End of year miscellany: The Big Apple, incentives and the role of government grudge match

The big apple
On relatively short notice I decided to take the family to the Big Apple between Christmas and New Years.  I knew it would be busy but in fact it was downright crazy.  Everything was teeming with mostly frustrated tourists.  Doesn’t matter where – Battery Park/WTC, Times Square, Rockefeller, 5th Ave. – even Central Park – throngs of tourists.  Finding a restaurant, washroom, getting into stores – the simple things – were challenging.  Without any data to back me up its seems to me that Airbnb might be distorting the tourism market there.  The number of hotel rooms traditionally acted at least somewhat like a brake on any tourist surge in New York City but with Airbnb -maybe that natural ceiling is broken.  Bottom line?  There were many places we went to that were easily well beyond the maximum number of people allowed by City Hall.

There are few lessons for New Brunswick’s tourism sector to be gleaned from NYC but after hearing families screaming at each other as they elbowed their way through the cattle cars that were the streets of Manhattan, I realized that part of our tourism pitch should be opposite of the large urban pitch.  Less waiting, reasonable costs, open spaces, avoid the madness – come to New Brunswick.

That won’t dissuade most of us from visiting the centre of the universe but it it might make some folks think twice.


Me lecturing my kids on the PATH train from Newark to Manhattan.  Photo credit: Alice Campbell

Government incentives in the background?
I was surprised to read a job advertisement in Fredericton that openly discussed the Youth Employment Fund.  It states on three separate occasions that the firm is using the YEF to push up wages from slightly above minimum wage to $15/hour.  It looks to be some kind of warehouse/processing operation – retail fulfillment playing on the Amazon brand to reel in workers.

The YEF was set up to help firms hire young people and give them work experience to help advance their careers.  It wasn’t meant to be a structural and ongoing wage subsidy.  When I read this job ad – that is what I sense.  A firm that is looking to use government funds to push its hourly wage costs below minimum.  I hope not.   Using government support to provide internships, coop work and other experiential learning for young people to get experience learning a skill is a good thing.  Using it a kind of structural subsidy is not.

The ‘role of government’ grudge match
One of my favourite podcasts going back more than a decade has been EconTalk hosted by Russ Roberts.  Roberts is one of the leading voices among economists that believe government needs to be restrained and he has weekly guests across the spectrum leading to lively and thought provoking discussions.  He recently interviewed Mariana Mazzucato who is gaining traction in her call for a more robust role for government in shaping markets and fostering innovation.   It was a civil conversation although she claimed after she had to restrain herself.

My problem is that I find myself liking both points of view.  I think Mazzucato is winning many converts. Many people see the public interest in economic development and want government to play an active role.  On the Chinese end of the spectrum you have government declaring the country will the “world leader” in industry x or y within 20 years and putting massive resources against that goal.  That has a certain appeal particularly in areas that are falling behind.

Unlike most of my colleagues, I spend several years in university studying under professors pushing public choice theory and Austrian economics.  The prof that I worked for during my MBA program didn’t think governments needed to own roads and that private banks should issue money.  While these two specific examples seemed a bit strange to me I do remain a believer in free markets.   But at the same time I understand Mazzucato’s point of view.

What I find particularly interesting is that in everything I have read and heard she isn’t a virulent basher of capitalism and free markets.  She just wants government to play a more direct role when needed to drive innovation and the public good.

I never understood why many people wanting robust public health care systems, expansive social safety nets and excellent public infrastructure are also those quickest to bash markets and the profit motive.  If the goal is to have a robust enough economy to generate the tax revenue to pay for all this public largess you would think these folks would be staunch supporters of capitalism and celebrating innovation, the resulting surpluses and the tax revenue gleaned from them.  For some reason it is more likely for the advocates of strong publicly funded services to be bashers of capitalism and private industry.  This seems to me self-defeating.

This is not to say, as I have stated many times before, that all business is good, all entrepreneurs are noble, etc.   We have to be able to walk and chew gum at the same time.

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New Brunswick is (mostly) lit*, folks. Pass it on.

*Editor’s Note: The writer’s kids tell him that that the word ‘lit’ was previously used to define the state of a person who is mildly intoxicated. Now, it has evolved to generally mean something that is cool or amazing.

The other night my wife and I were out enjoying a nice meal at Gusto restaurant in Moncton when she casually mentioned that an ESL student of hers was surprised at how far behind the New Brunswick school system was compared to her home country in Latin America. I won’t mention the country in question because I don’t want to make this personal – I have a broader point to make. Apparently her eight-year-old son was doing advanced calculus in his home country while the New Brunswick eight-year-old kids were fashioning play dough during class time*.

*Editor’s Note: The writer is exaggerating here for effect. The eight-year-old student in question was actually performing three-digit multiplication back in his home country while the New Brunswick kids were supposedly still working on basic multiplication tables (e.g. five times five).

I proceeded to lash out at my wife with a tirade such as “if things are so great in that country…..” why is it’s GDP per capita 80% less than New Brunswick? If the education system is so great in that country, why are its PISA scores so much lower than New Brunswick?*

*Editor’s Note: The agitated defender of New Brunswick didn’t know at the time the country in question’s PISA scores. He is not Cliff Clavin from the old TV show Cheers. He just assumed. A quick check later confirmed that indeed this Latin American country’s PISA scores (while improving) are dramatically lower than New Brunswick for both reading and math. For those that know the PISA, an 80 or 100 point spread is substantial.

My wife made what was likely a series of sensible responses, but I was too busy angrily defending New Brunswick and expressing moral outrage.

Later, of course, I apologized to her and we had a rational conversation about my spontaneous outburst of rage.

The truth is that because of what I do for a living every day I hear constantly about New Brunswick’s challenges. We pay too much tax. New Brunswickers are lazy, entitled and hooked on EI. Young NBers have lost the work ethic of previous generations. We are resistant to immigration, technology and any kind of change in general. Governments are slow, lethargic and lack ambition. Our education system is in the toilet. We have terrible health care and health outcomes. People are fleeing the province in droves. On, and on, and on.  I guess it finally got to me and I took it out on my poor wife.

Give your head a shake*. I did. It helps put things back in perspective.

*Editor’s Note: Do not shake too hard. With the apparently outrageous wait times at the ER you might end up with a permanently addled brain.

We must be able to talk honestly and openly about our challenges in New Brunswick without throwing the baby out with the bathwater. Having folks from other countries move here and question things is a good thing. It is reasonably obvious that this lady’s young eight-year-old Einstein was likely attending a private school back in her home country*. When you compare apples to apples the outcomes from the NB education system are much higher than this unnamed Latin American country (not Brazil, by the way, for my outsized number of Brazilian readers).

*Editor’s Note: With my relatively limited exposure to international education systems it does seem certain countries still place a much higher focus on rote learning than in New Brunswick.  I’m not sure a majority of Grade 12 students here could rhyme off their multiplication table through 12 x 12 = 144.  

This doesn’t mean we don’t have work to do. We have lots of work to do in our education system. The risk in public education systems is towards a ‘leveling down’ to ensure everyone gets the same chance but the system – even a public system – should allow those with more drive to be far more challenged in school – pushed harder. There are ways to do this without compromising the vision of good quality public education. As I have said before, I think we could use a little more private K-12 education to keep the public system on its toes.

We have real issues facing us in the health care area but the gross domestic product (GDP) in New Brunswick generated by the health care is higher than the entire GDP from all sectors in the aforementioned but anonymous Latin American country. We spend a lot of money – private and public – on health care. We have eight health care workers for every 100 people living New Brunswick. There are certainly ways to improve and we need to do so but to equate New Brunswick’s health care system with 3rd world or emerging world countries is crazy.

The bottom line is that New Brunswick is a great place to live. Is it the best place in the world to live? I would be skeptical about any place that made such a claim*.

*Editor’s Note: Except La Jolla, California – that place seems to be just about perfect – if, and this is a big if, you can afford it. If you haven’t visited there, you should.

I have visited every U.S. state except Hawaii. I have visited every Canadian province multiple times. I have made over 30 international trips to nearly 20 countries and I would say that IMO (and, by the way, it is always IMO) New Brunswick is a pretty great place to live. The cost of living here is comparatively good. The commute times to work are hard to beat.  Crime rates are low (at least for violent crime). There is little corruption in government*.

*Editor’s Note: Yes, for you cynics, this is true. In a lot of places in the world, people go into politics poor and come out rich. In New Brunswick, people go into politics poor and mostly come out poor. After politics a few have gone on to become wealthy but for the most part politicians in New Brunswick don’t get rich because of their political connections.

So, let us continue to work on this place. It is a definitely a work-in-progress. We need stronger and larger urban centres. We need to flow in tens of thousands of immigrants and, yes, be able to take a little criticism from folks that have a different perspective. We need to rejuvenate our rural economy with more focus on agriculture, tourism and natural resources development. We need to reform EI – at least for the next generation.  We need to be more innovative and realize we are competing now on a global scale for people, investment, export markets and entrepreneurs.

But when it comes right down to it, fellow New Brunswicker, you are living in a place that affords most people a comparatively good quality of life.

Your situation might even be ‘lit’.

Ask a teenager to be sure.

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It’s time for economic development 201 or even 301

As you might expect, when I talk with people these days the main question I get is “how do we get the economy back on the rails?”  Usually this is in response to my presentation where I show New Brunswick is in the longest period of economic stagnation at least in the last 80 years as measured by GDP growth, business investment and labour market growth (decline).

For example, I had coffee with someone (a reader of this blog) who is adamant the solution is productivity.  New Brunswick’s economy is less productive (various measures) than other jurisdictions and therefore only a productivity revolution will ensure long term economic growth.  Other folks talk about the need to boost export revenue – flowing more money into our economy from outside.  Others fret about the lack of new entrepreneurs.

These are all good points, but I always bring people back to the question ‘why?’.

We need a deeper understanding of the fundamental value proposition that drives business investment, attracts and retains talented people and creates the conditions for new entrepreneurs to step up.

Right now the overarching issue is people.  I know I am a broken record on this but it is now the #1 reason why New Brunswick’s economy is not growing, IMO.  The Canadian labour market has added nearly 1.5 million workers since 2010 while New Brunswick’s has shed 11,200.

Growth/decline in the size of the labour market
November 2010 to November 2018
(seasonally adjusted)

000s % Change
Canada 1,462.0 +8%
New Brunswick -11.2 -3%

Source: Statistics Canada Table: 14-10-0287-01

But the bigger long-term issue is value proposition – specifically the rationale for businesses to invest in our province or people to stay and build their careers here.  We can’t buy this with government subsidies, we can’t just make a wish and hope nor can we rely on the munificence of local business people to keep investing even if it makes more sense for them to deploy capital elsewhere.   Sure, local people are more reluctant to move their capital – they feel a greater attachment to New Brunswick but in the longer run there needs to be a reason – a value proposition – for investing here.  I would say the same thing for the workforce.

The value proposition varies from industry to industry, but it comes down to things like cost environment, talent pool, infrastructure, tax and regulatory environment, natural resources and other geographically-based assets and other factors.

We can’t just pitch ourselves as a great location for business.  We have to see strengths and target industries and firms that would benefit from being located here.

Role of government

Whether we like it or not, many of our top export industries are significantly influenced by government policies. Here are the top 25 international merchandise exports from last year grouped by similar industries and the role of government.  These industries generated $12.2 billion worth of export revenue for NB:

Industry: Role of government:
Petroleum Refineries
Limited.  Environmental oversight, tax issues.
Seafood Product Preparation and Packaging, Fishing, Aquaculture ($1.7B international exports)
High.  Government sets quotas, regulates activities, decides who gets licenses, etc.
Paperboard Mills, Veneer, Plywood and Engineered Wood Product Manufacturing, Pulp Mills, Sawmills and Wood Preservation, Paper Mills, Other Converted Paper Product Manufacturing, Millwork, Paperboard Container Manufacturing, All Other Wood Product Manufacturing ($1.9B intl. exports)
High.  50% of land mass is owned by GNB.  Government decides who gets the wood – what, when, where and how.  Also, government owned utility sets price of electricity.  Governments sets environmental policies, etc.
Snack Food Manufacturing, Frozen Food Manufacturing, Vegetable and Melon Farming ($275M intl. exports)
Moderately high.  Government sets agricultural policy, determines quotas, subsidizes, etc.
Non-Ferrous Metal Rolling, Drawing, Extruding and Alloying
Moderately high.  Government sets environmental policies. Also, government owned utility sets price of electricity for this energy intensive industry.
Oil and Gas Extraction
Limited for LNG imports.  High for every other part of the industry.
Recyclable Metal Wholesaler-Distributors
Moderately high.  Government sets environmental policies.  If the big bangs at the SJ Port don’t get solved we could lose $135M in international export revenue.
Electric Power Generation
High.
Other Non-Metallic Mineral Mining and Quarrying
High.  Government sets environmental policies, crown licenses, First Nations issues, etc.
Other Plastic Product Manufacturing
Low.
Gypsum Product Manufacturing
Higher than you might think. Natural gas policies impact competitiveness and the source of the gypsum is heavily influenced by government.
Ventilation, Heating, Air-Conditioning and Commercial Refrigeration Equipment Manufacturing
Relatively low but a lack of assembly line workers has pushed investment out of NB.

So to pretend the government doesn’t have a role is to be naïve.  Government should be focused on ensuring that its policies related to each of these industries are competitive with other North American jurisdictions.   Benchmarking should be routine.

The overriding focus of economic development should be value proposition.  What are we selling?

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Is there no social acceptability for oil in Quebec?

There must have been something lost in translation.  The Premier of Quebec is quoted in the English media as saying “there is no social acceptability for oil in Quebec.”  Hmmm.  Let’s see:

-There are more than six million light vehicles registered in Quebec in 2017 (Source: Autoconnex). This excludes every other kind of vehicle.

-There are nearly 3,000 gas stations across the province (Source: Statistics Canada).

-Motor gasoline use (final demand) in Quebec was higher in 2016 than it was back in 2008.  (Source: Statistics Canada).

-Diesel fuel oil (final demand) in Quebec was higher in 2016 than it was back in 2007.   (Source: Statistics Canada).

-Total use of refined petroleum products was higher in 2016 than it was back in 2010.  (Source: Statistics Canada).

-Quebec generates twice as much GDP from petroleum refining as does New Brunswick (Source: Statistics Canada).

-Refined petroleum products are Quebec’s 7th largest international export industry (5 digit NAICS) with over $2 billion worth in 2017 (Source: Trade Data Online).

-Crude oil is the province’s second largest international import ($5.2 billion in 2017).(Source: Trade Data Online).

-There are over 12,000 km of provincial natural gas and oil transmission and distribution pipelines (Source: NR Canada).

 

I think it is fair to say there is lots of “social acceptability” for oil in Quebec.  There just isn’t social acceptability for a pipeline bringing Alberta and Saskatchewan oil to the Maritimes.

Those are not the same.

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New Brunswick’s new 60/20 rule

You are familiar with the 80/20 rule which can be applied in many circumstances such as 20% of customers account for 80% of revenue or 20% of volunteers do 80% of the volunteer work, etc.

In New Brunswick, I would posit another rule is starting to take shape – the 60/20 rule.  No, I haven’t lost my ability to sum basic numbers nor is there a missing 20 percentage points.  My 60/20 rule is not a percentage.  It is a raw but hard numbers game.

In 1971 there were 351 people living in New Brunswick under the age of 20 for every 100 aged 60 and older.  In 2017 there were 70 under the age of 20 for every 100 aged 60 and older.  Of all the demographic and socio-economic changes in New Brunswick over the past 40ish years, this one is arguably the most profound.   By the way the breakeven point – was only in 2007 – the year there were the same under 20 as over 60.  Now the trend lines are diverging in a significant way.

What does that mean?  Well, it means the median age of a voter in New Brunswick is now around 56-57 based on my estimates.  To define it – half the voting population (assuming voting shares by age remain similar) is over the age of 56.  To suggest age does impact how people vote would be quite naive.

I’m not suggesting there is all out war between the grannies and the Beliebers (Google it, grannies).  In fact, I would say that anyone over the age of 60 would be highly offended if it was suggested they put their own interests ahead of the kids.

But there is something called human nature.  I would suggest the 60/20 rule is impacting views on immigration, on any kind of government reform – health care, education, municipal government, and particularly on economic development.

I still remember that CBC reporter who went out to Stanley a few years ago and asked folks in a coffee shop/restaurant what they thought about the Sisson Mine.  Most of the responses (at least then) were quite ambivalent – one lady said something to the effect that there was no one out there now that needs a job in the mine but maybe it would bring young families into the area.

Imagine in 1971 if a firm was proposing a new $600 million mine and hundreds of jobs paying 70% above average.  I would suggest at least among most there would be jubilation.  Now, at a minimum a collective shrug- the more recent public engagement out there has been sharper with people who have moved into the area to retire suggesting the reason they moved here was to be left alone to retire in peace (paraphrased).

How do we break the 60/20 rule?  It’s a challenge but I hope that older NBers (I just passed the 50 year mark this year) keep an open mind as young people and families flow into their communities from elsewhere in the world, or someone proposes a new economic development opportunity, or someone wants to undertake some potentially risky but innovative approach to public service delivery (Sackville 2020 for example), or politicians use dog whistle politics to rile them up to muster votes.

The long term risks are equally damaging to the over 60 population as the under 20s.   A weak economy not generating enough tax revenue to pay for high quality public services and infrastructure will hurt us all.

 

 

 

 

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Living in a Hallmark world – a competitive advantage?

I have a bit of a confession to make.   I like cheesy Hallmark Channel movies (shown on the W channel here).

I know, I know.  You will mock me. Your opinion has tanked.  I get it.

But I still like them.

A couple of years ago I found out that my wife and youngest daughter were watching these movies as a pastime and they never asked me because they just assumed I would say no.

Like most dads, I worry that I am not spending enough time with my kids so I acted indignant and started watching.  And started to like it.

Quite frankly the world is complicated.  I am pummeled in my social media with anger, resentment, frustration, apocalyptic warnings, and it turns out a little pulp on the TV is just what the doctor ordered.

The stories are fun and unapologetically formulaic.  Almost always featuring adults aged late 20s to late 30s (mostly child or teenaged stars that are looking to get back on the rails), usually one of them has kids, there is always – always a bucolic small town involved.  There is a little tension, then resolution – and always 98% of the time the first kiss occurs with no more than 5-10 minutes to go in the movie.

The movies are almost always set in the U.S. but shot in Canada as evidenced by the supporting actors/actresses and by the occasional slip up such as showing a .ca domain name advertised on a display window.

The other day my wife recognized a scene as being set in a North Bay cafe and, sure enough, with a little Google search we confirmed the location.

That set me thinking.  Could emulating the Hallmark world be a competitive advantage?

Think about it.  The mayors are always nice to everyone.  Everyone volunteers in these movies.  Everyone is nice on the streets.  The city folk almost always throw away the high flying professional careers to move to the small town.

Imagine if this was true.

Now, I’m not talking fake or forced such as the hilarious 1988 Chevy Chase movie Funny Farm in which a city couple move to a small town only to find they have been duped.  In frustration they decide to sell and move back to the city and offer $50 to everyone in the town who helps them sell the place.   There is a great scene where the “cue the deer” and a family of deer walk through the backyard just as Chase is promoting the house to a prospective buyer.

No, I’m talking about a community – large or small – deliberately being a nice place to live.  Neighbours introducing themselves to the new immigrant family that just moved in next door.   People offering to help newcomers solve problems.  Inviting newcomers over for dinner.  Shockingly friendly.

Don Mills has been saying Maritimers are friendly but not open (or something that effect).   It’s hard to generalize but I think he has a point.  In communities with large outward migration but limited inward migration lifelong friendships are mostly made in middle and high school.  It’s hard to ‘break in’ if you are a come-from-away.

But in 2018 the competition for strong and vibrant economies is more based on the ability to attract and retain talent than it is attract investment and entrepreneurship.  With the talent, investment and entrepreneurship withers on the vine.

So instead of investing in all the traditional things, why not invest in offering a course on how to be friendly?   Or being a mentor to a newcomer living in your city or town?  How about fostering block parties, neighbourhood picnics, guess who is coming to dinner events?

Sure, this is a little softer than my usual schpeel but economic development now comes down to people and people are far more influenced by relationships than anything else.

 

 

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Are we poised for a Trumpian populist movement in New Brunswick?

There have been several stories/columns in the national press recently arguing we could be on the cusp of a populist movement in Canada like that seen in the U.S. and more recently in France. As I have written before, I dub this the Twisted Sister effect (we’re not gonna take it, anymore). Most of these experts focus on the growing ranks of disaffected men who are losing their high wage blue collar jobs and working in Amazon warehouses.

While I welcome this kind of analysis, I think we have to be careful to avoid trying to fit the facts to our narrative. Yes, there are challenges in Canada. Yes there are many that are uncomfortable with the pace of change and that feel things are being foisted on them. Yes we are seeing the loss of high paying blue collar jobs in manufacturing but at least until recently this was offset somewhat by an increasing number of high paying blue collar jobs in natural resources development (SK, AB, BC mostly).

Bottom line? In Kentucky the spread between the county with the lowest median household income and the highest median household income is more than 4 times meaning that the median household in the richest county earns more than 4 times more than the poorest county (Source: US Census).

In New Brunswick? The median household in the richest county (Kings) earns only 57 percent more than in the poorest county (Queens) – Census data. Not sure that portents a populist uprising at least on economic grounds here.

We have other issues roiling such as the lack of growth in much of the province, the shrinking workforce, no recent history of immigration, etc. but I don’t think income disparity is a huge issue here – at least based on the data.

In fact, I think the ‘rich’ are more likely to rise up in New Brunswick (tongue firmly implanted in cheek here).  We have far fewer ‘rich’ people in the province (define this as you wish but based on the share with $200,000 or more in annual income) than all but one other province and they are grumbling about taxes and generally feeling unloved these days (had coffee with one last week).

 

The general issue of the growing educational divergence between men and women is another issue.  It is rare at a societal level to see such a huge demographic change in just one generation. Twenty years ago in New Brunswick there were exactly the same number of men and women with a university degree (among those aged 25-54).  Now, there are 48 percent more women with a university degree according to the LFS.   To put this into context, there are 5,100 more men with a university degree since 1998 and 18,900 more women.

Will this disparity grow? – the university enrolment data would suggest the answer is yes.

What does this mean?

I don’t know.  It is already leading to significant changes in family dynamics – who earns more in a relationship, etc. and even in a small way child care – more men staying home but this is more of a trickle than anything else.  Will there be broader social impacts over time?  Women wanting pillow talk about politics and culture and men wanting to talk about monster trucks and wings night at the pub?

We shall see.

 

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Should we organize trade missions to the EU or Manitoba?

I have made several presentations recently where I have suggested that these international trade agreements for the most part don’t mean much for New Brunswick.   The truth is that other than a handful of firms in forest products and refined oil, we don’t export much internationally.  In fact, if you strip out refined oil, we export far more, by value, to other provinces.  The following chart shows the value of exports from New Brunswick by jurisdiction (excluding the US).  The Canadian data is from 2015 and includes services (we don’t export a lot of services internationally).

The value of NB exports to Manitoba are higher than all the countries in the EU combined.  I realize it is fun to go to France, visit the Eiffel Tour and bring home good wine but maybe we would be better served organizing trade missions to Manitoba.  You could pick up perogies and kubasa sausage.

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The McAdam resurgence?

CBC is reporting that the Village of McAdam is offering 16 serviced residential lots for $1 dollar.  The mayor says he has had requests from out of province to look at the land.  My fear is that a few people will look to retire in McAdam (remember my post about Dorchester) and then spend the next 20 years fighting every attempt at economic development in the area while wanting good quality public services.

I’d like the village to have a little more ambition.  There is a rail line close by.  There is an international border crossing.  The village is an hour from Fredericton and at least 20 minutes by car from Harvey so it should be focused on ensuring it is a tiny ‘services hub’ for the wider area.  I took a look at the business registry down there and there isn’t much in the way of services.

What they should be doing is looking at the wider area, assessing timber, minerals, tourism opportunities, local services opportunities, ways to possibly benefit from the border crossing, the rail line – etc., carving off a few small but important economic opportunities for the area and then giddyup – get out there and get it done.

The problem, as I have stated ad nauseum on these pages, is that there is very little capacity to do this in our smaller towns and villages.

No one is coming from Fredericton or Ottawa to save McAdam.  There are still a few ‘big’ businesses out there – a gypsum products manufacturing, a plastics manufacturer, several smallish trucking firms and a few local retail businesses.  The local business leaders should work with local government (and the regional services commission) on an economic development plan.  Offering free lots might be one way to do it but I have to believe in that area of the province there must be more opportunities than that.

I think a little more focus on the smaller, mostly forgotten places in New Brunswick would go a long way to raise spirits in this province.  I’m not suggesting that every small village in New Brunswick can miraculously become a boomtown but you can chip away at it.  Attract some Millennials that want to set up adventure tourism.  See if there are mineral deposits that might have potential.  Get a little positive momentum and then see what might happen.

 

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Developing our non-renewable natural resources: A potential new approach

I recently had breakfast with a friend of mine who spent considerable time working at a high level in government on natural resources development files.  He is frustrated with the state of natural resources development in New Brunswick because he feels we are leaving hundreds, maybe thousands, of good paying jobs on the table for not a lot of good reasons.  He rightly states that natural resources development, non-renewable, remains a main driver of Canada’s economy, tax revenue and good paying jobs – particularly if you step outside the largest urban centres.

My friend’s proposal is intriguing.  After watching multiple projects die or be delayed for years, he has decided that New Brunswick should set up a Crown Corporation to do the early stage work on non-renewable resource projects such as mining, natural gas development, etc.

This Crown Corp would do the initial site development work, ensure all the necessary infrastructure is in place, obtain all permits and licenses, negotiate with First Nations where applicable and complete broad consultations with the local population as prescribed by government regulation.   The Crown Corp. would then serve up the project to the market and ask high quality firms from around the world to bid on taking over the project.

Essentially, the idea is to de-risk these projects from most of the government- or political risk.  Each project would still face market and technical risk but private firms are normally well positioned to handle these risks.  If they aren’t, they go out of business.  But the risk that a politician will change their mind, or a bureaucrat will gum up the works or various community groups will mount a large scale insurgency or international advocacy organizations will pump money into a jurisdiction to stop projects – firms aren’t particularly good at managing that risk – nowadays they try and muscle their way through it with bags of cash and persuasion but I agree with my friend that it might not be the best approach for the firm or for the jurisdiction.

The natural response to this proposal would include several concerns 1) why should the taxpayer pick up that front end cost with no guarantee of return; and 2) how would it work in practice?  Right now it is set up purposely as adversarial – so that the regulator or government is perceived to represent the public interest and the company the market interest.  How does that work when government is both?

For the first question, it is a question of risk and return for the taxpayer.  If the new Crown Corp is successful it will foster more private sector investment, good jobs and significant new tax revenue.  If not, you shut it down after a period of time.

For the second question, well, the Canadian government owns a pipeline that will need to be approved.  Nalcor in Newfoundland and Labrador takes equity stakes in mining and oil and gas projects and they still have to go through a rigorous approval process.   When you go through the series of things that have to happen it seems to me it would be fairly straightforward.

It is unlikely that government would move in this direction.  Politicians have become so nervous about virus-like public reaction they would bristle at this idea.

But the truth is that New Brunswick used to generate 7-8% of its GDP from mining and now that figure is down to less than one percent.

Across Canada in 2017, the provinces and territories generated $146 billion worth of provincial GDP from mining, quarrying and oil and gas extraction.  New Brunswick generated 0.2% of that total.  Even if we saw a 10 fold increase in the GDP from this sector it would still be less than our ‘share’ of the national GDP.

I think my friend’s idea is worthy of future discussion.

 

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