Anti-economic development

I have come across this term, anti-economic development, a few times in recent months. It is typically used to describe a government action that seems to be against the goals of economic development. For example, one commentator recently critized a U.S. state for trying to have English made the ‘official language’ and attempts to crowd out the use of Spanish. The commentator saw this as ‘anti-economic development’ because it alienates the something like 20 million Spanish-speaking Americans (the fastest growing segment of the US population).

So, on a quiet Sunday night, listening to Radio Dismuke, I thought about this term in the context of the Maritime provinces and New Brunswick.

One might argue there’s a lot of ‘anti-economic development’ going on these days in New Brunswick.

Consider these examples:

The government spends a considerable amount of financial and human resources bailing out local companies who have fallen on hard times. Is it economic development to use government resources to subsidize a bad business model?

Sometimes you hear the term ‘lender of last resort’ used to describe government funding. Is it economic development to use government resources to subsidize a business idea that can’t generate interest from the private sector? Is it economic development to finance projects that the private sector deemed unviable?

Successive government leaders have said ‘we can’t compete’ when it comes to financial support for lucrative economic development projects (auto plants and such) so many times they end up supporting lower grade projects that probably wouldn’t get a hearing in other markets. Is this economic development?

Governments have a tendancy to bail out old industries (like the Stephenville plant in NL) but not invest properly in new industries. Is this economic development?

The tourism department is spending millions of taxpayer dollars to promote NB tourism to New Brunswickers. Is this economic development? I understand the concept of keeping tourism dollars at home but this is a fine line issue. If I accept NB Tourism’s challenge and take the money I was going to spend somewhere else in the local economy and spend it on local tourism, is there a net benefit to the province? Maybe, maybe not.

The government, no specific programs or people in mind here just a general concept, spends a lot of time and effort trying to get Maritimers to start their own businesses. Businesses that we know have an 80% failure rate. Can we create entrepreneurs or are we just creating a class of small businesses that will eventually get creamed by big guys? Is this economic development?

Just questions, folks. I am not necessarily criticizing any of these and I realize there are shades of gray here. If a super company with incredible growth potential needed some short term help, that may be a different story.

But my general hypothesis remains. With all good intentions, do we sometime end up practicing ‘anti-economic development’?

Here’s my take on it:

If you are going to give out government money – money earned by the citizens from their hard work – you had better not be overly speculative. Xerox, UPS, IBM, etc. – yes, even Irving, – you can bet there’s an exponentially less chance of losing taxpayer dollars than if you give money to some highly speculative, local start up that no one else would touch. I know this is a sacrilege to many of the posters here but think it through. If you give Irving $5 million (hold your nose if you must) and they creat 400 high paying Majesta jobs for the next 30 years, aren’t you better off than giving that money to some fly-by-night outfit for which there’s an even chance they’ll be out of business in a few years?

Don’t just try and create small businesses for their own sake. Calibrate government support towards entrepreneurs with great, export-oriented products/services and the hutzpa to get things done. Just funding another round of small businesses that compete against each other in the local market is not economic development.

Don’t spend a lot of time and money bailing out old industries. The Stephenville plant, by the company’s admission, was not and would never be profitable without millions of public subsidies each year. In the short term, you have saved a political headache, in the long term you have doomed that community. Take that $120 million and either a) target new economic activity for the community or b) give each family the over $100,000 (the amount of total subsidy over the ten years) and let them resettle in Alberta. Prolonging the inevitable is not economic development.

Finally, it’s got to be about incrementality, always incrementality or what are we in the game for? If you spend millions in tourism funding to get New Brunswickers to take their dinner/movie dollars and spend them on a bed and breakfast, what is the net benefit to the province? If you bail out an industry with $10s of millions just to keep the same level of jobs, what’s the incrementality?

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0 Responses to Anti-economic development

  1. Anonymous says:

    Yes and no. As said, just because a company is large is no guarantee. Creating Majesta jobs now, does not guarantee they will be there in ten years. Irving is one of the biggest users of government grants for technology which terminates employees.

    Add to that the fact that you have to give them all the forests, and you have a bad business model no matter how many are employed.

    When you say ‘SOME businesses deserve money, others don’t’ you are playing politics, nothing else. How can ‘new’ industries start up if they aren’t invested in and only people like Irving, who stamp out all competetion, are supported?

    To use your favourite example, RIM was a start up by a ‘fly by night’ entrepreneur. If he was in NB people would be saying to government ‘don’t invest in that guy, Irving is starting a tissue paper mill’.

    That’s hardly sound reasoning. And keep in mind one other big fact, which is that its pretty standard procedure for large companies to blackmail governments with the ‘relocation threat’, which means once a government invests a certain amount, they can’t see it fail or they’ll suffer at the polls. With our media and the immense amount of government secrecy in this province its impossible to know just how much money is flowing directly to these companies.

    So that essentially brings us back to square one. How do you choose which investment, especially when the pickings are slim. I think a far better situation is examining exactly what went wrong with those small business failures. Again, that brings us back to democracy, if people were part of the process, not only would it mean they could control where there tax dollars go, but it would also provide free advertising to that start up company, making it more likely to succeed.