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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Back to the future: job growth plan draws from past success

Herb Emery

The recent announcement of the New Brunswick Economic Growth Program after two years of consultation and development left a number of observers dismissing the new program as just another in a long line of ineffective government plans.

This is not just another growth plan, however. It defines an entrepreneurial role for government that in some ways is different from what we have seen in the recent past but it also takes an approach that many would see as having been wildly successful in the province 60 years ago. 

Provincial governments that want economic growth, economic diversification or both generally take one of two approaches.

First, a government can be a ‘laissez-faire’ with respect to the economy and focus on establishing fiscal regimes and conditions in the economy that favour investment, letting market forces direct how the economy evolves.

These governments are often lauded as being prudent for not taking undue risk. But the laissez-faire or ‘rentier’ strategy is a risky ‘hope and pray’ approach that involves waiting for demand to emerge for what the economy produces. It is one that results in a high degree of specialization of the economy. Think of this approach as one trumpeted in the Tragically Hip’s tune Wheat Kings - forever waiting to see what tomorrow brings.

The alternative is that a government can opt to be a ‘public entrepreneur.’ With this approach, a government is interventionist in the economy, using its resources and policy change to accelerate production and to diversify the economy away from areas of traditional strength. In the extreme, governments may ‘nationalize’ industries, making them publicly owned and operated. Or governments may participate as joint owners of business with private-sector partners or may target firms of traditional ‘strategic importance’ like airlines, automakers, telecommunications, aerospace or pharma for public support to lure them to the province. Governments may use their revenues to target new industries like biotech, ICT or expand marginal industries to diversify the industrial base. 

Historically, with both of these approaches, you rarely saw consultation with the broader public. Investments were opportunistic or made without any clear criteria; investments were focused on a small number of targets, often large firms or megaprojects; there were no metrics, little in the way of evaluation and little in the way of transparency in how much public money was going into the effort, let alone any clear indication of the returns to taxpayers from the effort. 

The New Brunswick Economic Growth Plan 2016 is clearly an example of public entrepreneurship - the government is signalling that it does not want to wait while passively allowing market forces to direct the timing and extent of economic growth in the province.

What is different from past strategies is the extensive public consultation to identify opportunities and the transparently and publicly stated criteria for prioritizing selected opportunities.

The criteria for prioritizing opportunities are different from those we usually see to justify government projects like infrastructure - projected jobs created and GDP. Instead, the New Brunswick plan is focused on return on investment in terms of additional taxes collected, additional income of New Brunswickers and so on. The plan is clear - what matters for the selection of priority opportunities is how soon returns will be realized. You may disagree with the criteria but at least you know for certain what you are disagreeing with.

The growth plan has also been denigrated for having identified marijuana, blueberries, maple syrup tourism and ICT as key growth opportunities. Critics see those as minor compared to what they see as bigger prizes like energy development. But this plan in no way precludes government from moving toward energy development. Still, fracking and Energy East are years away even if they do proceed here.

In the meantime, the opportunities selected in this plan offer gains that can happen sooner rather than later. This is in addition to whatever the province can achieve with its efforts, and with the eventual push from market forces, on energy projects.

It is also the case that the opportunities selected are neither focused on individual firms or megaprojects as much of the recent federal spending initiatives have been. The objective of the plan appears to be identifying near-term market opportunities like recreational marijuana, and to address market failures like weak access to capital and business supports for startup firms.

This growth plan is more akin to investing in a wide range of projects with the logic that the sum of the payoffs from a number of small projects may yield good returns to the province at much lower risk than the traditional picking of going ‘all in’ on trying to choose winners (and risking losses like Bricklin) or on large projects like hydro dams. 

To me, the 2016 plan does not seem like an unreasonable approach. Ask yourself how this plan differs from the Flemming government in 1956, supporting opportunities for growth from potatoes? At the time, the government saw an opportunity in potatoes and sought capital to locate in the province to take advantage of the growing market for frozen foods.

That opportunity and the public support to achieve it found the McCains. That precedent would seem to justify a sentiment of Spem Reduxit - hope restored.

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. 21, 2016

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.