It's The Economy, Stupid

My upcoming column in the Economy Lab looks at reliance on government transfer income (i.e. CPP, OAS, EI, social assistance, etc.) and income taxes generated to come up with communities that are ‘have’ (i.e. contributing more but taking out less) and have-not.  This is a different take on our traditional view of have and have-not at the provincial level but I think it is an important analysis because you end up with places like Halifax as a ‘have’ urban centre in a ‘have-not’ province.  Halifax contributes much more than the national average in terms of average income taxes paid per taxfiler and takes out much less in terms of government transfer income per dollar of employment income.

Of course the analysis doesn’t look at broader factors such as direct government payroll (which supports income in government towns) or public spending.

You can view a document showing all of Canada’s CMAs and CAs for these two metrics by clicking here.

The comparison of the two bookends in Canada – Elliot Lake, Ontario and Wood Buffalo, Alberta is shown below.

PS – it’s taxfiler not ‘taxfile’ as shown in the source under the tables.  Can’t edit the jpg.

Uncategorized

I have been writing lately about how New Brunswickers are far more reliant on government than ever before but it seems more and more are tuning out or becoming increasing cynical.

Certainly we are more reliant on government as a direct source of provincial income than a generation ago.

The following tables show the number of persons collecting income by source and the total amount of income collected by that source.

In 2010, 585,000 NBers received income from at least one source (essentially they filed a tax return showing income).  That is over 90% of all adults in the province.    That includes those who work full time, work part time, collect income from a retirement source/pension, investment or money direct from government.

Almost 420,000 New Brunswickers received income from the a government transfer.  More people declared income from a government source than declared employment income (418,280 earned employment income).

You can’t sum up the totals under the government transfers category because people can declare income from more than one source.

A few interesting points that align with recent trends we see elsewhere in the economy.  There has been a decline in the number of persons early self-employment income and the total amount of income from self-employment has actually declined if you adjusted for inflation over the 10 year period.   I can’t get a straight answer from folks that might know as to why this trend is occuring.  Both the number of self-employed persons and total self-employment income has been increasing across Canada.

The steep drop in the number of persons reporting investment income is concerning.  As the population ages, we would like to see more, not less, declared investment income.  However, the recession bit into investment income across Canada.

The decline in social assistance recipients and income is a 20 year trend and this is what is causing concern among some who study the EI changes.  It has been proposed that seasonal work/EI has replaced for a certain percentage of the population what would have been social assistance in the past.  If that postulate holds, the concern is that maybe 20,000 or more people will eventually go back on the social assistance rolls as the result of the changes.    This is a theory, but a plausible one.

If you want to know how the regions within New Brunswick fare on the reliance on government income scale, there is a table below.  If you want the full list of Canadian CMA/CA areas, click here for a PDF version.

Uncategorized

In my TJ column tomorrow I will be taking another stab at the question I am frequently confronted with – why does the government attract multinational firms when the focus should be on New Brunswick small businesses.  This has been the number one question I have received over the years and I have had a devil of a time trying to explain it.

The simple answer is that 95% of all small businesses generate their revenue in their local economy – lawyers, accountants, doctors’ offices, coffee shops, electricians, etc.   In order for one lawyer to generate more revenue, he/she needs to take the work from someone else.  These multinationals coming into the province (be clear I am talking about the ones brought in by an organization such as Invest NB not Walmart or Costco’s local retail operation), are almost exclusively export-based businesses meaning that their economic activity will bring money into New Brunswick and grow the economy.    Then lawyers, doctors’ offices, coffee shops and electricians will have a bigger pie to fight over.

If you compare NB to the strongest economy in Canada – Alberta, you get a clearer understanding of this.   Look at the GDP created in export-intensive sectors of the Alberta economy compared to New Brunswick.  That has huge spillover effects into other sectors of the economy that are more locally oriented.   Note that the sectors where the GDP spread is the lowest – public administration, health care, utilities and education are those sectors that are primarily publicly funded.

New Brunswick doesn’t generate as much GDP from exports as we are told.    We constantly hear that New Brunswick is one of the most export heavy provinces or states in North America.  That is true but there is a huge difference between exports and GDP particularly in the oil refining sector which gobbles up 68 percent of the total value of product exports.

We don’t have the New Brunswick data because it is suppressed but the Ontario data is very revealing. In 2008, the petroleum and coal products manufacturing sector [NAICS 324] in Ontario generated $22.4 billion worth of industry output but only $1.3 billion worth of GDP.   If you don’t believe these numbers, you can check out CANSIM tables 381-0015 and 381-0016 yourself here.

This doesn’t downplay the importance of the oil refinery in Saint John.  If it generates $500 million worth of GDP that is still a huge number but you can’t compare that to the $7.5 billion worth of exports in 2008.

All this to say that New Brunswick shouldn’t focus on exports per se but on GDP from export activity.

Uncategorized

I got an email yesterday from someone close to the NB Power deal with Siemens telling me that this had the potential to be NBTel-like in that it would lead to a number of New Brunswick IT firms building products and services in support of the smart grid.

Let’s be clear about this. It will be a cost to the New Brunswick taxpayer.  The NB Power President said ‘several million dollars per year’.  That flows through power rates to the NB taxpayer.

There is a reason why smart grid has not been widely deployed – it costs a lot of money.

You will have to talk to someone like Rob Hoadley to understand the full dynamics of this but building intelligence into the grid and deploying the necessary devices in homes and businesses will be costly.

But I am not opposed to this – particularly if there are broader benefits than just helping NB Power overcome its Achilles Heal of peak winter heating.

There wasn’t much reason for NBTel to make many of the investments it did either.  Some failed, some were successful but in the end we know that NBTel’s investments – paid for by the taxpayer – at least initially – through rates – paid off and helped seed the ICT industry in New Brunswick.

So, the model sounds good.  A world leader in smart grid – Siemens.  A commitment to working with local NB firms on the development of applications and services that could be exported around the world.  A big and supportive partner in NB Power.  Hopefully, alignment with the Dept. of Economic Development and Invest NB.

Maybe we need research chairs at UNB and UdeM in related fields.  Maybe we need other infrastructure investments.   For sure we need to focus on what is possible and what needs to happen to make this industry grow in New Brunswick.

I hate to be the one to point this out but in the mid 1990s, New Brunswick was a world beater in e-Government.   Now we rank 8th out of 10 provinces for e-Government.  And there is little evidence that NB’s IT firms are building a lot of  exportable e-Gov applications and services.

The point is simple.  Government (or in this case the electricity utility) can ‘prime the pump’ of an exciting new sector development opportunity by being a lead client.

But it doesn’t just happen.

If NB Power is to become the new NBTel, it will take a lot of work.

I’m crossing my fingers.

Uncategorized

Got a few questions relating to immigrants who graduate from our universities/colleges and would like to pursue their careers in New Brunswick.  I’ll put forward a few thoughts on this.

If you think about it, networks matter – informal and formal – when it comes to professional employment.  I left New Brunswick for six years to go to university and when I came back in 1991 it was brutal.  The recruiter at NBTel told me outright they prefer people with degrees from local or Canadian universities.   After a long search process, I ended up getting a job because a cousin knew someone and got me in to a job for a three month contract which started my eventual career.

Immigrants face potentially greater hurdles (remember I am talking about professionals that don’t have a job lined up – the front line service and manufacturing  immigrant workers are brought in specifically for those jobs).    They have virtually no networks and other resume issues.

The Greater Halifax Partnership used to have a formal immigrant networking program where leaders in the Halifax business community would agree to introduce a group of immigrants to at least five different other business leaders and facilitate a formal discussion.  This was a deliberate process to create networks.  This might be something we should formalize here in NB – although I know it goes on informally.  Any new graduate or professional immigrant looking for a job would connect with the program and get at least five doors opened.

We should also do more immigrant internships.   Ambitious young immigrant MBAs could work in a firm or organization with no strings just to get experience and as a trial run.

We should also look at linking up immigrant professionals with the startup/entrepreneurial crowd.  Many could be interested in the startup environment and just need an intro into that world.

When New Brunswickers get their heads around the reality that several thousand immigrants per year is a likely outcome within a few short years, we should be putting the systems in place to make sure there is as much retention and integration into the workforce as possible.

Uncategorized

We live in an age of unprecedented access to information, decision support tools and expert opinion.   When I started in my career more than 20 years ago, I had to get Statistics Canada data by going to the UNB library and photocopying relevant data.  Now, I have CANSIM at my fingertips.    I had to manually read through old editions of Time, Macleans, etc. to look for interesting information that would help us make the case for investment into New Brunswick.  Now, I can keyword search tens of thousands of publications in an instant.

I have no hard data on this but the ‘expert opinion’ industry seems to have ballooned in recent years, too.    From 1996 to 2006, the number of persons working in the occupation “E03 Policy and program officers, researchers and consultants” across Canada skyrocketed from 104,030 to 167,920 – a 61 percent increase in just a decade.  Although for Andy Scott and others worried about New Brunswick, the number of people in this occupation actually declined in New Brunswick from 2,490 to 2,475.

And yet when it comes to the biggest public policy issue of our time, it seems to me that more than ever we want to simplify and boil things down to simple ‘good’ or ‘bad’ constructs.    Following Gladwell’s Blink, we make up our minds on these issues in a flash based on an article or conversation in one of Mike Murphy’s coffee shops.

I much prefer sober second thought.   When you are first confronted with an issue – no matter how it looks to you at first glance – take the time to back away and study the issue from all sides before drawing conclusions.

New Brunswick is facing some big time public policy challenges these days including shale gas development, immigration, an aging population, managing health care costs and expectations – even bilingualism is back in the debate ring in some quarters.  We don’t need snap judgments.  We need sober second thought.

And we need expert opinion to provide us with good analysis of these issues.  So many of our experts from think tanks to trusted public figures draw their conclusions aligned with a hard ideological viewpoint.   When someone breaks this tendency, it seems to be an exception not the rule.

I understand there is no ‘pure’ analysis.  We are all guided by our personal histories and influences.  But there must be somewhere out there reasonably objective analysis.  In the halls of academia  - somewhere.

For example, when the Association of Consulting Engineering Companies – New Brunswick says its supports “responsible” development of the shale gas sector – that gives me some comfort that we might be able to do this without creating a’burned out, industrial wasteland (actual quote in the TJ from a prominent NB environmentalist).  Because I don’t know about you but I have no real interest in supporting anything that will create a burned out, industrial wasteland.

It’s a kind of intellectual laziness to want to boil complex issues down to a simple binary choice.

Uncategorized

Where will the EI changes have the greatest impact?  The Mowat Centre has been writing op/eds and analysis insinuating the impact will be greatest in Western Canada but if you read carefully – they say at the ‘individual’ level.  I don’t particularly take issue with that conclusion but I think most of us are interested in the impact at the community or regional level.  Because Atlantic Canada – particularly rural Atlantic Canada – is so dependent on the EI program, it would virtually impossible to conclude the overall impact of the changes will be greater in Alberta than in a place like New Brunswick.

In an upcoming commentary, I conclude:

“The Mowat Centre would be wise to come to Atlantic Canada and do a little more research into on-the-ground realities in the region.  In New Brunswick, for example, decades of out-migration – particularly among young people in rural parts of the province – is leading to increasing shortages of workers in retail services, accommodation, food service and even transportation.  

Under the old EI rules, workers in manufacturing, construction or primary industries would not have been required to take jobs in these other sectors.  Now, under a strict interpretation of the rules, not only will they have to take these jobs but at as much as 30 percent lower wages than they earned before.”

Uncategorized

I love following the debates that go on in other cities across Canada.  Take Vancouver, ex-City Planners are ‘concerned’ that the current leadership is not doing enough to prepare the city for the rapid growth expected over the next 40 years.  The article states that Metro Vancouver (the CMA) is expected to grow to around seven million by 2050.

The Vancouver CMA has 2.3 million today.

That is why I had to chuckle when I read this article.

Imagine if Moncton was planning to 420,000 people by 2050?  Or Saint John 400,000 by 2050?  Or how about the Halifax CMA planning to be 1.2 million by 2050?

It’s just not in our DNA to think like that.

Why not?

Moncton, for example, grew its population by over nine percent from 2006 to 2011.  At that growth rate between here and 2052, the CMA would grow to more than 350,000 people – based on a proven growth rate (albeit a very short one).

If anyone was really expecting Moncton to grow to 350,000 people in my lifetime (84 in 2052), they would be raising the same red flag as the ex-City Planners in Vancouver.

We just don’t think that way.

Uncategorized

I have had the opportunity to do some work with Invest NB so I put my bias on the table but I have to say the folks who are complaining that most of Invest NB’s announcements have been multinational expansions (i.e. they were in NB already and are now expanding) are misguided.

I don’t understand that gripe.  I have said (and many others too) that in a hard investment attraction market – with stiff competition – the best opportunities for growth are those multinational (and local) firms in our own backyard.  I specifically recommended that Invest NB go after the firms already here and try and convince them to expand here and – it seems they are having some success (Salesforce.com, Thomson Reuters/Elite, now Genesys Labs, etc.).

The critics say those firms would have expanded anyway.   While I don’t know the specifics of any of these files, there is nothing that would indicate these firms would have expanded here – automatically.

Anyone in sales will tell you the best opportunities for a new sale will always be through upselling existing customers.  That’s why you get harassed by the telephone company to add new services (or at least I do).

A few years ago I completed a project in another province that involved interviewing multinational firms located in a specific city in that province.  Of the dozen or so firms I interviewed, only 2 or 3 had any idea the provincial economic development agency would actually help them pitch head office on the potential of expansion in that city and none – not one – had ever got a visit from that provincial economic development agency.  That’s a strange case to be sure but it does point out the absolute imperative to make sure you comb through your own couch for loose change before you start knocking on the neighbour’s door.

Invest NB is following the investment attraction playbook.

Uncategorized

The Economist magazine has a spectacular special report this week on natural gas.  It covers everything from how the gas market works, to the new technologies used to extract gas to how gas is changing energy markets around the world.  There is also a full section on the risks associated with gas development including environmental concerns.

The NB government estimates this province has some 80 trillion cubic feet of shale gas.  Now most of us, including me, don’t have any idea how much that is but anything measured in the trillions seems large.

Canada’s total production in 2011 was estimated to be 3.75 trillion cubic feet so by that measure, there is enough gas under New Brunswick to supply the entire Canadian market (and substantial exports) for 21 years.  That’s a lot of gas.

We don’t know if it can be extracted.  We don’t know if there are markets for this gas.  We don’t know if we will be cut off as shale gas is developed widely elsewhere.    We do know we have the gas.

What do you do when you realize – in very short order – that you have a gold mine under your feet?

This is all wild speculation of course but take that 80 Tcf and multiply it by a conservative price of $4.00 per thousand cubic feet – and you get a revenue stream of $320 billion.  Spread that out over the next 60 years and that would equate to $5.3 billion in revenue per year (in today’s dollars and assuming $4.00 stays).  That, in turn, would translate into substantial tax revenues per year (through royalties and economic activity) and possibly several thousand good paying jobs direct, indirect and induced.

I don’t want to debate these numbers.  They could be wildly high or low – the estimated amount of gas is only based on what is known.

This is why I am frustrated that the environmental concerns over hydraulic fracturing have taken up 99 percent of the conversation.   I agree this is the most visceral issue and one that has been pounded by environmental groups, social media and the traditional media but there are other major concerns too such as markets for our gas.    Everyone is racing to attract natural gas investment – across Western Canada and more than a dozen U.S. states.  We have a large store of it but finding uses at an acceptable price (to buyers and producers) is critical.  Are there potential new uses for our gas?  We have substantial pipeline infrastructure and gas offshore Nova Scotia is likely to be dry within a decade or so.

If we don’t develop our own gas, we will have to bring it in from the US or from LNG – and other places get the economic benefit and we just pay the cost.

So let’s have the debate but I really hope we can expand it to include a broader set of issues.

Uncategorized