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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Why N.B.’s business climate matters

Herb Emery

This past week, New Brunswickers have learned about the potential to gain around 6,000 manufacturing jobs for building and exporting small modular nuclear reactors. According to reports, this could potentially result in 10,000 or more jobs created by firms providing services and that are part of the new industry’s supply chain. 

But for New Brunswick to maximize its economic gains from this potential – which would add an industry with the impact of the forest sector – the province needs a business climate that allows businesses to compete with firms outside the province.

Companies that are part of this manufacturing supply chain, or providing services to manufacturers, are increasingly trade-exposed. What this means is that manufacturers who seek to improve competitiveness will seek out suppliers and servicers who offer the best value proposition – and they don’t necessarily have to be based in New Brunswick.

Why this matters is that New Brunswick seems to have never really recovered from the 2008 recession. Employment has been stagnant or falling, GDP growth is low, and we have a much higher reliance on imported goods and services.

The fact that we have not seen better growth suggests the competitiveness of New Brunswick businesses is not what it needs to be. Many of our businesses are small- to medium-sized enterprises which face disproportionate burdens from regulation, struggles with property taxes, WorkSafe NB premiums and carbon taxes. 

In turn, they can’t pass their cost increases to trade-exposed manufacturers in the province, which reduces their margins. Manufacturers, in turn, can find lower cost providers outside the province. And increasingly, businesses who lack the margins to invest in product upgrades can’t compete on quality and range of service.

As a personal take on this phenomenon, I can tell you about my experience editing an academic journal. You may find the example strange, but it actually illustrates New Brunswick’s current struggle quite well.

The journal I used to run was founded in 1975. With generous government grants and a constant revenue stream from library subscriptions, our annual budget was $100,000 per year.

This revenue was well above the costs of providing our core products, namely paper copies of the journal for subscribers. For much of the journal’s history, all our production was based on physical mailing of materials and correspondence, which meant Canadian-based service providers had advantages from the postage costs alone. And with lots of revenue, we weren’t concerned about our costs.

But after the 1990s, journals were hit with two big revenue shocks: First, tighter university budgets resulted in a large loss of institutional subscribers. The second was the electronic access to published materials. Revenues shifted from annual subscription fees – paid whether the journal was read of not – to royalty fees paid based on how often the content was downloaded. Before long our annual revenue was closer to $50,000, and we were operating with a deficit.

We faced a second challenge with our journal, which was increased competition from online journals and from “modernized” journals that had moved to fully digital approach. Scholars looked to write for journals with quicker turnaround times and with wider electronic reach, which in turn offered them an opportunity to publish in higher “impact factor” publications. This is what matters for assessment of a professor’s academic performance.

When I took over managing and editing the journal in 2010, I tried to avoid big changes to the business model. I tried to just stop the print version and go fully electronic, but that was not actually going to save much money.

When I looked at our cost structure, it turned out we had to look at our service providers, whose rates were constant and who weren’t prepared for the new world of digital distribution.

The more I learned about my supplier alternatives, I found we could send many of the jobs we needed done like copy-editing, typesetting and paper layout offshore to places like India, where the rates of pay were much lower. I could also move to a different supplier based in Toronto, who through scale economies could offer lower costs and develop our material for digital platforms. 

Terminating a contract with a long-time supplier was not easy and I faced a lot of criticism from colleagues who hadn’t really thought about the business side of a journal. But at the same time, the supplier never countered with a lower price or even a proposal for how to address our emerging service needs, likely because their business model and costs left them unable to do so.

To tie this back to New Brunswick, there is a clear lesson. Economic development around opportunities like a new industry is a product of two things: the amount of wealth created by the industry, and the amount of that wealth retained in the province.

If we fail to address the reasons for the sluggish growth of our business sector generally, then even if we succeed at growing manufacturing exports, we will have missed out on the chance to transform our economy from transfer dependence to self-sufficiency, from population aging to population growth. 

Think of it this way: For 10 years, New Brunswick has had a record of policies and decisions that have generally raised the cost of doing business.

We have proven the result is fewer jobs and GDP.

So let’s learn from the long-term experiment and try something new and actually try to help businesses in the province grow.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – Sept. 18, 2019

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.