Saturday, February 21, 2015

Advice for David Campbell, Chief Economist

The province has just announced that it is appointing David W. Campbell it's "chief economist". Campbell discusses the appointment here. Regular readers know I have responded to Campbell frequently in these pages. Just before his appointment (or maybe on knowing he will have it) Campbell posted an "economic development magnum opus", outlining the key planks of his development philosophy. I take this opportunity to reply to them

We must move from a financial program-centric to an opportunities approach to economic development 

Everyone is in favour of supporting opportunities as opposed to merely giving out money, but the devil is in the details. What does it mean to "support an opportunity" other than providing money? Yes, there are policy changes that can be made, but the bulk of support is still financial. Does it mean "picking winners"? I think that with solid value propositions there's no harm in that - but it's urgent that such a program doesn't devolve into cronyism, or into giving the same old enterprises more money. But I offer qualified support to this approach, provided the mechanisms are open and transparent.

We need to implement an ROTI model (return on taxpayer investment) – all investments in economic development should be able to demonstrate a return on the taxpayers’ investment.

I used to tell people around here that "we're all in the tourism business", because people don't just see the main attractions when they come here, they see (and touch, and talk to) everything. In the same way, we're "all" in the economic development business. Every investment the province makes - from schools built out in the countryside to a local arena to a resort lodge at Larry's Gulch - has an economic development impact.

But not everything demonstrates ROI to the taxpayer, nor should it. Our schools, for example, are crucial to economic development - people will not move here if they cannot ensure a quality education for their children. But any attempt to represent their ROI is a bit facetious; we would build them no matter what. Conversely, things that seem to generate ROTI might in the larger picture be disastrous. Fracking and uranium mining might fit into that category. They might generate incolme, but they might make the province a place that nobody wants to live.

The economy is a complex system. No individual element's ROI can be calculated. The contribution of one depends on the existence of, and the contributions of, the others. So we really have to be careful about using a one-off calculation like ROTI.
We need to turbocharge the workforce – Less worry on short term interprovincial migration and more concern for long term impact on business investment decisions arising from a tight labour market.

We have to stop the whole harangue about "bringing our children home". We're not some outport economy; we want to be part of a modern technological society, and that means migration. People want to move, they want to follow opportunities, they want to experience new lifestyles. We are lucky that our children can grow and develop in most any province or country in the world. Many societies cannot offer that opportunity.

So, conversely, we need to become attractive to new migration, to people who have never lived in New Brunswick before (like me!) and people who have never lived in Canada before. We are so used to depicting the province as an economic basket case, but to many people around the world, this is a land of opportunity.

And we need to start thinking innovatively when planning to attract these people. Consider settlers' grants: we will grant you title to land if you settle on it for ten years and develop it into viable enterprise. In the long run, that creates far more return than simply giving the forestry rights away for free to some large company that hides its profits in offshore accounts.
We need to target high growth potential entrepreneurs (HGPEs) not just our current small business fetish – we need to create the environment for these HGPEs – not just small business owners/lifestyle businesses.  

I frankly have seen little evidence of a "small business fetish" in recent years. From my perspective the bulk of attention and investment has been to subsidize large local incumbents who don't need the money.

Having said that, I don't disagree in principle with the strategy, though I believe it has to be based on creating a sustainable value proposition for these companies, and not merely in cobbling together a short term incentives package. We've seen enough cases where a company will locate in the province only for so long as the subsidies persist, only to pull up stakes when the government largess ends. 

We want to be an environment where it is easy for small businesses to enter and exit the business playing field – we want to encourage lots of local competition and dynamic local markets.

This ties closely to an urbanization strategy. And frankly, even in tiny New Brunswick, it is expensive to start an enterprise. We need actual markets - places where new businesses and start, compete, and flourish or fail on a dime.But our craft markets have become a monopoly, our malls and main streets too expensive to operate in for long, our farmers' markets small, fragmented, and mostly closed. We have few innovation centres, few places where someone can make a go of it. The only real wayt to succeed in the province is to know someone who can get you a government grant that will sustain you long enough to get on your feet. That's not the way to do it.

But our growth strategies need to be focused on those entrepreneurs that want to use NB as a base to build a global business. 

Then we need direct flights to Europe. Even if they show net losses over the years. We need cheaper energy. We need (and have just obtained) access to global-bandwidth internet. We need, in other words, to be connected to these markets.

I used to tell people that, from a global perspective, New Brunswick is centrally located. We're the last mainland nexus on the western side linking North America and Europe. We should be taking advantage of that.
We need to focus on attracting investment – particularly investment that fosters product or services export growth.

Yes, but again we have to be careful. Investment expects a return. There's no problem with that, unless we are the source of that return. Investment based on extracting wealth from the local economy isn't helpful in the long run. We need investment that attracts income into the region. Investment based on global services, export income, or some such thing. That was the strength of McKenna's approach - people complained about the low wages, but mostly didn't notice the fact that the call centres were bringing money from outside the province into it.

But I think you get this...

We spend way too much of our effort trying to squeeze more investment out of the local business community.  Between PNB, ACOA, CBDCs, local agencies, NRC, NBIF, etc. we have somewhere in the range of 300-350 people working in economic development in New Brunswick – not a single one located out in the actual world where the trade, investment and immigrant opportunities actually exist.

Right. Our people need to be out there, bringing opportunity back home (where, hopefully, there is receptive capacity to build on it). You've just described my current job.

We need to break New Brunswick’s culture of apathy...  New Brunswickers need to believe their province can change, can address its big challenges and can become a younger, multicultural, growing and dynamic place that is developing growth industries

Break the Irvings and you'll break the apathy.

I know that this sounds extreme. But the reason there is apathy in this province is that the only people who ever seem to benefit from growth and development are the Irvings. Moreover, any enterprise that seeks to rise up in (or move into) the province must contend with Irving monopolies. It means that if they engage in any area of business that the Irvings consider their own - and there are many - they must face down the weight of Irving sanctions. It is a huge weight hung around our collective neck and it prevents any real efforts at diversification - or, for that matter, democracy.

We need to fully engage local government and local community and business leaders in our economic development efforts.

I agree with this. This entails a culture of openness and transparency, an end to croneyism and patronage, the development of policy and investments that make sense on the federal level and on the local level. It entails, in other words, a complete change from top to bottom in the way government does business in the province. I don't know whether we're up to it. But I do agree that it's make-or-break time.

We need to be able to develop our natural resources in a sustainable and responsible fashion.

I think we'll find that in the not-too-distant future a dependence on fossil fuels will be viewed as a liability, and not a strength. Even as we rush to enable exports to Europe in response to short-term geopolitical considerations, Europe is rushing to become independent of fossil fuels, hence becoming fully free of Russian and Middle-Eastern politics. They will no more welcome new sources from Canada than they do from Putin or from the Sheiks. 

And then there's global warming, and the damage our current government's indifference to it is doing to our global reputation. When I travel abroad, people ask me, "what has happened to Canada?" Short-term gain here means long term pain.

New Brunswick does have natural resources, but they are not the sort of resources people think of when they think of energy and mining. The abundant rainfall and the temperate climate are assets not to be dismissed lightly.

We need an urban growth agenda.  If you go back to the 1950s until today, rural population growth in New Brunswick was fairly similar to the rest of the country (modest increase).  It was urban growth where we lagged substantially. 

Here again I agree, but with an asterisk. And the asterisk is this: we have to stop developing suburbs, and start developing cities. And we have to do this in a way that makes these cities dynamic and interesting places to live. In the last decades we have gone backwards. Our cities are not livable - these days they're unbearable. Pedestrians have to walk along main roads; our sidewalks are choked in snow while some special suburbs (like Royal Oaks) get special treatment. The summer is little better; our sidewalks are tiny and broken, our transit systems ineffective, our parks being converted to big box malls.

And there's no means to change this because there's little or no urban representation in government. Our city wards and provincial ridings are splinters, each with the small sharp end some part of the urban core, and the larger part a suburban and rural population. Without a voice, people who live in the cities cannot shape policy.

We need to focus on innovation – across the spectrum. ...  I want to bring back the “living lab” vision for New Brunswick. 

I'd love to see this. In my early days in the province I met with people from Service NB, NBSS, the schools and the universities. Not the spark has gone out of their eyes as inflexible and centrally controlled governance has gradually ground them down. The province would do well to set them free, to encourage diversity and innovation across the system, even if it steps on a few well-connected toes.

When messaging we need to target our audiences.  Almost all stories in the national media relating to New Brunswick are negative. Business leaders, immigrants and other key groups see these stories.  We need to change the national narrative.

Fine. But the only way to change the narrative is to change the facts.

We are the Greece of Canada. A tiny number of people control the province, extracting wealth from  it, and putting nothing back in to support growth and development. Our people are depicted as lazy, but in fact they cannot succeed without connections and cronyism. We have abundant resources, but they are sold for a fraction of their value. We grant large tax breaks to companies who don't need it, and who make promises that are soon broken.

The problem with New Brunswick does not lie in the people of New Brunswick, nor in the stories that are being told about the province. It lies in the leadership, which has been an utter disaster for the last decade, a leadership that lies to the people to get elected and sells its soul to the highest bidder within a few months of the polls. These problems exist not only at the provincial level but at the local levels as well, where it is sometimes difficult to believe that key elements of city governance have not been bought and paid for by special interests to wrest personal profit from the public purse.

We have a chance with a new government to change that. I can't say I feel confident that it will change, but the mandate is yet early and perhaps this government has more backbone that we've yet seen. It's easy for a government to stand up to the people and say it will cut services or raise taxes. It is much harder for a government to stand up to major corporations and interests and to say it will govern in the interests of the people and for the future prosperity of the province.

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