of uranium in Canada – maybe North America.  

In New Brunswick, when someone hinted there could possibly be uranium mined in the province, there was outrage – signs in every window “No Uranimum Mine”.  There is a growing movement to try and block the limited drilling for natural gas.  During the Hydro-Quebec debate, a number of intellectuals were way to cavalier saying “who cares if the forest products mills close?”

I realize the federal transfer payment system is meant to buffer poor provinces and allow them to offer their citizens comparably good public services. 

But I think we need to appreciate the importance of economic development.  It’s become all too easy to dismiss this as a secondary thing in New Brunswick – on the implied assumption that the other guy will take care of us.

Now, before I have to field comments about the dangers of uranium, hydro-fracturing, decemation of the forests, etc. etc. etc. I ask you one thing.  Why, in a poor province like New Brunswick, are we less tolerant of many of these industries?  

Of course we need to ensure there are strong enviromental safeguards in place around natural gas drilling.  Of course our forest products industry needs to be balanced. 

But what is our basic posture?  I’m not talking about the tenured professors, unfireable bureaucrats, environmentalists and other safe, vested interests.  I am talking about the average guy, gal on the street?  If their opening position is hostility – I don’t understand this.

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A journalist covering the last Tory leadership process in New Brunswick told me that he sensed the party was not going through an existential review process.  The closeness and the way the last election was lost the Tory braintrust did not think they had to make any significant changes.  They thought 1999 to 2006 were a time of propserity and good government – the only problem was they were not able to communicate properly all that success to the people of New Brunswick.

I think that is clear from this interview with David Alward.   It’s chalk full of references to the good old days such as :

I was part of a government that had to make difficult choices. We made a difficult choice in health care, and in my own riding, to close hospitals and build a new facility. That was not an easy process to go through but there was a process. And people were engaged in it. And there is a new facility there today with more doctors and nurses and more specialties being provided than existed before.

The new definition of a hard decision is one that leads to a brand new hospital and more doctors and nurses and more specialties being provided than existed before?  I remember that debate and I realize that people were angry that a few small hospitals were being closed but that seems to be the new normal – spending a lot more money is considered to be a tough decision.

I was part of a government that, over seven years, paid down $500 million on the debt of the province. That was not easy.

That seven years represented one of the fastest (if not the fastest) period of increase in federal transfers to New Brunswick in the province’s history – at a time when the national economy was in the midst of the longest period of sustained economic growth in history.  

This government has not had a revenue problem; the revenues, if we look at where they were in 2006 to today, have continued to grow. They have had an expenditure problem.

Expenditure growth under the Tories – per capita, % of GDP, straight up – was virtually the same as under the current Liberals. 

I like David Alward.   I only met him a couple of times but he seems like an affable bloke and I have met a few of his advisors and they seem to be smart guys/gals.  But one of the problems with recycling the Lord team is they were (and it seems are) convinced 1999-2006 was some kind of golden era in New Brunswick.    But it wasn’t.

1999-2006 highlights: 

Toll highway deal torn up – costing the province at least $200-$300 million to date in debt service costs and lost toll revenues. 

Orimulsion – well over $1 billion impact and counting.

The natural gas deal that, well, have led to what we have today.

The NB Power reforms that, well, have led to what we have today.

The first population decline since the Great Depression – there were more people living in New Brunswick in 1998 than in 2007.  To me it is absolutely staggering that Canada as a whole added 2.7 million people to the population from 1998 to 2007 and New Brunswick saw a decline of over 5,000.  

Canada witnessed unprecedented tax revenue growth from 1998 to 2007.  If there was ever a time to start putting a chink in fiscal dependency of NB to the federal government – it was 1998 to 2007.  Yet, we went over $400 million year further into dependency on the equalization program.

Of course, I could go on and on.  We had that eNB initiative that was supposed to transform New Brunswick into some type of ICT hub and it didn’t.  We were going to rocket to the top four in Canada among the provinces for R&D spending per capita.  We didn’t.   

This is not a political blog – it does look at the intersection of politics and economic development.

There is a very good chance that David Alward will be the Premier in the fall.  I have been wrong in just about every political prediction I have made since the late 1990s so I don’t want to make any now (to jinx either side).  

But if he gets in I hope he has the wisdom to understand that the Tories of 1999-2006 governed during a period of unprecedented prosperity in Canada and if they are in power from 2010 on – they will be governing in a period of significant austerity and a period where we will need tremendous public policy wisdom – on energy, on economic development, on fiscal restraint, on regional governance, on the labour market, etc.

2010-2020 will be fundamentally different than 1998-2006.  I hope they get it.

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I’m a pretty mellow guy but one thing that grinds my gears is when Ontario-based experts equate Northern Ontario and New Brunswick.  This includes Mr. Ignatieff who made the same off-handed point one time while in New Brunswick.

New Brunswick is a province, it is not a small part of a large province.   New Brunswick is not ’rural Canada’.  It has urban centres – small urbans to be sure – but all the features of urbanity – universities, hospitals, airports, etc.  It is wrong – even for Toronto-based gurus - to say New Brunswick is rural Canada. 

Not all of New Brunswick has trouble retaining talent.  Again, another broad sweep based on the definition that New Brunswick=Rural.  Certain parts of New Brunswick and certain industries are having trouble but I wonder if the Toronto-based guru realizes that from 2001 to 2006 there was a positive net-migration from Toronto to Moncton.  Take a look.  675 people were living in Moncton in 2006 that were living in Toronto in 2001.  445 people were living in Toronto in 2006 that were living in Moncton in 2001.  Oops.  Maybe Toronto has a brain-drain problem  – at least to Moncton it does.

I’m sure this guy is well intentioned.  New Brunswick isn’t on his radar so he is plucking concepts from other locations and trying to tweak them for relevance here.  Fine. Hope the lobster was good.

What we really need out of these gurus is ideas on how small urbans can compete, how provinces (not small regions within provinces) can build the kind of policies that support attracting investment into targeted industries.  Ultimately that is the source of my discomfort with the New Brunswick=Northern Ontario analogy.  New Brunswick has the fiscal and policy making capacity to do things that make it distinct from the Gaspe or Northern Ontario or rural BC or all of the other places Iggy thinks looks like New Brunswick.

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A couple of weeks ago I looked at a pile of data relating to Ontario’s economy and fiscal situation.    I have been listening to Commonwealth Club of California podcasts on the state of the California economy.  These places are facing serious challenges – particularly California.  Sustained economic growth over time does end up breeding its own set of problems.  Because of the scale, the problems are amplified 10 fold.  In think in both cases – Ontario and California – there is optimism they can turn things around and bull forward on the strength of economic growth.  History says they are likely right.

On a scale basis, New Brunswick’s problems don’t look as daunting.  We’re just a little sliver of the economy down here and there are fiscal mechanisms to ensure we don’t fall off a cliff (i.e. equalization).  There are really no such mechanisms for Ontario.  Imagine if Ontario ended up needing 41% of its provincial budget through federal transfers?  It would be a problem.

New Brunswick just needs to find its footing in the economy and get focused on the opportunities that will drive investment and high value career opportunities.

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Over the past couple of weeks I have had the opportunity to travel around New Brunswick and talk to various groups about some of the challenges facing the province over the next few years and make the point that we need a more robust economic development focus going forward.

There is no question that government, community and business leaders are realizing that New Brunswick is about to enter a period of serious austerity when it comes to government spending. Just like previous recessions, governments have built up big deficits and will need to either cut spending or raise taxes (or both) to climb out of the hole. Since both political parties are on the record saying they will not raise taxes, the only other short term option is fiscal restraint.

Government spending in New Brunswick over the past 15 years has been well above private sector spending. When we clamp down on public spending, will the private economy pick up the slack or are we in for an extended period of economic malaise?

In addition to the need for fiscal restraint there are a number of other significant public policy challenges that will influence the economic trajectory of the province. Our competitive position is being eroded by high energy costs and increasingly tight labour markets. Having low unemployment is a good thing but it does put upward pressure on wages. Higher wages, higher energy costs and a Canadian dollar close to par with the U.S. dollars is a dangerous combination for our export-intensive industrial economy.

But travelling around the province I get the sense things are different this time. It might just be me but I think a lot of people are really starting to understand the scope of the challenges and are not interested in settling for the superficial political rhetoric that pervades the public square these days.

The other thing I see is less interest in assigning blame and more interest in getting down to business.  Assigning blame for the lack of economic development is a cottage industry itself in New Brunswick – north vs. south, urban vs. rural, Moncton vs. SJ, Moncton vs. Halifax, – someone else wins ergo I lose.

It’s easy to blame the other guy.  It’s harder to take responsibility.

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I was asked to participate in a forum yesterday looking at the future of one of the important industries in New Brunswick.   The invitation asked the participants not to discuss the event publicly so I will respect that admonition.

But I will say this.  There were 30 people or so in that room and each one seemed to be more knowledgeable than the next.   I felt like an intern.  Here were people – some with 30-40 years experience rattling off statistics and context from as far back as the 1970s without missing a beat.

Addressing New Brunswick’s economic challenges will come from marshalling and listening to the guidance of folks like this.  There is a deep braintrust around here that has seen it all and has good ideas.  We need (I need) to listen to more of these folks.

But that’s not my main point this morning.  The T&T has a cover story about the Halifax-Moncton corridor – quoting Donald Savoie saying the two should work more closely together.

I am a big fan of urban-urban collaboration like this. 

Richard Florida now thinks the future is in these mega-urban regions and that is where governments should invest their dollars.  Provinces and even national governments fade in importance compared to these city-states. 

He may be right, he may be wrong.  Just a few years ago he was paid a pile of cash to tell little places like Sackville they are the new creative hubs and now it’s mega-urbans.

But I do agree with him on the importance of urban areas and the economic linkage between strong urbans and their smaller town and rural peripheries.   If we had strong urban to urban linkages in the Maritimes – Halifax – Sydney – Moncton – Saint John – Fredericton – Bathurst – it would be a better model longer term.

I think it will be an interesting policy debate over the next few years – decade or more.  One could argue that Canada has already followed a mega-urban development plan for the past 40 years.  According to Statistics Canada, Greater Montreal, Ottawa-Toronto, Calgary-Edmonton and Greater Vancouver have accounted for all new population growth since 1971.  Everywhere else combined has lost population.

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