Monday, January 18, 2010

The ACOA Case

Responding to David W. Campbell, who in turn is repsonding to criticisms of ACOA.

The article states:

For 20 years in a row, six companies and a university-affiliated corporation have secured money from the Atlantic Canada Opportunities Agency... the seven firms have received a total of $41.1 million in two decades, according to a list obtained by The Canadian Press under access-to-information legislation.... Eighty-two other firms received cheques from ACOA for at least 10 of the last 20 years, for a total of $203 million.

Campbell replies:

The intent of the article is to discredit ACOA and its funding without any balance... The other thing the journalist missed is any reference to the benefits of the investments in these firms.  There may be none but there may be substantial... if those investments in seven firms ($41M in total) had led to 50,000 new jobs and $500 million in new tax revenue, most reasonable people would be highly supportive of the deals.


OK, first, the article is a hatchet job. But second, the criticisms are valid.

There may be mitigating factors, as you suggest, but they are increasingly difficult to find.

You suggest, "if those investments in seven firms ($41M in total) had led to 50,000 new jobs and $500 million in new tax revenue, most reasonable people would be highly supportive of the deals." True, but the evidence seems to be that the return was nothing like this. We're more likely talking 50 jobs than 50,000.

What was the return? Well, we don't know. But when the same 7 companies get new money every for 20 years, and when an additional 82 companies got money at least 10 of the 20 years, it is arguable that the money is not helping these companies stand on their own. And it makes us wonder how it could be spent in such a way that it does enable companies stand on their own.

Arguably, what is *in fact* happening is that the money is acting as a local industry subsidy, which (when combined with other local industry subsidies, such as special tax deals from the local or provincial governments) gives existing Maritime industries an unfair advantage over companies that might relocate here.

Who is going to set up a frozen food industry when they see that Oxford Frozen Foods has millions of dollars in subsidies? A critic might simply see the $12.1 million subsidy as a way for Oxford to monopolize the local blueberry crop. Certainly their web site (which was suddenly taken down, but you can still see internal pages here http://www.oxfordfrozenfoods.com/hr.htm ) suggests nothing otherwise. No innovation here!

I don't agree with the proponent in the story, that the way to stimulate corporate activity is to lower taxes. For one thing, taxes are already very low - it's like interest rates, once you get to a 0.5 percent rate, the old refrain 'lower the rate' doesn't work any more.

But what we need to be doing is creting incentives for *new* industry, to provide competition for the old ones. Sobey's has actually started building new stores now that Superstore has established a presence. Kent started opening on Sundays once Home Depot moved in across the street. One could only imagine what would happen if we had competition for Irving in oil, transportation and forestry, of McCains in food production!

Or even better, more ACOA money could be used to seed industries in the new economy. We should be working on biotech, alternative energy, information technology, etc. - high paying jobs with low resource impact. This, of course, requires better infrastructure - lower power rates, better telecommunication (especially wireless), efficient transportation - all things the province lacks.

I propose, from time to time, only half in jest that each person would be eligible for only one gran t in a lifetime. Say, a million dollars. The same requirements upfront would apply - they would still have to have a business plan, they would still have to have a product. And they would need business support, access to infrastructure, and marketing assistance. But once the money ran out, they could come back for more each year; it would be someone else's turn.

Clearly, after a company has received five or ten grants, it's no longer about starting something new. Rather, it becomes all about entrenching their position. At that point, the grant money stops helping the economy, and starts hindering it.

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