You are what you eat

I just finished what I thought was an insightful column in the T&T on the economic challenges facing New Brunswick. They were written by Roger Haineault who works with a company called Tax Help Inc. – it would seem located in Moncton.

Until I get to the end:

The days of the large company coming in and building a factory employing thousands is gone in this part of the world. Employment, wealth and progress will be driven by the entrepreneur who creates a start-up that issues 50 T4s in his or her fifth year. These businesses are going to be in the service sector, and with the global economy they will work both here in the province and beyond our borders.

When I looked at the source – a guy who helps small businesses with tax returns – it seems clear that he is speaking from the perspective of what he knows. However, this continues to be the dangerspeak that I have heard for the two decades I have been involved in economic development in New Brunswick.

First, his initial sentence here is just plain wrong. We have attacted over 50 ‘factories’ from ‘large companies’ all around the world. Whether you like them or not, these large customer contact centres are just that. The question should be how do we replicate this success in other sectors?

Second, his assertion that “Employment, wealth and progress will be driven by the entrepreneur who creates a start-up that issues 50 T4s in his or her fifth year.”

This would actually be true if we had evidence of it in New Brunswick. New Brunswick has around 31,000 people that claimed on the Census to be self-employed. Many of these have a few employees working for them. Many don’t. But they are the core of the small businesses in New Brunswick. And their average income (personally) is less than the average income of an employed person.

The truth is that most small businesses in New Brunswick are tiny and provide services in their local community. 53% of all businesses in New Brunswick have 4 or less employees. 93.2% have less than that magical “50 T4s” that the columnist talks about. 93.2%.

I am not downplaying them or being critical of them. I am one of them. Jupia Consultants. 2 employees. Providing service mostly in New Brunswick.

And the last point is this issue of doing business “beyond our borders”. That is key. Efforts to stimulate more small business to compete with other small business in small local markets is not economic development (with some possible exceptions where there should be more competition). If you have ten small janitorial companies in Moncton and you put tax breaks and other efforts to encourage more you will just force others out of business or to downsize. The economic pie will remain the same.

Again with the exception of creating more efficiency, unless these mythical small businesses with 50 T4s that he is talking about are doing primarily their business outside of New Brunswick and bringing the economic activity back here, beyond the romantic notion there’s not much to his assertion. And think hard. How many companies do you know that are in the 50 person range that export services (his word, not mine) to the global economy? Cripes we have a hard time getting our small manufacturers to complete globally – let alone our service providers.

There are some. Good ones. Environmental firms doing work in Central America. Training companies putting on courses in Africa. Animation firms building product for U.S. partners.

And I say we need to find these Gazelles and do what we can (if anything) to nurture them and their success.

But please understand the difference between the two. Because 30 years of policy designed to encourage New Brunswickers to ‘start a business’ as an alternative to being unemployed have not worked.

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to You are what you eat

  1. richard says:

    I had the same rxn when I read this in the daily weiner. This fellow has some good practical things to say about taxes and taxation, but he is way off the mark here. There has to be primary industry to provide work for the small fellows in the service industry; surely he does not think that very many outfits with 3-4 employees are going to be exporting enough product outside NB to keep the province afloat.

    Perhaps he has a new paradigm to explain all this. Or perhaps he is on a radical diet that has caused his brain to malfunction. Or perhaps he speaks for the chattering class of NB – who needs all those stinkly companies with their stinky blue-collar types anyway?! They should all be quaint hewers of wood, providing the chatterers with wood for furnace, crafty things for the home, etc., all those good things that the eng lit and philo grads need after a hard day in the civil service trenches.

  2. mikel says:

    That”s hardly an elitist claim, small business owners are not university profs-thats the civil service.

    There is no reason that only one economic model can work. 100 people with small businesses employing 20 people each exporting elsewhere is no different than one company employing 2000 people-or even 2000 self employed people. In fact, the capitalist model is closer to the 2000 people, or at least the 100 people than it is for the one company.

    Money is money, larger companies are less likely to spend their’s locally, and the annual report for the company that now owns the Edmunston mill shows that one third of the product simply goes to another branch of the company. That’s not new money coming into Edmunston, in fact it doesn’t go anywhere near NB.

    But this guy is just projecting, without mentioning public policy its no more useful than a crystal ball. However, he is right-call centres are not a ‘factory’ and few employ ‘thousands’. Even the refinery will only employ just over a thousand, the molson deal only will employ 40-50.

  3. richard says:

    “There is no reason that only one economic model can work.”

    Perhaps you can give us an example of where your model has worked.

  4. mikel says:

    It’s hardly MY model. Most of the world’s economy functions that way. In fact, even in the states most of it functions that way. A good example that I’m familiar with is Vermont. The vast majority of manufacturing is done within the state, and most exporters (much in machine tools and retailing) are under 50 employees.

    Even one of the largest, Ben and Jerry’s, only employs under 800 people. NBT isn’t around anymore, so I have to be a little more contradictory-in a good example of why ‘buying off’ corporations with taxpayers money CAN be ineffective is IBM. In the seventies they set up a manufacturing facility, and since then has successively been laying off workers and the state has been continuously paying them off.

    But in the end, like UPN, the payoffs have little bearing on the bottom line without all the other initiatives. Another intersting aside is that IBM set up in Vermont originally because the CEO’s son liked the skiing. In the states the increased power of CEO’s is meaning that its not just kissing up to the company thats essential but also the executives. A number of company’s have publicly said they move to where their executives want to be.

    PEI, or in fact go to any place reliant on tourism and you’ll find perfect examples where outside money comes in without much effort-IF you’re a tourist destination. Per capita wise PEI’s agricultural sector has been far healthier and stronger than New Brunswick’s because NB’s economy in the northwest has been tied to McCains, so now that whole section is primarily farm ‘managers’. The last census showed only about 2000 farmers left in NB, which I think is lower than PEI. And they are still getting bigger in NB while the jobs are shrinking. They are making more money though, but again, capital has nowhere to go in NB, so its not as useful as having more workers (who are now unemployed).

    The examples go on and on, Gagetown, Minto, Kedgewick, Richibucto, Rexton, Moncton, even Fredericton. And this is an area of the world that has been aggressively attempting to urbanize its population. Most of France’s economy functions that way, as well as the swiss, where there is a wide variety of companies and industries in an area not much bigger than New Brunswick. Like McCains, their biggest companies got big by going international, but thanks to the most democratic system of government in the world its much harder for any particular company-or companies in general, to gain the kind of power over public policy that they can so easily get here.

    St.John is the only standout ‘company town’ in the province, and is hardly a great example of ‘capitalism at work’-it has worse poverty statistics than even some third world countries. And like I’ve said, IF communities could control forestry, there’d be far more jobs than currently at the large mills-which by definition means more small scale employers. In fact I seem to recall the ONLY increase in forestry jobs has been native foresters, they had to go to Quebec to find workers.

  5. Anonymous says:

    They had to go to the poverty towns of quebec to avoid paying a decent wage and who would not notice that their wood scale was “off”.

  6. mikel says:

    Let’s skip the racism shall we. The workers weren’t available in New Brunswick. Rogers brought in 200 workers just to lay cable. First nations have the highest unemployment rate of anyplace and they didn’t hire them either-you do need SOME skills to do forestry. They’ve still been hiring more people than the licensee’s have been. I don’t know about the wages, but what do you think mexican farm workers or wal mart pays? Plus, the province puts so many restrictions on how natives manage their forestry resource that most administrative costs are out of their hands. It was ‘at least’ minimum wage, and there are lots of ‘poverty towns’ in New Brunswick so it’s doubtful that’s the case.

  7. richard says:

    “In fact, even in the states most of it functions that way.”

    That’s absolute nonsense. Most economies are dominated by small outfits, that’s true. But that isn’t the issue and you know it. Fact is, in most states and provinces, the smaller guys rely on either larger outfits for their business or a large urban centre.

    David isn’t saying that small businesses can’t grow and become bigger guys; he is saying its foolish to rely on that to get NB moving. And he is right.

    Still waiting for examples of your model. Vermont sure ain’t one.