The difference between federal, provincial and local economic development: A primer

If a national government wants to grow and strengthen its economy, it would like to foster:
-More international exports (or import substitution where beneficial)
-More capital investment
-More international tourists
-National population growth
-Innovation and productivity gains

If a provincial government wants to grow and strengthen its economy, it would like to foster:
-More international and interprovincial exports (or import substitution where beneficial)
-More capital investment
-More international and interprovincial tourists
-Provincial population growth – from natural gains, or migration from other provinces or internationally
-Innovation and productivity gains

If a local government wants to grow and strengthen its economy, it would like to foster:
-More local services – particularly import substitution and services that attract people from outside the community
-More international, interprovincial and intraprovincial exports (or import substitution where beneficial)
-More capital investment
-More international, interprovincial and intraprovincial tourists
-Local population growth – from natural gains, or migration from other parts of the province, other provinces or internationally
-Innovation and productivity gains

In New Brunswick, the number of paid economic developers (broad estimate):
-Federal = 300+ (including CBDCs) – excluding ACOA head office except NB % share – including NRC IRAP, etc.
-Provincial = ~200
-Local = ~40

Spending on economic development (broad estimate):
-Federal = $150-$200 per capita (NB share of ACOA, NRC-IRAP, etc. budgets)
-Provincial = ~$100 per capita (ONB, econ. dev. share of RDC)
-Local = less than $10 per capita (amount municipalities are spending on economic development)

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NB ICT industry resurgence?

For those of you following this blog you will recall my concern over the state of the ICT industry recently.  Its GDP contribution dipped from $921 million (real GDP) in 2011 to $852 million in 2015.  In fact, in real terms, ICT GDP in New Brunswick in 2015 was similar to what it was way back in 2007 ($846.4 million).   To put that into perspective every other province in Canada saw faster growth in ICT GDP over that period.  Quebec’s rose by 23%, Saskatchewan by 24%.

But the NB ICT industry GDP contribution increased by 3.8% in 2016 and, in fact, accounted for 13%  of the solid overall growth rate in provincial GDP between 2015 and 2016.  Employment also seems to be rebounding (note that in the chart the percentages equal more than 100% because a number of sectors saw a decrease in their GDP contribution such as potash mining which alone reduced provincial GDP by 0.3% in 2016).


Encouragingly there seems to be some firms that are scaling too.  Between June 2012 and December 2016 the number of IT firms with between 50-99 employees jumped by seven, the number with between 200 and 499 increased by four and one IT firm jumped into the 500+ category.  Not that I exclude the ‘C’ in ICT here as there is one telecommunications firm with 500+ employees (Bell Aliant).



Despite this 1-2 years of encouraging trends, NB’s ICT industry continues to be among the smallest in Canada – tied with PEI and slightly larger than Alberta and Newfoundland – although that is really not a great comparison because Alberta’s overall GDP per capita is substantially larger than New Brunswick.  We would like to see an ICT industry that grew in a sustained way for a sustained period of time driving exports growth, attracting capital investment, fostering innovation and providing good employment for young NBers.


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Fredericton’s engineering cluster: At a fork in the road

There are basically two possible trajectories when a national or international firm buys a local one.  They either grow it or they let it whither away until they eventually close it.  I have seen this pattern play out many times over the past 25 years for everything from meat packing to e-Learning software.

This came to mind when I read yesterday about the acquisition of what was left of ADI after a previous acquisition several years ago.  The acquirer was effusive in its praise of ADI and its technology.

For the most part I have no problem with national and international firms buying up NB firms. It monetizes the value of the firm and the efforts the owners have put in over the years.  I’ve seen cases in this province of firms being valued at $10 million or more one year and nothing the next so when owners feel it is a good time to sell I’m not the guy to criticize the decision.

Truth be told a tie-up like this could end up being good for NB.  As part of a larger global concern ADI could now expand its global markets leading to more jobs and economic activity here.

But it is also possible – now that the locus of control for the firm has shifted to Pittsburgh – that they will let the Fredericton operation slowly wind down and at some juncture in the future – likely during a period of rationalization – the firm will close its Fredericton office and move some of the top talent to the steel city.

Fredericton saw a cluster of high value engineering firms emerge after WW2 – leveraging expertise built up addressing local market demand (e.g. NB Power) and the surplus of engineering talent pouring out of UNB over the years.  The city has one of the largest concentrations of engineering workers in Canada and the value of exports – this is a W.A.G. – of something like $150 million/year.

But now that the cluster is substantially owned by firms based elsewhere – EXP, Stantec, Evoqua, etc. there is a risk that it will decline in the coming years as the international owners downsize their Fredericton offices to just serve local markets.  Why have an export-focused operation out of little ol’ Freddy Beach?   The air connections are not nearly as good as Toronto, Calgary or Pittsburgh and New Brunswickers aren’t exactly know for their salesmanship.

We need to protect and grow this cluster.  Imagine a $150-$200 million export revenue sector with very little government incentives or ongoing support (see the chart). But why would a bunch of people in Pittsburgh, Calgary or wherever care about Fredericton?  They don’t and they won’t.  We need to make sure the value proposition is so compelling they will see the $$$ by continuing to invest in and grow their Fredericton operations.  How do we do this?  By ensuring the UNB (and NBCC) talent pipeline is continuing to turn out a surplus of talent.  By ensuring this talent has cutting edge skills.  Ideally UNB would be engaging these firm in R&D projects that binds them to New Brunswick.  And, generally, by ensuring the government influenced business environment remains competitive (taxes, regulations, timing, etc.).  And, ideally, the money flowing into NB through these acquisitions should lead to more engineering startups and another wave of new engineering entrepreneurs like ADI and a virtuous economic development cycle continues.


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The puzzling focus on expanding the number of Atl. Canada exporters

I’m a big fan of the Atlantic Provinces working together to address challenges we have in common and pursue opportunities where there is alignment of interests.  The idea of the Atlantic Growth Strategy is a good one – therefore – but I do find some things puzzling.

For example, the exports development strategy.  The provinces and the federal government are going to spend an additional $20 million over five years on export market development with the goal of boosting the value of exports by 30% and double the number of exporters.

The first issue is one of definition.  What is an export?  Some people define it has international merchandise exports because we get monthly robust data on this type of exports.  Some include interprovincial exports which are a huge source of revenue but these exports are harder to track.  Most don’t think about services exports – these are also a huge source of export revenue – again just harder to track.  How about tourism?  Technically speaking tourism is an export sector as it brings money in from outside the province to access a service.

The same challenges apply when we talk about ‘exporters’.  Is an NB firm that does construction work in Nova Scotia an exporter?   For the feds – unlikely – but for NB export revenue is export revenue.

But based on the data and definitions we do have, I’ll make a few observations.

First, I don’t understand this notion of doubling the number of exporters.  This has been part of New Brunswick’s strategy for years and the numbers are going down (see the graph).  To double the number would take a roughly 15% growth rate – per year for the next five years.  The math isn’t good – $20 million to foster 2,200 more exporters – or less than $10,000 per exporter.  It will not happen, period.



Plus it doesn’t matter.  One exporter that generates $1 billion in new export revenue is the same as 1000 that generate $1 million in new export revenue (ceteris paribus).  Of course this is facetious but not really.  There is something to be said for scale – a few large exporters are likely a lot better for an economy than hundreds of small exporters.

The main point here is that goals drive focus.  If your focus is on getting 2,200 firms to export more you will put huge time and energy to try and get as many small firms as possible to export more.  If your focus was on developing one our two export industries – you could concentrate economic activity.  For example, New Brunswick is going hard after cybersecurity.  Through startups and the attraction of national and international firms it might end up with 10-15 new exporters within five years – generating $10s of millions in export revenue.  But this will only happen with an intensive, focused effort of resources.  I’m not sure what the budget for the cybersecurity cluster is but if you include R&D spending, etc. it is in the millions of dollars per year.  One mining project – Sisson – will boost export revenue by several hundred million.  A 50% increase in business services export revenue (remember it is already a $1.4 billion dollar export industry) would boost exports by $700 million – via a handful of firms.  If NB were to attract a Google development centre that would likely drive $10s of millions worth of export revenue.

Finally, I’ve said this a hundred times and likely it will never happen but I think we need to do a better job of alignment – investment, trade, talent, ideas.  If we think there is potential to develop a certain region in India across multiple fronts we should put a team in place – in market – with proper resources and political support – and develop that market in an intensive way.   Ontario has economic development offices in something like 16 countries, BC, Alberta, Quebec (has 100+ staff in France alone).  We in Atlantic Canada have something in the range of 1,500 economic developers (fed, province and local) and they are all (or almost all) located in the region and focused on squeezing a little more juice out of the regional lemon.

If we really want to boost immigration, exports, investment and ideas – we will have to get beyond superficial efforts.  Working collectively as Atlantic Canada should provide some scale to do this.

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Video killed the radio star, Twitter killed the blogger, Twitter killed Twitter… How about LinkedIn?

David Jonah convinced me to start blogging back in 2004.  Since then I have written 3,463 posts.  Likely most of it is crap – with a few nuggets of value along the way.

It’s interesting to see how things have changed in that time.  In the early days I would get several hundred readers of a typical blog post – sometimes a thousand or more if it was a hot topic or during an election period when people seemed to be far more active.  Then along came Twitter and readers to my blog started to slowly decline.  The expansion of social media mostly reduced my readership to a rump of diehards that either liked or hated my stuff.  By the way this trend exhibits itself in the comments section.  In the early days I could get 100 comments on a popular blog – now it is common to get none directly on the blog itself (a few on social media).

It seems clear to me that people are crumbling under the weight of their social media and stuff like mine falls into the ‘read the headline’ and move on.  I can write a 1,000 word blog with tables and charts – and get a few views and a couple of ‘likes’ on social media.  If I wrote “Trump is a bum” on Twitter I would get a thousand likes and retweets.  I’m not sure what that means but I hope we haven’t reduced our thoughtful media consumption to 140 characters and highly provocative content just because it stands out.

Anyway, along comes LinkedIn.  I more or less didn’t think much of LinkedIn until recently – a place you put your resume.  But since I started posting to LinkedIn I am getting several hundred hits per post.  I assume this is because a) people aren’t crumbling under the weight of trivial posts on LinkedIn like they are on Twitter (I had to stop following some folks because every day it was just a constant stream of anti-Trump posts – from a Nobel prize winner, no less); and b) folks in my LinkedIn ‘network’ would have a more natural interest in the subject matter.

So, video killed the radio star (not really), Twitter killed the blogger and LinkedIn to the rescue.  Long live LinkedIn.

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Can small North American jurisdictions grow without a significant mining/oil and gas sector?

One of the main concerns I have had over the years is whether or not a small jurisdiction in North America can grow its economy in a sustained way without a large boost in mining/oil and gas development.  The experience in Canada isn’t very heartening.  Among the small provinces – significant growth in the economy over time tends to be correlated to a heavy expansion of mining/oil and gas development – Saskatchewan and Newfoundland and Labrador (before the oil price collapse).  The notable exception is Manitoba.  As I have written elsewhere Manitoba has embarked on an immigration-led economic growth strategy.  PEI has made a smaller attempt at this.

But 10 provinces is a small sample.  What about in the US?  At first glance the same, disheartening trend seems to hold.  North Dakota’s GDP over the past decade has boomed up a cumulative 72% but the mining sector GDP is up 582%.  Oklahoma likewise had strong GDP growth but mining GDP is up 86%.

But looking at all smaller states there are some interesting ones.  Iowa, Montana, Nebraska, Oregon, South Dakota, Utah and Washington have all witnessed well above GDP growth over the past decade – with flat or declining GDP from mining.  How?  They are small states, many geographically isolated, etc.  Frankly, they look a lot like New Brunswick.


Iowa – It’s growth was led by agriculture, finance and insurance, professional services, accommodation and food services, and administrative services.

Montana – It’s growth was led by agriculture, non-durable goods manufacturing, information, finance and insurance, health care, professional services, and administrative services.

Nebraska – It’s growth was led by agriculture, utilities, wholesale trade, information, finance and insurance, health care, professional services, and administrative services.

Oregon– It’s growth was led by utilities, durable goods manufacturing (mostly computer/electronic equipment), professional services, administrative services, education, and health care.

South Dakota– It’s growth was led by agriculture, wholesale trade, information, health care, professional services, and administrative services.

Utah – It’s growth was led by agriculture, non-durable goods manufacturing, retail trade, information, health care, education, professional services, and administrative services.  Utah has seen a 54% increase in GDP from arts, entertainment and recreation too.  Hmm.

Washington – It’s growth was led by agriculture, durable goods manufacturing (transportation equipment) retail trade (42% growth!), information, education, health care, professional services, and administrative services.


A first level read on this is heartening for a place like New Brunswick.  We have growth potential in agriculture, too.  We have generated considerable export revenue from professional and business services.  We have not been as successful with information, education and manufacturing.  It’s also interesting that tourism (the proxy industry accommodation and food services) only shows up once as a significant contributor to GDP growth (Iowa).   Generally speaking accommodation and food services GDP will track – over time – overall industry growth as it mostly services in-state demand.  States with growing tourism sectors will see GDP growth outpacing the overall economy.  As the chart shows only one of the states here saw A&F GDP grow faster than the overall economy.



The challenge, of course, comes back to what are the drivers of export-led growth in sectors such as professional services, business services, and even agriculture to a lesser extent.  The main driver is talent.  Jurisdictions that can’t supply workers to these industries will not see growth.  Firms looking to service export markets will not set up and grow in places that cannot supply the talent for growth.

It’s good news that a few small states (and Manitoba!) have shown the way here with strong GDP growth over a longer period of time without the benefit of mining/oil and gas.

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Calling Malcolm Gladwell: Walk amongst the elephants in the Atlantic Canada room

I listened recently to a podcast of a lecture given by Malcolm Gladwell where he mentioned that some people say he is the master of “dumb, obvious points”.  He then went on to discuss a dumb, obvious point about something.  I think we should have Gladwell come to Atlantic Canada to take a look and discuss our dumb, obvious points.  Maybe someone might listen.

For example, take a look at this graph.  Since 1991, the population aged 20-44 has dropped by 250,000 across Atlantic Canada – a substantial drop that is more pronounced as the boomers head into retirement.  The wave of younger Canadians that powered economic growth in the region for decades crested in 1991 – 25 years ago – and has been receding since.


Take a look at the same graph for Canada.  Around 1991 the population aged 20-44 crested – just like Atlantic Canada – but David Foot published his dumb, obvious point about booms, busts and echos and the country cranked up the importation of young talent from abroad.  This effort arrested the decline and led to strong growth in this age cohort in the last decade.   Interestingly some groups like the Conference Board say this is not enough – that Canada needs to dramatically increase its immigration in the coming years.



There are more dumb, obvious points.  Atlantic Canada’s economy is in the midst of substantial upheaval due to demographics, changing industries and increased global competition.  We need to be far more focused on internationalizing our economy.  Politicians gleefully talk about the level of exports generated from this economy but fail to mention that these exports are still primarily centered on natural resources.  If you back out lobster, oil, wood, etc. the region is not particularly good at exporting – with the someone maligned sector – contact centres/business services – as a more than $2 billion export sector for the region.

Here’s another dumb, obvious point – federal government support should align with the region’s needs.  In reality it tends to be the opposite.   Ontario, Alberta and BC – growing provinces will demand the feds provide cash for public transportation, new roads/bridges and post-secondary infrastructure to respond to rapid population growth.  The feds will say sure thing and develop a national program offering cash if you build new public transportation, roads/bridges and post-secondary infrastructure – and you have to put your own money on the table too. So a place like Atlantic Canada will get hundreds of millions of dollars to build new infrastructure even as the population that will use that infrastructure is stagnating or even decline.  Why wouldn’t the feds take a couple of hundred million out of that pie and put it where it is needed – to actually grow the population needed to use infrastructure? Because that is not the way things are done in Canada.  The feds – Libs and Tories alike- develop national programs based mostly on Ontario, Quebec, etc. requirements (think about the new bias towards large clusters such as AI) and then try to force them to fit in the Atlantic Canada context.

There are certainly many other dumb, obvious points – or elephants in the room – around local government reform, urbanization, new sources of entrepreneurship, how to use our smaller universities to drive R&D, etc.  But there isn’t much interest in doing anything substantial about it.

So why not bite the bullet and bring in Galdwell – he probably charges $100k just to show up – and maybe he can make the dumb, obvious points and maybe someone might listen.

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New Brunswick at Canada’s 150th – what will 200 look like?

I am increasingly of the view that New Brunswick and its communities actually spend too much time on introspection. A little introspection – time on the couch – is good. Too much leads to paralysis.

But on a momentous birthday, a little introspection is good. What if New Brunswick’s population had increased just at the national average since 1971? As shown in the graph, we would have 1.06 million population today and the province would look much different than it does today.


The so-called EI dependency problem would have gone way down. People complain about the large number of people who collect EI every year. Well, the number is actually about 35,000 – those who go on EI at some point during the year – on an ongoing basis. Assuming that number didn’t grow by 2016 it would only represent about 6.4% of the labour market in 2016. In other words we would grow our way out of the EI problem. Don’t forget there are nearly 100,000 people that collect EI every year in Ontario (and 156,000 in Quebec). Why no one is blowing their top about all the lazy Ontario-ians is that the 100,000 EI users is out of a labour force of 7.5 million. If we had witnessed just our share of Canada’s population growth since 1971 we would have significantly reduced the EI dependency issue through growth alone.

Urban growth would have been much more robust. Most net new population growth in Canada occurs in urban centres so it is safe to say that a large share of the 305,000 lost population growth would have occured in places like Saint John, Edmundston, etc. Remember Saint John back in the early 1970s had projected a regional population of 250,000 by now – not far off where it likely would have been if we had attracted our share of Canada’s population growth.

It is likely that government spending would have been more sustainable. This is not a given as governments tend to use the dividends of growth to spend more. Alberta, Saskatchewan and Newfoundland and Labrador have the highest per capita provincial government spending as a result of their boom years.  Back in 1990s SK and NL spent about the same as NB on a per capita basis now they are 16% and 27% higher respectively.

Our demographic situation would be much stronger.  Canada’s median age is 10% younger than NB – in demographic terms that is a big difference.

Finally, this level of growth would have assumed a strong and sustained level of immigration over the 45 year period.   A rough estimate would suggest about 23% of our population would be landed immigrants rather than the 5-6% it is today.   I think this would have enriched our province over the period.

Why does it matter?  The Self-Sufficiency Agenda back in 2007 called for population growth of 100,000 by 2026.  We are 2017 and the population has barely budged.   Twenty years ago the est. population was roughly the same as it is today.  Canada, just in case you are wondering, added 6.4 million to its population over the same period.

Looking forward to Canada 200 there are basically two trajectories for New Brunswick.  Either this province will have a much larger population or it will have merged with NS and PEI and will be a rump of its former self.


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Distracted by a lack of older NBers learning French? This is a bigger problem:

I  am somewhat wary of dipping toe into any conversation about bilingualism in New Brunswick because, well, just because.  I am sure that a lot of readers are nodding their heads in agreement.

Anyway instead of worrying about why more English NBers are not taking up language training later in life we may want to worry about one of the real challenges.  It looks like, somewhat ironically, that French immersion graduates are more likely to leave New Brunswick than English only graduates.  The following table is taken from the 2011 NHS. The bar here is quite low – persons are asked if they have knowledge of French.  Presumably, virtually all graduates of French Immersion would answer yes to this question.

I don’t know the exact percentage of NB anglophone students in immersion but it is fairly high around 1/3 of total students (the table below aligns with this).  High enough that it should have, over time, a significant impact on the numbers.

But if you look at the data – young anglo NBers in school have ‘bilingualism’ rates in the 30%+.  Then it steadily declines to basically 20% in the 30-49 age group and reverts to the provincial average for all age groups for people 40+.   Back in 2000, 32% of Anglos were enrolled in French Immersion.   Someone who graduated high school in 2000 would have been nearly 30 by the time of the 2011 NHS.

Now before you get out your calculator – my math on this is fairly simple.  If kids in French Immersion are showing bilingualism rates of 33% – then you would think that this level would hold – dip a bit from inward migration, etc. but the fact that 33% claim knowledge of French when they are 18 and only 21% do by the age of 30 looks like to me that we are exporting a fairly significant share of bilingual anglophones.  The conventional wisdom is that unilingual anglos have to leave because they don’t speak French.  It looks like the opposite is taking place.

If we want to foster a bilingual society – at least at a conversational level – we more anglophones speaking French.  The best time to learn is during school.  If we lose them after then…..





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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.


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.



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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