It's The Economy, Stupid

In a TJ article today:

Stéphane Robichaud requires few words when asked about the future of health care in New Brunswick.

Stéphane Robichaud, CEO of the New Brunswick Health Council, says most people are unaware of troubling statistics that show health spending in the province is unsustainable over the long term. “The system is not sustainable, not in the long term,” says the CEO of the New Brunswick Health Council.

I have been thinking about health care and writing about it as well – from an economics/fiscal perspective.

I have come to the conclusion that we have to come to some agreement about how much health care spending the economy can sustain.  I think we should agree on a hard cap- you pick the number – 10%, 15% as a percentage of GDP – and then fix that as a hard number for public health care spending.

We can’t control the private side – dental, eye, etc. but the public side we should fix some agreed upon measurement – spending growth tied to inflation, a hard %/GDP ratio, something to force cost sustainability.

I have been talking to health care professionals in recent weeks and I can’t think of any other option.

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From this article in the G&M today:

Finance, engineering, maintenance planning, human resources and supply chain work could be moved from Fort McMurray ….

“We estimate that 40 to 60 per cent of all job titles and all work could be moved and be done remotely from Fort McMurray,” he said.  “And maybe half of that could be moved offshore now.” Though he would not identify who, Mr. Denham said “there are a couple of clients we’re working with on this topic.”

You can be sure that Indian outsourcers are angling for this work and you can further bet that there is no effort at all to get this work to Atl. Canada.

We have sent metal bashers out west to look for supply chain work but maybe the better opportunity is around services and support.

The more I look at this stuff the more I am convinced we have to be smarter about opportunity identification and targeted efforts to attract investment.

There are jurisdictions that are very good at targeting geographically (zooming in on nich countries such as Israel, Chile, Finland, etc.) and there are those that are very good at targeting sectorally – I think we need to start thinking more deliberately about this.

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I’m out of the province for a few days but I will have a longer than usual column in the TJ five times this week.  I am looking at five potential growth sectors – some known, some experimental and at least one likely to enrage some folks:  shale gas, industrial fabrication (large components), social media hub, legal outsourcing and health care/medical tourism.

I hope that these columns at least start a conversation around the nitty gritty of economic development.  What are the growth sectors and what, if anything, can we do to make NB a great place to invest in those sectors?  They do not have to be global growth sectors such as green energy – there is so much competition for investment in that area – it has reached fanastic levels.   If we are to compete in that area, we need to find some niche.

There are some sectors that are quite small on a global basis- like legal outsourcing – but for a small province like NB just carving off a few points market share would be a large opportunity.

Anyway, I try to link to them here and maybe add some more comments upon my return to the province with the inferiority complex (I drove by the “world’s largest fiddleheads” earlier today – throw in largest lobster, longest covered bridge, highest tides…. – I’m sensing a pattern….).

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I read an interesting article the other day in the New York Times about minor hockey in Minnesota and its new approach to reducing fighting and bad behaviour in the sport.  At one point the state was known for its bruising hockey – kids would drop the gloves for just about any reason – and the league decided to adopt a novel approach to reducing bad behaviour.

The concept of a penalty in hockey is meant curb bad behaviour – by definition.  You trip someone, elbow them, slash them with your stick, punch them in the face, you get to spend time in the penalty box.  This wasn’t working too well in Minnesota so they adopted a new model.  Teams receive a point each game if they recieve fewer penalties than a certain threshold.   Fighting and bad behaviour has plummeted. 

As I read this article my immediate thought was of Don Cherry and those that would say this is an abomination.  But upon reflection, why not?   If the point of the penalty box is to curb bad behaviour and it is not working, shouldn’t they adopt other measures?

The point is that the penalty box doesn’t just exist – it is there for a reason and if it is not fulfilling its raison d’etre – then you find a new model.

I have been thinking a lot lately about the measurement of success in economic development.  I have had clients at every level grappling with this and it seems that every RFP I receive these days (two this week) spend an inordinate amount of time on measurement – or measuring the value for dollars spent.

This is a vital point.  It’s starting to translate into city councils, boards – even the general public – where is the value from economic development efforts?   People want proof their investment in economic development is working. 

We’ve discussed this in the past – there is somewhere between $80 and $100 million spent directly on economic development in this province each year – not including any grants or loans to business.  At some point there needs to be measures to determine if that expenditures adds value. 

If government spends $100 million on roads, they get x miles of paved highways.  If it spends $100 million on health care, it covers 40,000 people with health care services.  If if spends $100 million on education – it gets UNB.

What does it get for the $100 million in economic development?

Think of the penalty box story.  If we were measuring results in economic development, and it was clear it wasn’t working, we could come up with a new way of promoting good behaviour (success). 

I think we need to hold economic development – system wide – to a clear incremental tax base measurement.  If we are not generating $3 or more dollars in new tax revenue for every dollar invested, I don’t really see the point of economic development.  If we aren’t getting out more than we put in why put any in at all?

Now I have had this conversation with folks and they say things like “it would have been worse” without us but this argument for me doesn’t hold much water.  Imagine any organization in just about any sector of the economy having as their mandate “keeping things from getting even worse”. 

Economic development, ultimately, has got to be about development.

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I see that Lymbix’s relatively simple idea made the NY Time’s list of big ideas.

ToneCheck, an e-mail-outbox filter that works as a sort of emotional spell-check, offers typists a chance to reconsider their words before hitting “send.”

How many times have we received or sent emails where the tone was misinterpreted.  They say that communications is 80% non-verbal so email cuts out 80% of the content the receiver of the message typically uses to decode what is actually meant by the content.  People fill in the blanks as it were based on other factors such as did they have their morning coffee yet.

We have debated ad nauseum innovation and how to stimulate it in New Brunswick but it seems to me it all comes down to curiosity.   At the NBIF dinner last year when they started showing all the inventions that were patented by NB inventors I can’t remember one in the last century.

This involves a complex multivariate calculus.  Curiosity can be ephemeral (gee, I wonder if I could build a little program to check for tone in an email) or driven by a hard need (if I don’t figure out how to reduce my cost of production I will be out of business in 24 months). 

Then comes tenacity.  I remember that guy from Riverview who was adamant he had a better design for a bicycle seat that wouldn’t cause male ‘problems’.  He peddled that idea for years and finally got traction.

Access to funding is also in the mix.  It takes a certain kind of money to spend on something that might kill the cat a few times before hitting the jackpot.   I dislike the gambling metaphor but it fits.  A person who has won the jackpot once or twice is far more likely to go hard at it again to try and win another.  The same with risk capital.  I can handle 8 losses if I am reasonably certain the 9th idea is going to come up all aces.

We’ve talked about cultural influences as well.  In a province with a high out-migration of younger people we speculate that a lot of the curiousity leaves as well.  There is a direct correlation between education levels and out-migration – and education has some loose correlation with this stuff.

Of course necessity is the mother of invention.  One NB company installed a biomass boiler as a way to lower its massive natural gas bill.   A rapidly escalating cost associated with a production variable is a wonderful motivator to get innovative.    

This last point is why I am hopeful New Brunswick is ready for an innovation agenda.   There are companies across this province who are going to need to dramatically decrease the unit cost of production in response to rising wages, a high CDN dollar and a tightening labour market (for some Romanian immigrants is also a solution but this is a kind of innovation as well).   Our IT and service companies with export markets are going to have to get far better at developing international markets.  That takes innovation as well.

Hopefully our contact centre industry will be innovative and respond to the rise of social media.  New Brunswick could be ideally positioned as the epicentre for corporate social media interaction (millions of telephone and email interactions between companies and clients happen in New Brunswick every week so it isn’t that hard a leap to see this migrating to social media interactions) but it takes effort on the part of the industry and, I would say, economic developers to make this happen.  We need to get out front of this.

In the end, curiosity leads to miserable failures.   We never hear about the miserable failures of Alexander Graham Bell.  We never hear about Isaac Newton’s miserable failure at alchemy.   We do, however, hear a lot about their successes.

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It’s been a week of education for me.  Over the past seven days I must have talked to a couple of dozen people offering insight into a wide variety of economic development and related topics such as:

LJR’s bringing in a Brit to run its investment attraction agency and attract firms from the U.K.  Interesting lessons that should be learned today.

The  HI-Y YMCA young leadership program that ran in Moncton from something like 1940 to 1980 – many of Moncton’s current crop of older leaders – those that were directly involved in the community’s transformation went through that program.  It exists elsewhere today why not here?

The laybrinthical world of federal/provincial transfers.  Wow, that is a dog’s breakfast.  Typical government – make it so complicated that only a few every really understand it to the fullest.  For example, it seems that when Ontario put on a ‘health premium’ a few years back they were adamant it was not a ‘tax’ so that it wouldn’t be counted in their fiscal capacity definition for equalization/transfer payment calculations.  Who would have known that?

No matter how much web searching/online research I do, there is no substitute for talking with old fogies – and I mean that in the most endearing sense of the term. 

I also found out this week who (supposedly) is going to run Invest NB.  I won’t say it here until I can get confirmation.

The education of Mr. Campbell continues…..

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Pierre Lortie made a compelling case yesterday in Fredericton to keep the current system of provincial regulators and not move to a single national securities regulator as advocated by the current federal finance minister.

The room was packed with people but despite this the very large, gray elephant in the room stood out.   There are only – a few (3?) actively traded listed companies on the TSX based in New Brunswick and very few if any listed on the TSX Venture exchange. 

So Mr. Lortie’s assertion that moving to a single regulator would hurt high growth firms may be true it just wouldn’t hurt high growth firms in New Brunswick.

We have a capital markets problem in New Brunswick so the other part of the NBSC mandate, to promote capital markets – is far more interesting to me.

Capital is critical to economic development.  We need to try and figure out ways to get more capital working in New Brunswick.  The regulation of this stuff matters more when there are actually companies to regulate.

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My column today is on using our size as an advantage.  There are two schools of thought on this.  One, small jurisdictions can’t really compete with large ones at any level so unless you strike oil, just accept your destiny.  The other view is that small jurisdictions can move faster and do innovative things that would be hard to do in large jurisdictions.

The problem is that it’s hard for small places to be innovative and move faster.  It’s easier to be a follower than a leader.

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My old friend Peter Lindfield has a new tactic to tray and get people interested in economic development.   In his column today, he talks about how we need to be more globally connected and touches on the issue of the importance of scale (I’ll deal with this tomorrow in my TJ column).

But what he is really trying to do is scare us.   Check out his mug shot.  I think I’ll try that as well.

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A number of people have insinuated that the problems in Ireland have something to do with the large scale foreign direct investment that has poured into that country over the past 25 years.  The Irish miracle was driven by the attraction of global firms to the Emerald Isle.   

The economic collapse of Ireland is primarily a problem of a housing bubble and a financial system that took on way to much risk and when the financial market burst and the housing bubble burst – Ireland collapsed.

There are ways the country could have mitigated the housing bubble (although this is hard) and the only reason why Irish banks are in trouble is hubris.  Ireland wanted to be a player in the global financial market and decided to play with the big boys.  Iceland had the same problem and its banking system collapsed early on in the recession.

But that doesn’t invalidate the approach to the Irish miracle of liberalizing trade, attracting global investment, expanding the labour market, free university education, low tax rates, etc.  Microsoft, Amazon.com, Facebook, Pfizer, Novartis, Google, SAP, Siemens, IBM, Intel, Wyeth – all still alive and well in Ireland and many are growing.  For anyone to say that attracting thse firms was a bad idea – they are living in fantasy land.

The real lesson of the Irish Miracle is the right way to deal with rapid, sustained growth for an unprecedented period of time.  There was a stretch of something like eight straight years where Ireland attracted more investment than Canada (with a population of 4 million).   The rapid need for migration/immigration, the housing boom, the feeling among certain stakeholders that what goes up will always go up – and many other impacts of unprecedented growth – that is what needs to be studied when the dust settles.

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