Fostering startups among dominant industry supply chains

In October 2016, an old friend of New Brunswick Tim Coates partnered with one of the best researchers on what it takes to be a successful entrepreneur, Daniel Isenberg, on an important piece of analysis.  Published in the Harvard Business Review, the pair found that many of the most successful startups can be found in large corporation supply chains.  This was an interesting finding as a lot of the better known startups actually service end markets – think Uber, Airbnb, etc.

Coates and Isenberg report that “entrepreneurial companies in multiple industries-including health care, technology, consulting, and manufacturing-that have generated sustainable growth by creatively navigating complex corporate procurement processes to become vital parts of large corporate supply chains”.

Another deep thinker, the estimable Dr. Herb Emery at UNB, made an almost throw away comment in a talk he gave recently.  He said that historically – and he meat this in the literal way – most startups occur in a region’s dominant industries.  If you have a large agricultural sector, entrepreneurs will rise up to address a market need locally and then take that innovation to national and international markets.

An an example, look at the agricultural implement manufacturing sector.  If Emery is right there would be a significant correlation between the size of the agriculture sector and the number of firms in NAICS 333110 serving this industry.  In fact, this is correct.  Ontario generates $4.4 billion worth of GDP from agriculture (direct) and has 83 firms serving the industry in NAICS 333110.  There are two adjacent counties – Waterloo and Wellington – that are home to nearly 10% of all the NAICS 333110 firms in Canada (there may be a Mennonite tie-in here but that is beyond my scope for today).  There are two counties in Manitoba that are also home to 10% of the national total.

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Just to allay your fears that these firms are just a few Mennonites building their own scythes, take a look at the export data.  As with the firm intensity, international export intensity is correlated to provinces with large agricultural sectors.  The data in the table is shown in $Millions just in case you are wondering.  So the Emery-Coates-Isenberg thesis seems to hold.ag1

Now, we turn our attention to NAICS 333245 – Sawmill and woodworking machinery manufacturing.  As you would expect there are lots of firms in this sector in BC, Quebec, Ontario as those provinces have large forest products sectors.  But the outlier here is New Brunswick.  Even though the province has a very large forest products industry it has only one firm in this part of the supply chain.  If it had its ‘share’ of the national total it should have closer to 5 – or 5x as many as it does.   For those of you who are curious the exports profile fits the pattern.  Ontario generates $131 million, Quebec, $75 million, BC $44 million and NB $1.2 million from this sector.

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Again, this isn’t really a ‘small’ versus ‘big’ province issue. In the agricultural implement manufacturing sector Manitoba and Saskatchewan are home to 36% of the national total even though they are ‘small’.

Bottom line?  We need to put more brainpower to this issue.  Why are we not seeing innovative startups in our dominant industries such as forest products, seafood processing, blueberries, maple syrup, contact centres, etc.?   Don’t get me wrong there are some notable exceptions – Remsoft comes to mind – but we need to see more.

How?  It is already beginning. McCain Foods has a new initiative to deliberately work with startups to help address its big challenges and drive productivity.  Resson Aerospace is a good example here.  We need the rest of NB’s large firms to step up and think about how external startups could be part of the solution to their business challenges.

It’s a win-win.  The firms can access an innovation sandbox that would be almost impossible to replicate internally.  The startups get access to local markets – to get really good at something they can then take into global markets.

Where do the entrepreneurs come from?  That is broadly a subject for another day but they should be spinning out of the large firms themselves (restless), emerging out of universities (IP) or being attracted to New Brunswick to take advantage of a market need.

This should be part of New Brunswick’s startup ecosystem 2.0.  Over the last decade the infrastructure to support startups has ballooned but IMO there has been limited focus on how to align this with our big sectors and the Herb Emery wisdom.

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The unemployment and education gap between young men and young women is widening

Back in the 1980s Tom Peters was among the first thinkers to suggest that women would rule the knowledge-based economy of the future.  I recall he said something about men being good for heavy lifting or something similar to that.

We talk a lot about income parity, fairness, expanding opportunity, etc. but we are rarely talking about men.  And for good reason.  Men still earn a fair premium over women – even when adjusting for age and occupation – although when adjusting for occupation the numbers are improving.

But there is a specific challenge with men and at some point we will  need to talk about it. The unemployment rate among  young men (all men really) in New Brunswick is starting to decouple from the rate for young women.  The unemployment rate among women aged 25-44 dropped to 6.7 percent in 2016 and is now at historic lows across the province.  For men, however; the unemployment rate has been rising and now sits at over 12 percent.

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Another way to look at this is the spread between the unemployment rate for men versus women.  In 1990, the unemployment rate among young men in NB was actually a hair lower than for women but it now sits at 80% higher.  Specifically, the share of the male labour force that was unemployed in 2016 was 80% higher than the share of the female labour force that was unemployed.

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The challenge is particularly an issue among New Brunswickers without a university degree.  The unemployment rate and spread between men and women with a university degree is much lower (men 4.6%, women 3.5%).

What is going on here?  We will have better information to work with in the Fall when the new Census data is released but it looks like there are not enough jobs for non-college or university educated men  – or more specifically men are not particularly interested in the jobs on offer that match with their education level and income expectations.  Take a look at the changing income profile of men in the following table.  There has been a steep decline in the number of young men reporting earnings of less than $50,000 per year between 2004 and 2014.  while there has been an even sharper decline in the number of young women reporting less than $25,000 in annual income there has actually been robust growth in the number reporting between $35,000 and $50,000 – while among men this cohort too is in significant decline.

So, the number of men earning $50k and up is up robustly but down significantly for those earning less than $50k.  Incidentally among the relatively rare group of young people earning over $100k/year – young men still significantly eclipse women.  Between 2004 and 2014 the number of men aged 25-44 earning $100k increased by over 5,000 while increasing only by 1,220 among women in the same age group.

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I’ll leave you with one last chart on this.  In the 1990s the number of university educated men and women aged 25-44 in the labour force was roughly equivalent.  In the last decade or so it has started to seriously decouple.  In this age group there are now 64% more women with university degrees in the labour market than men.

A growing spread in unemployment between men and women and a growing spread in the education level between men and women is probably something we should keep our eye on.

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Immigration-to-atlantic-canada-for-dummies

Since I didn’t get my invitation to speak to the parliamentary committee studying immigration and Atlantic Canada even though I probably have analyzed more data on this than just about anyone else, I’ll give you my thumbnail analysis of the issue here.

New Brunswick (and for the most part Atlantic Canada) hasn’t had a ‘wave’ of immigrants – i.e. an amount that significantly impacted population levels – since the mid 19th century.  This needs to be front and centre in the conversation.  Integrating new immigrants into existing strong immigrant ecosystems (i.e. the large urbans) is easier.  Integrating immigrants into western Canada – which built much of its current population on inward migration is easier.  Integrating new immigrants into Atlantic Canada with no recent history will be harder and will require significant community-level focus. I have suggested that every immigrant family should be paired with an NB family for at least a year to help integrate them into the community.

New Brunswick has a long history of little interest in attracting immigrants.  After WW2 Canada accepted a wave of new immigrants – mostly from Europe.  I read an academic paper on this recently that stated the NB premier at the time said he didn’t want more immigrants to New Brunswick because of that old canard about ‘unemployment’ here. This could have been the largest single misstep in NB history.  The example across North America is clear – communities with sustained immigrant flows tend to have lower unemployment rates.  Our preoccupation with seasonal industries-EI-inflated unemployment has distorted the conversation on immigration.  I believe if we had put a greater focus on immigration it would have led to fewer young people leaving the province.

Immigrants are essentially the only source of labour force growth across the country.  Between 2010 and 2016 the Canadian labour force expanded by just under 900,000 and 823,600 were landed immigrants.  In provinces such as New Brunswick the born in Canada workforce has been in decline for multiple years.  I can’t see any way to boost the provincial labour market without a dramatic expansion of immigration.
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Immigrants will be more mobile than entrenched, multi-generational Canadians.  Get used to it.   Interprovincial mobility rates rose when Manitoba started to significantly expand its immigration a decade ago. We can’t obsess over this.  I found out this week that two of my favourite immigrants were leaving – both to western Canada.  This is a reality.  They don’t have the anchors here that many of us have.  We can and should do more to anchor them here – networks, schools, churches, etc. but we shouldn’t use this as an excuse to not attract immigrants.  We just need to ensure that we have two coming in for every one that leaves.  And this excuse that we will flood Toronto with immigrants is pathetic.  The broader Toronto region attracts nearly 100,000 immigrants per year.  Any residual coming from Atlantic Canada would be a rounding error.

Don’t obsess with ‘young people leaving’.   We encourage a large share of young people to go into university even as there are thousands of new jobs every year that don’t require university degrees – manufacturing, natural resources, services, etc.  That’s okay but don’t expect them all to stay in New Brunswick.  If you want university educated folks to stay you need a) a growing economy that is creating more local market-focused university education requiring jobs (dentists, nurses, lawyers, accountants, etc.); 2) an economy that is created more university education requiring export-focused jobs (engineers, computer programmers, designers, etc.) or 3) an economy where young educated people are starting new firms.  Other than that let ’em leave.  I find the people I meet that have spent a few years outside New Brunswick bring back valuable knowledge and perspective.  In fact, I would like every New Brunswicker to spend at least a year living outside the province.

Focus immigration efforts on attracting family and friends of existing immigrants.  This should be a no brainer.   As the fed speed up processing times for family class immigration nationally this will have little impact here because we have very few immigrants to begin with.  We should encourage the clustering of immigrants (not the ghetto-ization of new immigrants – big difference) and design our immigration programs to encourage/incentivize this.

Dramatically boost international post-secondary students – particularly in occupations that could be used to grow export industries.   Someone told me recently that UNB Fredericton has more engineering graduates living outside New Brunswick than living and working in-province.  They were critical of this.  Why?  Fredericton has one of the highest concentrations of engineers in Canada and a 40% export rate.   I say over-enrol and over-graduate people in key occupations such as computer programming, engineering, etc. and if some leave – who really cares?  Many will stay.  Many entrepreneurs will take advantage of this labour pool to start firms.  Worst case.  The kids stay here during school and spend, on average, $25,000 per year in our province.  And for immigrant students, they get to spend 2-4 years putting up with our winters.  If they survive they are good candidates to stay longer term.

Set hard targets.   There is a lot of wishy-washy on this which surprises me.   I can line up a number of economists that would say if you want to grow the Atlantic Canada economy in a sustainable way over the next couple of decades we will need to bring in at least one percent of the population each year as immigrants (Manitoba is running around 1.5% and the have the fastest GDP growth in the country).   Just do it.  Set a target of 7,500 to 8,000 for New Brunswick and then work backwards to figure out the resources needed to make that happen.

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Tie new immigrants to actual jobs.  This is a bit counter-intuitive to my previous arguments but hear me out on this.   If you bring immigrants on a point scale that rewards highly educated immigrants but isn’t aligned with the needs in the labour market – that is a recipe for outward migration.  If we need home care workers, assembly line workers, truckers, contact centre agents, fish plant workers, etc. bring immigrants with the skills and aptitude to work those jobs.  Pay them a competitive wage and they are far less likely to leave because they would end up in a similar job at a similar salary in Toronto but in a higher cost of living environment.   Now, I’m not suggesting New Brunswick should go out and actively attract firms with ‘low wage’ jobs to move here but we need to ensure the NB labour market is meeting local demands – particularly for export-focused industries.  We can and should focus our growth efforts on higher wage jobs, entrepreneurship and other high value areas that should attract and retain immigrants (and NBers).

Reorient economic development from financial support for SMEs to talent attraction.  The feds gave Atlantic Canada the immigration pilot (thank you) and then said but there is no new money for these immigrants (huh?).   Normally the feds provide a cash payment per immigrant to fund things like settlement services.  But not this time.  This is an oversight.  Both federally and provincially we need to divert significant spending to talent attraction.  ACOA should become 50% a talent attraction agency.  Our provincial efforts should move significant dollars towards talent attraction and retention.  We talk a big game but until we put our money where our mouth is we will get limited results.

Finally, the federal government needs to fundamentally rethink this.  They may be still sore from the snub in the mid 1940s.  Imagine.  Back then the feds were begging us to take more immigrants.  Now the attitude is the opposite.  If the feds want a prosperous and sustainable Atlantic Canadian economy they need to work with us on a serious plan to attract and retain more immigrants here – entrepreneurs, skilled workers, not-so-skilled workers, post-secondary students, rural, urban – across the board.  There is zero value to Canada – and its social cohesion in the coming years – to have one region of the county withering away for no good reason.  Atlantic Canada has underpopulated urban centres, lots of wide open, rural areas, fallow farmland, lots of minerals and other natural resources.  It’s very easy to start a business here.  There are no real structural reasons why we could not see a wave of new population.  EI? Get over it.  I have heard this excuse for 30 years and I am tired of it.  If the feds want to massively reduce the number of people that use EI every year in New Brunswick then change the program.  If not don’t turn around and beat us over the head with it as a reason not to attract immigrants.

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The bonfire of my vanities

My working hypothesis for the past 20+ years has been that New Brunswick could be a place that achieves strong economic growth, boosts its population, has dynamic urban centres and strong rural economies. The problems, it seemed to me, were surmountable. We just needed to work on a few fundamentals – boosting population through immigration, attracting more global investment, fostering more high growth potential entrepreneurs, getting the federal government to see the region as a potential source of growth rather than a headache to be managed, etc. All we had to do would be agree on a few key principles and then drive those principles for 10, 15, 20 years. In my view the McKenna years could have been the springboard for a growth agenda. And why not? The province is vastly underpopulated relative to its potential. We could easily accommodate 1.5 million in New Brunswick without breaking a sweat. Growth in Atlantic Canada in general would be good for the country as it would show that all areas have the potential to grow and would bind us better as a nation because simmering resentments would be tamped down.

Bu the truth of the matter is that after 2+ decades of study maybe my working assumption may have been wrong all along. Maybe there is something that is fundamentally holding New Brunswick and the Atlantic region back. I have read just about everything published on the subject such as Donald Savoie’s tomes, Hal Frederick’s work on the efforts in the 1950s, etc. But we can’t escape the data. The fact is that despite all the dollars invested, all the plans, all the rhetoric, successive rounds of dewy-eyed federal and provincial politicians the numbers are just getting worse. Savoie’s Visiting Grandchildren has data going back to the 19th Century but I’ll just take you back to the 1950s. Using population growth as one overarching indicator, it has just been getting worse over the decades. In the 1970s New Brunswick’s population growth approximated that of the country as a whole. Depending on who you talk to and how cynical you are there are several explanations for why population growth collapsed here in the 1980s, 1990s, flatlined in the 2000s and is slipping into outright decline now and forecasted to continue into the 2020s and 2030s.

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The title of this blog is deliberate. When I got hired on at GNB 2+ years ago I was wooed in by the idea that I could implement all my great ideas about economic development. I’d be like Moses with the tablets coming down from the mountain. It didn’t quite work out like that. Don’t get me wrong. Many of my ideas – from the need to focus on specific opportunities, to the need to have a rigorous approach to ROI on economic development spending to the need to radically boost the population through immigration are reflected in the new economic growth plan and I had a hand in the crafting of a cross-departmental approach to economic development that didn’t exist before. But it’s clear to me that the provincial government is only one actor on the stage and because of our political system – democracy – it’s direction and focus is heavily influenced by the other actors.

I’m going to continue to ply my trade helping communities, industries and governments foster the conditions for growth and prosperity. I remain convinced that a weak, aging New Brunswick with stagnant economic growth and declining population will be no good for the people here and no good for the country as a whole. I’m not sure we will go over the cliff but I can see us stumbling along for the next 20-30 years doing the same old things and getting the same old results.

A lot of folks talk about inevitability. That Atlantic Canada is doomed by history, by geography, by culture, etc. to underperform but I’ve never bought that argument. If you look at the United States many of the states that have led the country for growth have the worst so-called fundamentals. You can’t tell me that Idaho, Nevada, Wyoming are somehow fundamentally better positioned than a place like New Brunswick.

A little introspection once in a while is good. Too much introspection can lead to paralysis.

I still think the fundamentals for a growth agenda are relatively easy to articulate. We need to find New Brunswick and Atlantic Canada’s place in the global economy. We need to attract a lot more people, investment and ideas. If I was Francis McGuire I’d fundamentally transform ACOA into the agency that positions Atlantic Canada in the world rather than provides banking services to small and medium sized businesses. I’d have multiple international offices (just like Quebec, Ontario, Alberta, BC have) working on trade, investment, talent attraction, institution-to-institution relationships, business-to-business linkages, etc. I’d put talent attraction on the same level as investment attraction or small business support. The vast resources aimed at trying to squeeze a little more economic juice out of the NB lemon I would reorient towards attracting more lemons (re: oops that may not be the best analogy, sorry about that). Instead of setting up all this startup incubation/acceleration infrastructure and then hoping a few NB entrepreneurs will stumble through the doors I’d go far and wide to attract some of the best minds with the best ideas to move here. We want to be a world leader in the Smart Grid? Let’s go around the world – to Spain, to Romania and to China and find those Phd students working on the coolest ideas and let’s woo them here to Shukla’s Energia Incubator at UNB.

We all caught up worried about the young people that leave our region. We use it as the excuse to not attract immigrants. This has been our fatal conceit. Between 2010 and 2016 the Canadian labour market has swelled with a crush of new immigrant workers- more than 830,000 – of which New Brunswick eeked out growth of 3,300 which was more than offset by the decline of New Brunswick born labour market participants.

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And which province led the country in economic growth? The province that had the foresight a decade ago to dramatically boost its immigrant numbers.

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Anyway, I come back to the prediction I made more than a decade ago. On our current path you can expect the federal government to set up a “Royal Commission on the Future of the Maritime Provinces” somewhere around 2026. It will be headed by an Octogenarian Frank McKenna who will conclude the region needs to amalgamate and radically centralize public services in a few urban areas. It will be the strategy to best manage the region’s decline.

I think there is still time to avoid the McKenna Octogenarian Royal Commission but I’m not sure the will is really here to get it done.

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Expanding Riverview’s role as a air traffic control centre (?)

For those of you unfamiliar with Riverview, New Brunswick, some of the nicest homes belong to the folks working at the NAVCAN  Flight Information Region.  There are five of these across Canada.  Ever since I moved back to New Brunswick in the early 90s there have been rumblings of the potential closure of Riverview – it is supposedly the smallest of the five.  Here is what NAVCAN says on its website about the Riverview centre:

“Moncton FIR is an ideal place to work – with reasonable travel to sites, a variety of equipment which keeps the job dynamic, and a great group of people who have a vested interest in your career.” 

There was an excellent article in The Economist this week about the movement of control tower activity away from having one at each airport to centralized monitoring activity remotely.  Norway apparently is consolidating a lot of activity in a small, northern centre that will remotely monitor airports across the country.

In Canada, ‘consolidation’ usually means closing places like Riverview and moving the work to a larger centre.  We have seen it with hotdogs (Maple Leaf) as well as government services.  There is no reason why ‘consolidation’ couldn’t mean closing facilities in large centres and moving the work to smaller centres – particularly for work that isn’t geographically sensitive – but this doesn’t seem to work out much.

Anyway, it would be interesting to understand what is going on in Canada – will control towers be closing in favour of remote monitoring?  If so, could a place like Riverview be expanded to handle activity from across the country?  Or will this be just another example of a national organization – public or private – think CN Shops – closing here and moving the work to Ontario or Quebec?

 

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Nudging the invisible hand – just a tiny, little bit.

For those of you who think I’ve gone all Mariana Mazzucato on you and think government should become a market maker – relax, but I do believe government can be a market nudger.

As I have written about many times I am a big fan of markets. When working well they can be remarkable as arbiters of price, quality, supply and capital allocation. I’ve written whole articles on the ‘pizza’ market. It has small, medium and large firms. It has local, national and international firms. It has firms priced at the low end (Little Caesars) and the high end (Piatto in Moncton) and it has a wide range of specialities from the bland to the highly niched. It features easy of entry and exit. There are firms that make lots of profit and can accumulate wealth and there are firms that go out of business within months of opening. And there isn’t much government involvement beyond food safety and some control over access to certain inputs such as industrial cheese.

But the assumption that somehow all markets are infallible is just not correct. What I mean by this is that we kind of assume that if there is a market opportunity in a local area that enterprising entrepreneurs will be there to fill it. The reason there are no hot dog stands in Fredericton is that there is no demand for hot dog stands. The reason there is no river boat operating on the Saint John River (inside joke) is that there is no demand for a river boat. The reason there is no dentist office in Minto (I’m not sure about this) is that there is no market for dentistry in Minto.

I disagree and have come to the conclusion that one of the central roles of ‘economic development’ – whether practiced by governments, chambers of commerce, industry groups, etc. – should be to shed light on potential entrepreneurial opportunities. Not set up and run businesses. Not provide outsized subsidies to set up and run businesses. But to frame potential opportunities – particularly those with strategic value – and then make those opportunities known to entrepreneurs and business that could take advantage.

We do that a little already. Opportunities New Brunswick is out trying to convince national and international firms that there are ‘opportunities’ to set up in New Brunswick and take advantage of a competitive advantage such as the cost environment, geography, a natural resource, etc. but beyond that we do very little. Most of what we call economic development is helping existing firms – with grants, loans, etc.

For example, if a firm in Taymouth thinks it has a product that it can sell into international markets we will give it grants and loans (ONB, ACOA, CBDC, BDC, EDC, RDC, and other acronyms) to help it get into those markets. But we give very little thought or focus to where the entrepreneurs come from in the first place. That is up to the ‘free market’ – I’m told.

Now the usual retort to my argument here is that how can government be good at picking entrepreneurial opportunities? To many that is like fingernails on a chalkboard (Millennials – Google it). In fact, this is not exactly what I am proposing here.
Let me give you a concrete example. New Brunswick is now the second largest producer of wild blueberries in the world. We have made enormous progress on farm productivity – we have allocated a lot –more Crown land – and we have seen a large expansion in blueberry production to the point we have an oversupply and will be curtailing production.
As far as I can tell there has been significant effort to expand the number and scope of farmers but virtually no effort to foster other types of businesses in the sector – in the supply chain and in the use of the product (other than the attraction of a large scale freezing and storage capacity). Where are the startups? Where are the firms taking blueberries and transforming them in to value added products? Nutraceutical uses? Industrial uses? Where is the commercial kitchen to allow potential startups to test their blueberry-based food products? Where is the university research into the antioxidant properties of blueberries and the tech startups arising from that research? Are there ways to harness the properties of the blueberries as a natural sweetener?

In my view someone – some entity – should be at least shining the light on potential opportunities and exposing those opportunities to potential entrepreneurs. Think of it as a trade show for New Brunswick blueberry entrepreneurial opportunities.

Now, again, to many of you this is a bridge too far for government. This should be the role of private industry or at least industry groups. Maybe so. But where are they? There is a very strong public interest in New Brunswick developing an economic cluster around our blueberry sector. We have a microclimate and environment that is ideally suited to wild blueberry production – there are few locations in the world as attractive as New Brunswick. We can’t passively sit back and hope that entrepreneurs from far and wide will figure it out.

I would infuse this approach across our economic development – local, provincial and national. If Minto needs a dentist because everyone has to drive into Fredericton and pay the premium in time and money to do so – I would contact all the dentist offices in Fredericton and see which one would be interested in setting up a satellite office in Minto. Minto would get the economic benefit of that office and residents would have the convenience. Unless someone actually works on this it may not happen in a Darwin-like fashion.

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India: Investment, exports and talent all in one package?

There are few countries that are the whole package.  If a  jurisdiction is looking to attract investment (or firms that want to invest there) it is normally richer countries such as the U.S. If a jurisdiction wants to develop export markets for its products and services it may not be the same target as investment markets (say potash for the Brazilian market – although that example is one that makes me swallow hard).  Finally, if a jurisdiction wants to attract talent – workers or entrepreneurs – it may not be the same markets as either investment or export markets.  For example, Romania, Morocco and the Philippines may be ideal markets for talent attraction but not necessarily investment or export market development.

India, it seems to me, provides the trifecta.  Indian IT outsourcing firms are placing tens of thousands of workers from India into the United States using the H1B visa program.  Now that program is under threat – at least at a high level making Canada look more attractive.  Indian firms are also a significant source of investment (think AV Birla and its investment in NB forest products mills).  Finally, Indian firms that potentially set up in New Brunswick wouldn’t be doing so for local markets – but as a location to develop export markets.  We have spent decades trying to develop Asian export markets but to little avail.

But when AV bought two mills in New Brunswick exports to Asia rocketed by more than 8x.  If Indian IT outsourcers set up here they too will significantly boost our export revenue.

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The challenge, of course, is that many jurisdictions realize this so the competition for Indian talent and investment is substantial.  Small jurisdictions need to figure out if they can find niches to exploit in highly competitive markets or whether they should focus on less lucrative but less competitive markets.  NB has already attracted one small IT firm from eastern Europe – there may be many more looking to set up in North America but that are nervous about the US of A at this time.

But we need to give India the good ol’ college try.  The opportunity is too great to pass up.

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New Brunswick: Nearly 1/5th into a New Century

As I get older I realize there actually isn’t much that old people have on the young.  These days skills can be acquired at lightening speed, many young people have figured out the importance of networks in a way that most in my generation did not.  There is one thing that age brings that is hard for the young – perspective.  You can read about events all day long but that is not the same as living them.  Characterizations of the ‘Moncton Miracle’ by  the young today do not have the same texture as those served up by David Jonah or others that were actively involved at the front end in the 1980s.

Recently while cleaning out old files I came across a hard copy of this McKenna era report  (New Brunswick at the Dawn of a New Century) on demography and how it would impact the province in the years ahead.

There are a few fun facts in this report.  It states, for example, that the per capita costs for publicly funded health care in New Brunswick for those 85+ was a shocking $477 in 1995 – more than double (!) the overall per capita costs.  According to the Bank of Canada inflation calculator $477 in 1995 would be the same as $713 in 2017.   Guess how much the per capita costs for 85+ health care are today?  Depending on your data source – around $12,000 per 85+ person.   Don’t even think about projecting this growth rate out over the next 20 years or you will be immersed in a Richard Saillantian world of cliffs and cleavages.

But what is most striking is what is not said in this report.  They set up a select committee of the Legislature – delve into the big issues – the global desire to moderate or reduce population, the fact that Canada will need 500,000 immigrants per year by 2030  – a target by the way we are well on the way to hitting nationally – all of the major drivers of New Brunswick’s demographics – and then virtually no recommendations – only vague statements about need to come up with innovative solutions, etc.

In the 1995 Throne Speech, McKenna stated “dramatic demographic changes are ahead, creating risks for the unprepared and opportunity for the far-sighted” and “New Brunswick will be ready for the twenty-first century.”

I can’t help thinking as my mother used to say “there is many a slip between the cup and the lip”.

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The importance of skin in the game

I’m not sure where this term, skin in the game, comes from – I won’t google it because I may not like its origin but I do like the concept.  I think it applies to economic development here in New Brunswick. Nassim Taleb – the black swan guy – co-authored an excellent paper on the general theory of skin in the game back in 2013.  I think he is coming out with a book on the subject soon.

New Brunswick has an economic development problem.  It’s economy is growing very slowly (on average, 0.5% per year since 2008), employment is declining and investment is flat.  Productivity remains a key challenge.  Why does this matter?  Can’t we just limp along as a province for the next 2-3 decades until we get beyond the Boomer demographic hump?

I’m not sure.  The premise behind the idea of Canada is that rich provinces will cover the shortfall in poorer provinces and every Canadian will have good quality public services and public infrastructure at reasonably comparable levels of taxation.  In an increasingly competitive world the ‘rich’ provinces (think Ontario) are facing their own heightened competition for investment, talent and ideas.

In my view, the best approach moving forward is for each province/region in Canada to buckle down and build an economic agenda that focuses on a substantial increase in the inward flow of migrants, high growth potential entrepreneurship and economic opportunities for which the region has a strong value proposition.

This brings me to the skin in the game concept as it relates to economic development.  I believe that industry groups, municipalities, and other actors need to put skin in the game and work with the provincial and federal governments on the growth-focused economic agenda.  It’s easy to blame government when things go wrong.   And government needs to shoulder some of the blame.  But if we really want industries and communities that thrive, we need a collaborative approach where each stakeholder plays a role based on its strengths.  Government has things it does reasonably well and others that it doesn’t.  This vision of government as a bank for industry that gives cash and then ‘gets out of the way’ is not going to get it done.

So, we need municipalities, industry groups, universities, not-for-profits, etc. to put skin in the game.  Some of the most inspiring stories I have heard in the past year have been community-level efforts to foster economic development. St. Stephen comes to mind with its wildly ambitious goal of adding 1,000 people to its population within a decade.    Transport yourself to 2025 to see how St. Stephen envisions its future.

The provincial government is trying to seriously evolve how it approaches economic development putting much more emphasis on the factors that drive long term economic success – the talent pipeline, infrastructure, innovation, focusing on areas of strength and we need our partners to step up to the plate too.  We should be well beyond the old NB value proposition of lower costs and lots of available young workers (the value proposition circa 1990).  We now need to be a place (actually many places) where entrepreneurs and companies want to be because there is a broad value proposition for them to be here.

 

 

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Ensuring there are workers across the labour market spectrum

The new immigration pilot worked out with the feds is unique because the Atl. provinces can now attract needed workers across the labour market spectrum – from fish plant workers to engineers. I have had more than a few people question why we would want to attract immigrants into sectors not paying particularly high wages. The logic goes that the firms struggling to find workers should pay higher wages or become more productive. One economist said that the “only way” to reduce our 10% unemployment rate would be for firms to raise their wages to a level that would attract in workers.

In theory there may be some logic to this but in practice there are many other factors at play.  Firms in export industries compete in global markets and therefore cost competition is set globally.  If input costs increase too much in one location and not another it puts the former at a competitive disadvantage.  Productivity is a good thing for sure but many firms still require lots of workers.

Look at the growth in below average wage jobs across Canada between July 2008 and July 2016.  This data is taken from the Survey of Employment, Payrolls and Hours (SEPH).  The average wage includes overtime.  Across the country jobs in below average wages have increased by 10.5%.   In New Brunswick below average wage (occupations) jobs decreased by 0.1% – and if you back out health care and social assistance (which, yes, is a slightly below average wage sector because of the many support occupations in there – nursing home care workers, child care workers, etc.), the number has dropped by 7.3%.  When you look deeper you will see that many of the high wage occupations are dependent on the state of the local economy (doctors, lawyers, architects, electricians, etc.) so not addressing labour shortages in below average wage occupations drags down the potential of high wage jobs in the economy.

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The compounding challenge here is that young New Brunswickers increasingly don’t want to work in ‘lower wage’ occupations.  Between 2008 and 2014 there was a 15% decline in the number of persons under the age of 35 declaring annual income of $35,000 or less – a 3x times larger drop than Canada as a whole . At first glance you might say that is a good thing but look at the following graph.  Look at Alberta.  The strongest economy over the period actually saw growth in the number of young people earning less than $35,000 per year.  Why?  Because there are lots of jobs in any economy – for better or worse – that pay below average wages.   A  strong and sustainable economy is one where there are workers to fill jobs across the spectrum – with a healthy upward pressure on wages over time.

 

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If you look at the case of Manitoba it has witnessed record numbers of young immigrants coming in to fill jobs in food manufacturing, back offices and other service industry jobs (it’s no accident they are second only behind Alberta in the chart above).  The wage levels aren’t particularly high but they are an order of magnitude higher than what the immigrants were earning before.

This could be the biggest public policy challenge of our time.

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