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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Economic challenges are no mystery

Herb Emery

Physicist Ernest Rutherford famously quipped: “Gentlemen, we have run out of money. It’s time to start thinking.”

Which brings us to the new Higgs minority government. It should be apparent to all New Brunswickers that our provincial government is not particularly flush with money for investment or driving the economy. In addition, with interest rates rising, the provincial government won’t have much money to spend on new programs or many of the promises made in the election.

The province needs to grow its income and population, and it needs the private sector to be the driver of growth.

It will become apparent in the next few years that New Brunswick will likely need to exploit its shale gas resources just to pay what we owe for all of those services we borrowed to have after 2008. In my opinion, New Brunswick has an opportunity to do this on our terms, rather than the terms of outside creditors.

It should also be apparent to all New Brunswickers that a minority government has limited scope for imposing its will on the province.

The four parties need to work together to address the Gallant’s government’s five conditions for lifting the moratorium on shale gas production, which we cannot forget must have had some broad level of support among voters.

Those conditions include:

  • A “social licence” be established through consultations to lift the moratorium.
  • Clear and credible information on the impacts on air, health and water so a regulatory regime can be developed.
  • A plan to mitigate impacts on public infrastructure and address issues such as waste water disposal is established.
  • A process be in place to fulfill the province’s obligation to consult with First Nations.
  • A “proper royalty structure” be established to ensure benefits are maximized for New Brunswickers.

Why should this be a priority for the expected Higgs government?

It has not been well understood in Canada, or New Brunswick, that investment in energy and mining has been the source of growth of the economy, while Canadian manufacturing continues its slow return to its size of the 1980s. Where the energy-producing provinces drove the rise in national investment and GDP to offset the decline in manufacturing, New Brunswick tried something else.

New Brunswick has virtually eliminated investment in mining and we have consequently lost some of its historically large contributions to provincial GDP. Add to that a historical high reliance on manufacturing, and you can see that as manufacturing struggled in New Brunswick under external economic headwinds and misguided provincial policy decisions, our province also chose not exploit its non-renewable energy resources. This compounded the decline in private sector investment.

This loss of investment is what explains the chronic job losses, outmigration and consequent acceleration of population aging. New Brunswick and Nova Scotia are the only provinces in Canada with a smaller value of capital stocks today than in 2011. New Brunswick, despite all of its economic challenges of the past, did not have a decline in its capital stock from 1950 to 2011. In fact, the province’s historical problem was not have enough investment to keep up with the robust rate of population growth.

We need to stop pretending our economic and demographic challenges are mysteries still to be solved. In a small open economy, population and employment adjust to changes in the capital stock to maintain the ratio of capital to labour. A smaller capital stock means lower demand for labour. Lower demand for labour means a smaller, and aging, labour force as younger workers make up most of our out-migrants.

Natural resource booms are capital booms. Changes in investment are abrupt, large and if managed well by provincial governments, relatively long-lasting. Population growth induced by the investment is rapid, mostly because of high in-migration and immigration. Because in-migrants and immigrants are often of ages younger than our current average age, population growth slows the rate of population aging.

It is easy to see the impact of energy and broader resource development in other provinces and states that previously had similar economic and demographic challenges to New Brunswick. Saskatchewan had a stagnant and aging population like New Brunswick as late as 2005, but aggressive development of its natural resource and energy sectors has increased their population from 1 million to 1.2 million in just 10 years. From all the in-migration, the population got younger.

In the U.S., researchers have documented that fracking resulted in higher numbers of births as a younger workforce migrated in. Plus, the higher incomes of young workers encouraged “pro-fertility choices.”

If the four parties can work together to address the five conditions above, then the province has a path forward to stimulate investment and income and population growth. If New Brunswick can resolve these issues, then we will have a playbook for the federal government and other provinces to create their own possibilities for resource based development.

This obviously won’t be easy, since policymaking in New Brunswick has been hampered by partisan opportunism and willful stubbornness against positive developments. This has eroded public support for change.

Addressing the five conditions for shale gas development provides a test of the capacity of the four parties to work together. Even if the collaborative approach to policy development fails voters will have a better understanding of why it didn’t work, and most importantly, as the province returns to the polls, which parties didn’t want it to work.

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 – Nov. 7, 2018

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.