Putting industry barons into perspective

The TJ is running a drooling editorial today about New Brunswick’s business moguls. The piece starts out with:

The nineteenth century is often referred to as New Brunswick’s golden age. But the twentieth century was the age of New Brunswick’s golden entrepreneurs, when self-made, independent businessmen forged global commercial empires.

The editorial goes on to talk about, of course, McCain and Irving and laments the fact that more McCain and Irving entrepreneurs have not arrived.

Of course, the TJ is in a conflict of interest on this issue and the reality is far more nuanced than that.

I am no basher of Irving or McCain. I applaud many of their efforts over the years but I do think their overall impact on New Brunswick is decidedly mixed.

You can’t separate those empires from the economic problems of New Brunswick in the 20th century.

I don’t like the concentration of economic power – not in the hands of government nor of industry. I am a huge fan of the Sherman Antitrust Act (I did a paper on this in university) and I believe this anti-trust legislation was one of the key pieces of legislation that led to the start of the economic success of the U.S. because it put some limits on economic power and monopolistic/oligopolistic activity.

Consider this. Only three of the top 40 richest Americans in history are alive today. This despite the fact that the total wealth in America is over 50 times what it was in the 1930s. I read recently that John D. Rockefeller was worth in today’s dollars $190 billion. Bill Gates is somewhere around $50 billion. In fact, the top four richest Americans of all time are among the so-called “robber barons” – John D. Rockefeller, Andrew Carnegie, Cornelius Vanderbuilt,and John Jacob Astor – that the government was looking to defang with its antitrust legislation.

So back to New Brunswick.

Everybody knows that both the Irvings and the McCains exhibited (and still do) virtual monopolistic power over many aspects of their business – whether it’s supply chain, vertical integration or even the printed media in New Brunswick.

A very respected old economist in New Brunswick (I won’t mention his name because probably 70% of you would know it) mused one time in conversation with me about how it is funny that Saint John’s period of fastest growth and most successful economic times was well before the arrival of the Irving empire.

As I stated above, my opinion about the Irvings/McCains is actually much more nuanced than many of the folks I talk with.

But the TJ calling for more of these types in New Brunswick is disconcerting. What is needed is a broader mix of multinationals (who would exhibit limited local economic power here) and successful local entrepreneurs (but certainly not those with the kind of economic power we have seen).

Just to finish this thought. At the height of his economic power, Rockefeller was worth about an incredible 4% of the national GNP in the U.S. By contrast, Bill Gates is worth 0.6% of the U.S. GNP (total annual economic spending). While nobody knows the real wealth of the Irving empire, the total GDP of New Brunswick is about $25 billion. If the Irving empire is worth 10 billion, that would mean 40% of the total annual GDP of New Brunswick (or ten times Rockefeller). You might say that a more accurate comparison would the Irvings to the national economy in Canada. But, I disagree because the bulk of the Irving empire is still right here in New Brunswick. Another statistic worth mentioning is that the Irvings, by my estimate, account for about 50% of the value of all New Brunswick exports. A staggering figure unmatched in any province or state – probably in the world.

So, I think we need to spend more time thinking about how to create less centralization of economic power in New Brunswick and not more. And the way you do this (tip of the hat to my friends on the Right), is through more competition. More free markets – not less. We need to make sure that the legislative and legal framework in Canada and New Brunswick doesn’t allow for too much economic concentration.

*P.S. – some will point out the obvious differences between the Irving and McCain empires. However, my thesis still holds IMO.

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0 Responses to Putting industry barons into perspective

  1. mikel says:

    A very important topic and I agree with much of what you said. The standard ‘pro irving’ line has always been “what would the province look like if they WEREN”T around”.

    That is the central question, although those who ask it would be surprised by the answer. Irving virtually gets whatever it wants in NB and Saint John is their headquarters, but it was their shipyards in Nova Scotia and PEI that they kept open.

    While griping that they were getting no shipbuilding contracts, like other shippers they were purchasing their own ships elsewhere, not even building their own.

    Not to mention their effect on wages. I’ll repeat the story that begins in the book “Trouble in the Woods”, which is about the group that wanted to unionized, but couldn’t because they couldn’t prove who their employer was. Everybody knew it was Irving, but there was such a convolution of paper trails and international corporate names that they couldn’t actually prove it.

    For agriculture, just compare with PEI. Since the arrival of McCain New Brunswick’s farming industry has concentrated to the point where there are about 1200 farms left. The farms have fewer owners, many are simply ‘managers’, and with fewer owners of course you get fewer employees. PEI’s industry is much healthier.

    With over 300 companies its virtually insane to claim that Irving has no effect on the provinces decision making. Again, the province is contuously doing the opposite of what every other province is doing to spur growth.

    The liberals enact regressive tax increases. They LOWER the tax on gas, while increasing other taxes. They lower the capital gains tax while increasing small business tax.

    They virtually give away the province’s potash resources, and continue the giveaway of the province’s peat resources while ignoring the environmental damage continually increasing from it.

    They ignore ‘new’ industries, while paying through the nose to keep the resource sector alive.

    However, to pan your friends on the ‘right’, the Irvings and McCainas ARE ‘the market’. So its no surprise why NBT laments that New Brunswickers stick with the status quo and government. Whats the alternative? Every New Brunswicker OUGHT to know what happens when ‘the market’ steps in.

    Providing jobs is one thing, and even getting some handouts is one thing, but controlling entire industries as well as all media is virtually unprecedented in the modern world.

    But they do have a point, ‘if only there were more’. It’s true that IF there were more, then ‘things would be different’. The problem, of course, is the question as to whether the current crop of ‘entrepreneurs’ maintain policies that keep the next crop from materializing.

    The answer (I think), is that OF COURSE they do. And I’ll prove it. As you said, virtually all their income, at least initially, came from the province’s resources. And they came from huge subsidies to the resource sector. Look at the current situation and how resources are allocated. There is none left for any new entrepreneur to take advantage of.

    The Irvings, McCains and Ganongs all rely on natural resources. How can a new ‘entrepreneur’ come along when all the land is tied up? Obviously somebody can come along in another type of industry, but again, economically they’d be crazy to try to do that in an area with no market. We are talking about resource use.

    For ages I’ve been trying to find some research done on the effects of Irving and McCain on a small province’s economy. That SHOULD be a highly studied area, but I’ve found little.

    The POLITICAL problem with Irving is that views, at least public views, are so polarized its almost impossible to even have a debate about them.

  2. NB taxpayer says:

    Great post, David. Though I would argue that the centralization of power in Ottawa and Fredericton (over the years) is more to blame than the actual monopolistic firms themselves.

    And since the Irvings rely on a localized rather than an expansionist business model, I think it’s safe to say they wouldn’t take their business elsewhere if strong anti-trust legislation were introduced by government…unlike those companies that uproot when the gravy train is cut off or when unfavourable monetary circumstances occur. They [Irvings] have too much riding on this province.

    The bottom line, government has failed to introduce legislation that will benefit the economy and encourage outside investment. They are more interested in discouraging growth through poor tax policy, excessive corporate welfare and irresponsible spending.

    All policies which have little effect on liberal friendly monopolies and a huge affect on outside investors, small business owners (with no government ties) and multi-national looking to relocate.

    If you don’t believe me, check the corporate welfare stats (via TPC or DIPP) where “the big money flows” and you will see a certain said company receiving millions. I can’t confirm this, but I don’t believe there has been any attempt to finance a solid outside industry (other than Brinklin, military bases and government units) in hopes that they will set up shop and do longterm business in New Brunswick. And those piddly ACOA grants don’t count as they don’t invest at the level TPC or DIPP does/did.

    However, since corporate welfare reigns supreme in this province, if you do decide to coax a business to New Brunswick, like Lord did with Molson, then you are sure to hear the protests from the domestic businesses who wonder why you are picking them over you and adding further competition to government dollars down the road.

    I guess that’s the kind of attitude that developes when you are the only show in town. (i.e. to many business monopolies)

  3. mikel says:

    I agree very much with most of NBT’s post, as usual, however, its what ISN”T said that I’d reinforce.

    There is a strong tendency to think that businesses are not political. For example, do you really think that antitrust laws would be UNWELCOME by New Brunswickers? Do you really think New Brunswickers are HAPPY that Irving owns so much media?

    Such laws don’t exist BECAUSE of the lobby of industry players. People would be cheering Graham if he were to announce a privately subsidized ombudsman to oversee media monopolies. They would be cheering far more if they KNEW what was said during the Senate’s public consultations on media monopolies.

    But there is a reason that even Ottawa won’t get involved in canada’s media, even though Canada has the most concentrated media in the industrial world-even more than the US.

    Some say that without Irving there wouldn’t be as many newspapers, which is hogwash. Vermont has fewer people than New Brunswick, has no large central city at all, and has twice as many newspapers.

    So you can ask WHY the government wouldn’t enact legislation that would make them very popular. The answer, of course, is the power that industry holds over government. As John Dewey said, “government is the shadow that big business casts over society”.

    So thats true, that it IS because of legislation that these problems exist, but when you dig deeper to find out WHY there is no legislation, or why there is such centralization, then big business ALWAYS rears its head. Again, that’s why canadians are still quite faithful to ‘big government’. They remember the days when there was no big government, and what life was like.

    But again, just take a look at what legislation is passed in NB. This province is as close to a corporate run government as you are likely to find. I think I recall only six pieces of legislation that didn’t have business interests in mind, that’s out over sixty, which itself is an extremely low number of legislation.

  4. Anonymous says:

    “However, since corporate welfare reigns supreme in this province, if you do decide to coax a business to New Brunswick, like Lord did with Molson, then you are sure to hear the protests from the domestic businesses who wonder why you are picking them over you and adding further competition to government dollars down the road.”

    Lord’s investment in Molson was stupid, stupid, stupid. Hey, let’s bring in companies that will compete with and destroy our existing companies! Yeah I know competition is a good thing, most of the time, but hey, let’s try to build up our economy without destroying the existing business. Instead, let’s compete with companies in other jurisdictions.

  5. Anonymous says:

    Having a Molsons in NB isn’t likely to ‘compete’ with other businesses. The market is simply too small. Moosehead and Molsons do their competing internationally. And Pumphouse is a niche player.

    However, a good point IS ‘why do they get preference. Of course a pertinent question is whether Pumphouse ever ASKED for any government help. As I’ve said, Pumphouse was in Ontario for one weekend, sold out, and has never been back. Clearly they have potential, have won numerous national awards and once New Brunswickers across Canada found out they were available I think they’d line up. I was telling everybody here to give it a try.

    There is absolutely no reason that Pumphouse can’t be getting any of the funds already handed out to exporters. I get a kick out of the pompous pricks who simply only look at ‘high technology’ as things worth investing in. Obviously they know little about making beer-the technology OR the techniques.

  6. NB taxpayer says:

    Lord’s investment in Molson was stupid, stupid, stupid. Hey, let’s bring in companies that will compete with and destroy our existing companies!

    I disagree anon. That’s the problem with NBers, they shy away from competition because they buy into that flawed arguement that government will be the saviour of all our problems. And David makes a good case on how private monopolies can kill or slow down an economy as well. It’s a double edged sword.

    Moreover, as someone who has always been very competitive (whether it be ping pong, basketball, cards or politics), I see competition as something that brings out the best in firms, people and organizations.

    Furthermore, I’ve always believed that if you try to sidestep competition initially, you will just be stale and uncompetitive down the road when another challenge stands in your way.

    We need to foster healthier economic growth through more competition, not by sidestepping it.

  7. Anonymous says:

    I think that deep down we all know that nothing new will be allowed in NB if it effects Irving, McCain etc. Anything that sneaks in will be destroyed by them. How many media initiatives have been started up in NB by New Brunswickers and then bought out or buried by Irving?
    Irving cannot have an independent newspaper publishing stuff about things they are doing like environmental damage, low wages, high profits, government assistance, shady dealings etc.
    The question is will anyone actually do anything about it? Maybe not in our lifetimes but the process needs to begin. I think the government is afraid of the repercussions but, as has already been mentioned, Irving has too much to lose to pull out of NB after all the whole province is his playground.

  8. mikel says:

    That at least explains your bias NBT:) However, I’d suggest the following, that only a very small percentage of people actually believe that. The co operative model is far more likely in virtually every instance. Which is why so much effort is made to ensure ‘we’ can’t cooperate in governmental decisions.

    It’s very odd to see YOU now vouching for corporate welfare because it makes people ‘competitive’. Where is the competition in that? Molsons was already sold in NB, Pumphouse and Moosehead ALREADY competed with them in the market. By paying some of the Molsons costs, the government merely subsidizes their lower price over pumphouse or moosehead. How exactly is that ‘competitive’ or even remotely fair?

  9. NB taxpayer says:

    To clarify mikel, I’m not in favour of the manner in which Molson was brought in. As I said earlier, and a thousand times on my blog, the practice of corporate welfare is inherently bad for the economy. Let me bore you “with why” once again and be done with it:

    -Market decisions should be made by the market, not by politicians.

    -Picking winners and losers is not a task which bureaucrats are well suited.

    -Subsidies create an uneven playing field as they divert credit and capital from successful firms to less successful firms.

    -it undermines confidence in our democratic institutions.

    -it’s harmful to the environment as subsidies are often given to declining industries which, on average, are more harmful to the environment than newer facilities and sectors.

    -it creates a culture of dependency whereby business owners become so reliant on government assistance that they build expectations of such into financial plans.

    -it leads to higher taxes as someone has to pay the bill for years of corporate welfare. Or did you think all that money given to Atlantic Yarns was from somewhere else?

    As for competition, which is clearly another subject altogether, I believe our economy would be better off with a little more of it. Make that a lot more of it!!

  10. NB taxpayer says:

    Btw mikel, what bias do you speak of?? Are you inferring that I am partial to the right?

    I guess if that’s the case, I better get rid of my last post which praises an individual who thinks Bush’s economic plan was flawed and Clinton’s was not. Not to mention, I made a bit of a comparison at the end. Nice try though.

  11. mikel says:

    Bias isn’t just right and left. I said what I meant, your bias for competition. That’s one view of the world, but only one view. A family functions very well as a single economic unit. Yet children do not ‘compete’ for attention from parents. Our health care system does not function on the competitiveness of doctors, and it functions at least relatively well, and even better when proper oversights and funding is in place.

    And I’d stack up those cooperative models against the competitive model any day of the week. I’d rather live in a community that is like a mennonite village than a ‘keep up with the jones’ kind of place any day of the week, of course I don’t know any communities that actually operate competitively anyway. Personally, I loved hockey until it became competitive and all the fun was taken out. That’s my ‘bias’, as opposed to yours-but it has nothing to do with right or left or anything like that.

    But you didn’t actually say WHY you support corporate welfare for Molsons, but don’t seem to support it ideologically. So only LARGE corporations should get corporate welfare? Molson’s isn’t ‘competing’ with anybody in the province, the beer was already available. Change that, they ARE competing, but thanks to corporate welfare they have an unfair advantage over Pumphouse. A large foreign owned multinational corporation is being publicly subsidized so that it can underprice a local producer.

    Thats FAR worse than Atlantic Yarns, which at least keeps the money in the province and is an attempt to get employment and training in a disenfranchised area. Moncton certainly doesn’t need more corporate welfare than the north, it has had far more economic successes than virtually any part of the province.

    So again, how does paying Molson’s labour cost reflect ‘competitiveness’-unless the idea is to make life harder for smaller company’s to make THEM ‘more competitive’, which is just a weird way of trying to make companies competitive-they have enough problems when the playing field is equal.

    I find your reasoning weird because I would have thought this would be the poster child for the problems of corporate welfare, not some money going into a poor area like the north. Your not a Molsons employee are you?

    Pumphouse is doing everything right. They have a quality product, they work hard, and they market a desirable product whose sales lets them grow naturally. Like I said, SLOWER than naturally because clearly they could penetrate the ontario market with more product. I’ve seen imported beer that has sat for months on an aisle, to sell out in less than a week (even though it wasn’t that many), is a real accomplishment.

    They are doing the ‘capitalist’ thing, which is VERY tough to do. Beer companies have come and gone through the years in the maritimes, it is VERY tough to stay alive in a small market with other cheap beers available, particularly with so much advertising for them.

    Then along comes a huge company, and the government agrees to underwrite much of their labour. THAT is the corporate welfare that is horrible. I believe when it was announced the owners from pumphouse said that dollar for dollar of sales, THEY employ more people than Molsons. IF they had been given that money, then they could be selling nationally. But at the very least, don’t go out of the way to make it even harder for them to compete. With lower wages Molsons can have even cheaper beer.

    Of course we know WHY they did it, because the NB government will do literally ANYTHING for anybody who will employ somebody. The politics is even worse, because ‘new jobs’ as that telemarketing manager said, seem to get more credence than existing jobs. That’s not completely true, but we can see his point. When playing with statistics, they can announce how many ‘new’ jobs they created separately from the net number of jobs, and with only one media player in town, they don’t have to worry about that being challenged.

  12. NB taxpayer says:

    Yet children do not ‘compete’ for attention from parents.

    You obviously didn’t have any brothers?