Are we a hustling, striving place or a great place to slow down and relax? Depends on who you ask.

Almost 25 years ago I took my first post-MBA job in New Brunswick. It was with the NB Department of Economic Development and Tourism (EDT) or maybe it was the NB Department of Economic Development, Tourism and Culture (?). Anyway, I was hired for a 2-3 months’ temporary position and I hustled it into 3.5 years and ultimately a good start to my career.

One of the most memorable moments of that period was a presentation made by then EDT DM Francis McGuire. He called the whole staff into a big room somewhere and put up a slide deck with his vision for the department. I don’t remember most of what he said that day but I do remember him stating emphatically “I never want to hear the %$X&#! term ‘Picture Province’ mentioned by this department or this government ever again!” (colourful language bleeped out but if you know Francis use your imagination).

His point was that GNB under McKenna was trying to re-position New Brunswick as a dynamic place with thriving urban centres and bustling rural communities. The vision was of a striving New Brunswick – carving out its economic role within Canada and around the world. If you come to New Brunswick you work hard and play hard. This was directly meant to counter specific data from polling that suggested New Brunswickers were perceived by the rest of Canada as kind of comfortable, lazy and laid back.

Of course old habits die hard.  25 years after McGuire’s emphatic pronouncement, here is a tourism billboard.

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I know what you are going to say. This is a tourism message.  That New Brunswick has great, uncrowded beaches.   It’s an ideal place to come and lay on the beach.  But if your economic development brand is one promoting hard working, bustling urban centres – the tourism message kind of counters this brand.

How about this billboard (pulled from Google).   Again, a powerful tourism message that New Brunswick is a great place to relax and put up your feet.

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I’ve never really postured as an expert in marketing.  In fact, I probably stink in this black art but I would suggest there must be a way to align the messages.  Maybe people mountain biking with a strained look on their face or shots of our urban downtowns bustling with people or a shot of a beach with lots of folks (not too many!) or even a shot of water with actual boats on it.

If we want to portray New Brunswick as an empty place with nothing going on but lots of opportunity to lay around on the beach – this may end up being a self-fulfilling prophecy.

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Fighting the biggest battle of our time with one hand tied behind our back

New Brunswick’s three larger urban centres (Fredericton, Moncton and Saint John) are trying to do something that is rare in recent Canadian history – dramatically increase immigration.  Historically, most immigrants have flowed into the largest urban centres – without substantial spikes.  For example, the Toronto area is still the top destination for immigrants but it has never seen a 3 or 4 times increase in a short period of time.

If you look at the average immigrant flow (from Statistics Canada’s components of population growth tables) into the Moncton CMA it is up by nearly 500 percent in just a decade (I used five year increments to smooth out the effect of Syrian immigrants in the most recent year).  Saint John’s immigrant flow is up by over 160 per cent.  This is unprecedented.  It is also fundamental if we are to see New Brunswick’s labour market growing again and if we would like to see a sustained return to economic growth.

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I believe this is the most important challenge of our time.  If New Brunswick is to grow it will need to become far more multicultural – in a condensed period of time – far more quickly than places like Toronto and Vancouver which had a more paced move towards their now highly multicultural societies.

We can’t do this with one hand tied behind our back.  Of course we will see outward migration of some of these immigrants.  That is natural – look at Winnipeg as an example.  Don’t criticize the types of immigrants coming here.  Just look at the data for Canada’s large urban centres – immigrants flowed into industries that needed them.  Don’t use the fact that some New Brunswickers use EI as an annual income supplement to hurt those industries that need workers to grow.  Instead of restricting the flow of federal dollars in support of immigrants – those funds should be dramatically expanded.

How can we ensure such an expedited integration of immigrants without a massive effort?  We need stronger ethnocultural community associations.  We need churches to step up as they do in Manitoba and be catalysts for retention.  We need our public institutions – hospitals, schools – to embrace the challenge of immigration.  Giddy  up, folks.

I have argued on these pages that we are living in inconsequential times.  There haven’t been many big battles to fight.  It’s been all about incrementalism.  Now we have one.  A big one.  A whopper.  It’s fundamental to our future.  If we want to be a growing, thriving and dynamic economy – we will need to become far more multicultural.  I challenge anyone to prove – with data – how New Brunswick will be able to sustainably fund its public services over the next 10-20 years without a significant rise in its younger population and workforce – without a massive increase in transfers from the federal government.

This is the big battle of our time.  We need all hands on deck – especially the federal government.

 

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Stop your obsession with youth out-migration, please

There was a good article in the Globe & Mail recently outlining New Brunswick’s demographic challenges and how that is dampening the economic potential of the province.  It certainly wasn’t a positive article – but it wasn’t the typical hatchet job either.  It’s behind the paywall so I can’t link it here.

It was written by a former NBer.  In my experience, there are two kinds of former NBers – those that are bitter and want to crap on their former province and those that still have an affinity to their former home and a nuanced view of things.  Unfortunately some of the former have found their way into senior federal government roles, but I digress.

Unfortunately the writer continues to lament the woeful out-migration of New Brunswick’s youth and he continues to make this the main plot line for New Brunswick’s economic challenges.

In fact, it is the main plot line but for the exact opposite reason.

There are many reasons why young New Brunswickers leave – the main one being for economic opportunity.  This is not controversial – most people agree on this point. But like most things in life you have to avoid the superficial explanation and dig a little deeper.  We encourage our young people to go to university – a good thing – but the fact remains that the economy is creating a lot of jobs that do not require a university degree.  Do we expect these young university educated workers to stay for jobs that don’t require a university degree?

Someone told me recently they went to UdeM engineering and 53 of the 55 people that graduated with them left the province.  Do I think we should eliminate UdeM engineering? Absolutely not.  In fact I think we should do a looooot more to position this talent pool as an asset to attract engineering firms or to support local engineering firm expansion.  Many of these young Francophone engineers would be happy to stay in New Brunswick and work.

But I don’t think that engineer will go work in a back office or a warehouse or a manufacturing assembly line.

The facts are simple.  People are more mobile than ever before.  We are attracting more immigrants and more of them are showing up in the interprovincial migration data.  Again, what do you expect?  Immigrants don’t have roots here – very little connective tissue to the local community.  Of course many will leave.   The great Toronto loses an average of 23,000 per year on a net basis to intra- and inter-provincial migration.  There isn’t a lot of hand wringing about the lost youth population in Toronto.  They just go out and bring in 75,000 more every year.  When Manitoba and PEI massively boosted immigrant numbers a few years ago – their net interprovincial migration spiked –  as you would expect it to.  But they kept more than they lost –  and their economies benefited from it.

Canada is a place where it is not hard to find hypocrisy.   I hear at some some federal bureaucrats are lamenting the fact that a lot of the jobs under the Atlantic Immigration Pilot are in service industries and other lower wage sectors.  They would have preferred a lot more higher end jobs.

The flexibility to fill gaps in the labour market – across the spectrum – was the MAIN point of the Atlantic Immigration Pilot.  Tens of thousands of immigrants flow into Ontario every year into lower skilled jobs – even a peek at the data confirms this – more than 60% of manufacturing workers are first generation immigrants, more than 50% of contact centre workers – something like 50% of overall service industry workers in Toronto are first generation immigrants.

The point is that there are many pathways into Canada – family class, refugee, student, etc. and New Brunswick has been restricted to the pathways that are targeted at high skilled immigrants. The AIP was meant to fix that  and fill gaps in the labour market – sending  a signal that employers can find workers here and foster expansions and growth.

I’m not going to litigate all the other issues here.  I’m tired of it.  Yes there are lots of people using EI.   Yes there are people that prefer to not work rather than work the jobs on offer.  Yadda.  Yadda. Yadda.  Guess what, there are exactly the same kinds of folks in Ontario and everywhere in Canada – just a little higher proportion here.   Please don’t hold the rest of the economy hostage because of this.  It’s patently unfair to hobble New Brunswick just as it wants to get serious about economic growth.

Don’t obsess with youth out-migration.  Many leave and come back and are better for the experience.  Those that don’t come back – fine.  They are building their careers and lives in a great country.

If we use this as an excuse to hold back immigration – we are dooming New Brunswick to a downward demographic spiral.

 

 

 

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Embrace your inner snowwoman/snowman

Lately I have been watching promotional videos for a few small urban centres in Canada.  They are mostly well produced and make the communities look pristine, friendly and mostly charming.  In others, at first glance a good place to live – which is kind of the point.

But all of them left out snow.

One showed a brief clip of a hockey team but no outdoor shots of snow, skating, skiing, sliding, snowshoeing, hiking – nothing.  Normally when I visit a community in Canada (and the US) I buy a book on that community and, again, in most cases snow and winter barely make an appearance.  I have a 100+ page book of photographs from Minnesota and not a single one in winter.

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Twenty years ago it wasn’t that big a deal.  Everyone was very familiar with winter – whether or not it showed up in promotional materials.  But now we are trying to attract migrants from mostly warm climates and we need to be clear with them that we have 5 months of snow and fairly cold winters.

In fact, we should embrace and promote winter as an advantage.  I’ve always found it strange that we don’t have more companies offering to rent skates, snowshoes, toboggans, cross-country skis, etc.  Normally a city rec. department might do some of this but for the most part we just assume that Canadians have all the gear they want.  If they reach 20 years old and don’t own skates they are probably not candidates to be out skating.  But this is not the case with migrants.  They come here with none of the winter gear – we should encourage them to try it out.  We should host snowwoman making contests, offer free seminars on learning to skate, put on clinics regarding how to stay warm when playing outside.

We should promote winter tourism opportunities – ice fishing, winter bonfires in the woods, etc.  Everyone should be encouraged to get out there and enjoy.

I have a lot of immigrant friends.  Some love winter.  Some endure winter.  This, BTW, is the same as my born-in-Canada friends.

This matters.  If New Brunswick is to grow it will need to attract and retain thousands of new immigrants each year as we move forward.   There is a lot we can do to improve retention and one of those things is not to pretend winter doesn’t exist or to suggest people should just do their best to make it through.  That’s not good enough.

We should embrace it and encourage newcomers to embrace it too.

PS – sorry to raise this as the summer winds down.

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What do we really want from free (r) trade? Back to first principles

As we start the renegotiation of NAFTA, there is lots of chatter in the media about the importance of trade, how critical it is to the Canadian economy, how it boosts GDP by x and makes us more productive, yadda, yadda, yadda.

It’s important to go back to the start and ask ourselves what we are trying to accomplish with free (r) trade.  And, by the way, close cousins – free movement of people, free flow of capital, and free flow of ideas – may be even more important now.

Why trade at all? Why not build self-contained economies and have all goods and services produced within the hermetically sealed bubble?

I think Jared Diamond provides some core reasoning as to why trade matters. Diamond is best known for the Pulitzer prize winning Guns, Germs, and Steel, but I prefer Collapse if you want a good chronological view of how economies/states evolved over time.  Certainly trade is not the focus of either book but you get a good overview as a bonus.

The bottom line is that trade is supposed to be mutually beneficial.  While the benefit may be a bit lopsided there would be no reason to pursue free (r) trade if one jurisdiction benefited and the other hurt.  Diamond talks about the earliest recorded examples of trade – inland tribes that were good at making arrowheads and other instruments from stone trading with coastal tribes that were good at harvesting fish.  The benefited from the expertise of each other and both were better off.

Many economists tend to have a fairly stern view of the impacts of trade.  Yes, it will cause economic upheaval in specific industries and geographies within the country but overall it will be better for the whole.

But in free, democratic jurisdictions, pure economic efficiency can get grounded on the shoals of practical reality.  If enough communities and industries are hurt by trade (even if that is offset by winners), you can get Trump and this mood of anti-free trade.

Of course, the cold blooded economist looking at spreadsheets and crunching data will say that countries need to encourage broad intra-jurisdictional migration, retraining rather than income subsidization and more of a ‘tough love’ to the transitional period.  They (many) argue that the same ruthless efficiency brought to industries by free trade should be applied to the labour market.

But that again ignores some fundamental issues.  Lots of people like where they live.  They don’t want to move.  It’s hard to retrain people – you can’t just snap your fingers.  And there is that little thing called democracy.  If the people revolt against trade…..

There hasn’t been much backlash about free trade in Atlantic Canada.  People are told on a regular basis that we are highly dependent on exports – fish, wood, agriculture, oil – and that has more or less sunk in.

For me, I think the starting point for the concept of free (r) trade in democratic societies has to be mutual benefit – quid-pro-quo.   I’ve written about this on many occasions.  There is good research (see Gladwell) that people will actually accept a worse outcome for themselves if they perceive the other party is getting a greater benefit.  If someone is offering to give you and I $100 but you get to decide how to divide the money and I get to decide whether or not the deal gets done – the research shows you have to get pretty close to 50/50 to get acceptance.  In some pure, spreadsheet economic theory I should take $1 because it is better than $0 – but I find it egregiously unfair that I would get only $1 while you get $99 even though I am better off by $1.  So I will kibosh the whole thing because you are getting a better deal than me.

I will hurt my economic fortunes because I perceive you are getting a ‘better deal’.

Human nature and democratic politics will not be usurped by economists.

 

 

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Economic development: All about the money, honey?

This is a recurring theme on this blog but I feel it is timely to raise it again.  Specifically I am talking about the role of government in support of economic development.

I’ve seen multiple people on LinkedIn peddling new federal government programs to promote cleantech development, help companies export, etc.  They are all under the umbrella of the Atlantic Growth Strategy.

Is the Atlantic Growth Strategy a growth strategy or is it a relatively small pile of cash doled out to firms by earnest bureaucrats?

This is a fundamental strategic issue for Atlantic Canada.  If the government’s goal is getting the regional economy back to a sustained level of growth, that may or may not entail more direct cash handouts to firms.  A true regional growth strategy would identify the causes of economic stagnation – low levels of inward migration, increased global competition, lack of new, high growth potential entrepreneurs, lack of multinational investment, etc. and then put some serious thought to what role can (or should) government play to influence positive economic growth?

It all seems to boil down to the cash.  It’s easier that way.  For government it is easy to set up a $20 million fund, build program rules around its distribution, dole out the cash and monitor the results.   It is hard – sometimes really hard – to positively impact economic growth.

As I have said before, I am not opposed to direct cash transfers – where there is a demonstrated competitive need and a strong ROI but if governments are looking at how they can influence economic growth in a positive way the thinking has to go way beyond cash to firms.  Best case scenario the cash has a slightly positive impact. Worst case it is just tax dollars crowding out private sector dollars – as many firms have told me government cash can be had at much better terms compared to banks or investors – so why not take the government cash?

Think about New Brunswick.  The economy is roughly $30 billion (real GDP).  If you want to see a 3% growth rate you will need the real GDP to grow by $900 million per year.  You won’t get this done by making a few zero interest loans to cleantech firms or giving up to $15,000 for a small business to start exporting.

ACOA has approximately 600 staff in Atlantic Canada.  The various provincial agencies (ONB, NSBI, etc.) have roughly 500 staff (conservative estimate) – roll up all local economic development agencies, CBDCs, allied organizations such as NRC, NBIF, Innovacorp, etc. and you get easily another 300-400 staff.  So we have roughly 1,400 – 1,500 people in Atlantic Canada paid by government to do economic development (somewhere around $100 million just in payroll and benefits).    There is about one economic development person for every 50 firms around Atl. Canada.   There is one economic development person for every 1.5 exporting firms (international exports).

With all this horsepower we should be able to move a little bit beyond doling out cash.

 

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Looking for Bootstraps: The Musical

In my view, Donald Savoie’s Looking for Bootstraps should be required reading in the Maritimes.  As a follow up to Visiting Grandchildren, he has added new content and important new thoughts on the issue of economic development in the three Maritime Provinces.

One of the challenges, however; is the format.  Although Savoie deliberately writes for a broader audience, it’s certainly not written for the average Grade 8 student.

My 16 year old daughter is taken by the musical Hamilton.  She knows it backwards and forwards.  She has the music, a book about it and has done a ton of research.  In fact, she knows about as much about Alexander Hamilton’s life as the average U.S. presidential historian – how he lived, his role in the revolution, how many federalist papers he wrote and what he focused on, his feud with Burr (and untimely death by duel), etc.   She was rattling off these facts one day recently and I asked her how much she knew about Sir John A. or Wilfrid Laurier or the Fathers of Confederation?

Not much, she said, but if they would write a musical, she would nail it.  And then she went on to lecture me about pedagogy and how the current approach to teaching is mis-aligned with how students best learn circa 2017.

Fair enough.

But my thoughts turned back to the old sage of economic development.

How about “Looking for Bootstraps: The Musical”?

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As usual here, I put this forward only partially in jest.  If we found ways to broaden the appeal of the content we could reach broader groups and better explain the history and sources of the region’s economic challenges and get people better motivated about the solutions.

For example, I think Savoie’s book should be given to every high school student in the province and should be discussed and debated in class.  If the best way to get this done would be to distill the content down to infographics and 140 character tweets, then so be it.

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The truth is that New Brunswickers – and Maritimers – have been inured to the economic reality here.  Most just believe the standard view that this region is economically depressed and there isn’t much to do about it.  If you can’t find work here  – you go down the road.  After 20+ years of studying this, I can tell you most people are resigned to the fact and not particularly concerned about it.

Savoie’s story would explain how we got here and provide pathways to improve our lot.  But we have to find ways to broaden the base.  All of the usual suspects – like me – have read his book – just like the many others he has written on related subjects.  And we haven’t made much difference.  Maybe we should broaden the base.

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When does something rise to the level of ‘controversial’?

I was surprised to read this CBC article describing the Sisson Mine as ‘controversial’.    I’m not sure it is particularly controversial.  It has gone through a thorough environmental process and received both federal and provincial approvals.  A while ago the CBC sent a journalist out to the Stanley area to ask local residents what they thought and it was mostly positive.

There are mining projects just like this in almost every province.  Manitoba generates $2.8 billion worth of GDP from mining.  Quebec $4.7 billion.  BC $10.7 billion.   New Brunswick?  We’re down to $270 million worth of GDP from mining and that includes quarrying.

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What makes something rise to the level of controversial?   Anne Murray fought against wind turbines in Nova Scotia.  Were they controversial?  Long time residents of San Francisco are fighting the evil Google and its distortion of housing prices and general disruption of SF culture.  Is Google controversial?  A UdeM professor once authored a documentary that was deeply critical of contact centres – are they controversial?

You know where I am going with this.  A lot of people trust the CBC.  They rely on it for their news.  Many New Brunswickers that would likely see the importance of Sisson Mine – most people realize that the products they consume are filled with mined natural resources and understand that Canada is a country with vast mineral resources –  but if the CBC is now saying it is ‘controversial’ they may start to think there is something more risky about this specific mining project  – compared to the hundreds of mines across the country.  And when they read about the one massive mining disaster in BC – and not the hundreds that have been developed with a very limited environmental footprint – they may start to change their minds.

I personally don’t think the Sisson mine is particularly controversial. There are some folks opposed – that is natural in a democracy.  If these projects go through rigorous provincial and federal environmental reviews and pass I’m not sure the media should describe them as controversial.

In reality, New Brunswick could use the economic boost.  We used to get close to a billion dollars worth of GDP from mining (when Bathurst was going full steam, and later when potash was booming) and now it is down to a piddly $268 million.  The 10 provinces combined generate $168 billion worth of provincial GDP from mining and NB gets about two-tenths of one per cent of that GDP.   A little more would be welcome.

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The rise of Glamping. What can we learn from Mongolia about tourism investment?

There is an interesting article in the Economist this week about the rise of ‘glamping’ in China.  This glamorous camping is done by rich Chinese. The yurts have “beds, windows, Wi-Fi and en suite bathrooms.”    And this “A single campsite in Hubei can accommodate 8,000 people. Many offer entertainment too. The Swan Lake tourists enjoy Mongolian banquets and dancing in a giant concrete yurt.”

I have thought for a long time that if New Brunswick – and the Maritimes – want to seriously boost tourism – we have to be far more focused on tourism investment.  As I have written many times before 98% of our effort is on how we get more tourists here and not on how we attract really nifty new tourism investments that will attract tourists here.

This may be an accident of history in New Brunswick but we have never really put any focus on trying to attract tourism investment or entrepreneurship.  There have been a few less than successful efforts like putting government money into “cottage clusters” in the 1990s.  But that is not what I am talking about.  In fact, I’m not talking about government incentives at all.

I’m talking about a deliberate process of identifying potential new tourism investments that might work at the local level all around the region and then promoting those potential opportunities to tourism entrepreneurs.   If you don’t like the idea of ‘government’ doing that work, fine – give industry the mandate – or consultants – or, I don’t know go ask the Mongolians – it seems to be working for the yurts.

Instead of putting all the focus on trying to boost tourist numbers we should put a focus on boosting tourism investors.  Then we’ll have the product that will boost the tourism numbers.

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Foxconn, incentives and ROI: Redux

I recently wrote about the big Foxconn expansion in Wisconsin and the $3 billion incentive package.  I wondered about the ROI on that level of incentives.  It wasn’t clear to me if the project would achieve any real ROI over time – based on the economic impact numbers published by the Wisconsin government.

Then I read this.  It’s an interview on the project from what appears to be a respectable economic development consulting firm.  Here’s the point that bugs me.  It’s made by a consultant: “Three billion of anything is a lot. But again, as with everything when you dig deeper and look at the economic upside of jobs and investment you can see why Wisconsin or quite frankly any state would come to the table so aggressively. You know, I guess one of the things I try and do is remove all the zeros and think about it in simple terms and you know this is simplifying it perhaps too much but Wisconsin is getting $10 and their giving back $3.”

Nope.  That is not correct.    The only ROI measure that works for government investment into economic development is incremental tax dollars.   Comparing the $10 billion investment to the $3 billion in tax incentives is like a company comparing revenues and profits – they are related but separate concepts.

This Reuters article makes the point.  Based on the scenario outlined, the article says the state might not break even on the $3 billion for 25 years in terms of incremental state taxes.

Economic developers cannot miss this fundamental point.  The only ROI that matters is “for every tax dollar we pay out, how many incremental tax dollars will be generated?”.

The public purpose of economic development is not jobs or investment or new plants.  It is to drive economic activity to ensure there is enough tax revenue to pay for good quality public services and public infrastructure.  That’s it.  If a government dips into the tax coffers and spend $1 million to attract a firm and the tax revenue from that firm over 10 years is $5 million – that means for every $1 in you get $5 out- that is an ROI.

Although, as an aside, there are other public ‘costs’ to having that company in your state.  It will have trucks beating up the roads, it’s employees will have kids in schools and they may use public health care – you get the point.  In the example above, the calculus is really: $1 million worth of incentives + $2 million worth of public ‘cost’ over the ten years – to generate $5 million in incremental taxes for a real ROI of 0.66 – for every dollar we put in, we generated an incremental $0.66 in tax revenue above the cost of the incentives and the public costs associated directly with the project.

I’m all for attracting big plants.  I think it will help put Wisconsin on the map and may yield benefits not yet quantified.  But if we move to a world where we don’t care about taxes-based ROI – I think we are heading into dangerous territory.  I remember when the big auto manufacturing plants were getting $200 million and $300 million back in the 1990s there was outrage- but there was a clearly definable tax-based ROI over 10-15 years. Auto has a huge supply chain which helps.

And as for economic development experts and consultants, they are not doing the public any favors by spreading this nonsense about “Wisconsin is getting $10 and their giving back $3.”

This is very bad grammar, it is even worse economics.

 

 

 

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