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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Thinking bigger on local procurement

Herb Emery

In a motion made in the legislature last week, Green Party leader David Coon called for a New Brunswick-first procurement policy. Starting with an excellent statement laying out the evidence for the motion, Coon proposed that the government use its massive buying power to stimulate the New Brunswick economy by purchasing “at least 10 per cent of goods and services in the province”. I interpret this target to refer to purchases from local businesses. Import substitution holds tremendous potential to stimulate the New Brunswick economy.

How can this policy work in practice? New Brunswick doesn’t really produce many consumer goods, nor is it likely that we will. But an obvious opportunity for growing local production is to re-invigorate our atrophied agriculture sector in New Brunswick. Institutions such as hospitals, schools, prisons, and government offices could be mandated to purchase locally sourced foods. If locally sourced food was cost competitive with imported foods, then we would already have them provided and Coon’s motion would be unnecessary.

As we have learned through the COVID-19 economic shutdown, our food system is extremely dependent on imports. We don’t produce many of the foods we consume and, short of an energy intensive greenhouse revolution, we can’t produce on a scale necessary to feed our population throughout the year. With regard to meat, for example, our consumer choices show that we prefer cheap meat slaughtered and packaged on a large scale to locally sourced product.

As we have learned from earlier public health proposals for this sort of procurement policy to mandate healthier eating, the big challenge is to ensure that the cost of foods provided by government institutions is competitive with the food franchises often located just outside or even within the doors of our public buildings. In hospitals, complaints about food are common, so we would need to ensure that the terms of the contract requiring locally sourced food do not result in cost increases that negatively impact the variety and quality of the available food.

Coon’s proposal is to study the feasibility of an import substitution procurement policy for the government of New Brunswick. There are two obvious steps for such a study. The first step would be to ensure that under existing procurement policies and rules, the government can preferentially purchase locally sourced goods and services. If these are not lowest cost, or cannot be provided on the terms required for the government’s operations, then the government may not be able to purchase locally sourced goods and services without changing legislation. Second, we would need to ensure that any policy to increase locally sourced goods and services does not introduce a local preference that violates inter-provincial trade rules.

My prediction is that we won’t get far with a government procurement approach to increasing demand for local goods and services. It will likely be determined that it both unduly burdens provincial finances with higher costs that voters will not support and violates interprovincial trade rules. Both problems can be resolved, but it will take time.

While we don’t produce a lot of the goods and matériel that the government purchases, the government could prioritize purchases of locally produced paper products, fuel and electricity. Many services the government does purchase are “not tradeable” and already sourced locally. I wouldn’t be surprised if it turns out that the government already purchases much more than 10 per cent of goods and services from local businesses and service providers. After all, New Brunswick has a history and reputation for politically rewarding supporters through government service contracts.

I propose that the Green Party push for a different approach to promoting import substitution with public spending that is more in line with its grassroots political DNA. I voted for the Green Party in the past because, with strong majority governments, I liked the presence of elected Greens acting as a social conscience in the legislature even if I didn’t always agree with them. I liked what I thought was the emphasis on pragmatic voluntary collective action over demanding fiscally unsustainable paternalistic policies as favored by the NDP. I think the current motion for government spending to be the instrument of provincial growth aligns the Greens with the traditional ideological space of the NDP. It ignores an alternative path to promote local production using the massive spending power of public sector employees.

I believe that the Green Party should consider a motion that harnesses this spending power. We should have policies and rules to discourage or bar public sector employees from purchasing from on-line services or big box multinational retailers where New Brunswick- based businesses offer comparable goods and services. There could be an approved preferred list of local retailers for provincial employees and their families. Where necessary goods and services are not locally available, the government can identify preferred vendors through which employees can purchase imported goods with the appropriately issued government purchase order. My proposed arrangement builds on existing arrangements in government spending when budgeted public monies are used, such as grant funds in the university. But we will likely need a new government department to oversee the spending rules for public sector employees. I propose that we have a surcharge on all government reviewed expenses of public sector workers to raise the revenues to fund the new department.

If that arrangement is too complex, then we can move to a “local barter system” where some or all public sector pay is issued in government “scrip”, or credits, that are accepted by local businesses. Businesses can then exchange scrip with the government for Canadian currency or use the scrip to pay their employees or buy other supplies from parties willing to accept the scrip. This was the Social Credit approach attempted by Alberta in the 1930s to stimulate the economy. The approach failed when public sector employees refused to accept the “scrip” as pay, and businesses would not accept it in the absence of a guaranteed exchange rate into Canadian cash that they required to pay for the imported goods that they would sell to the provincial employees. Paying public sector employees in this way would likely require the provincial government to create its own bank. For approved purposes, public sector employees would need to exchange their scrip into Canadian currency to travel or acquire goods not available through an approved importer accepting government credits.

An intermediate step to those paternalistic approaches to expenditure switching would be to encourage anyone whose pay comes from public revenue, along with their family, to choose to buy local. For those of us who are paid with public funds, we should lead by example and demonstrate a socially conscious effort to retain as much of the public revenue used to pay us in the province to ensure that the local multiplier effect of that public spending is as large as it can be. We should not be buying from Costco or Walmart or Amazon if we can buy the goods we want from a local business or franchisee. We should not be cross-border shopping or residing, particularly for tax purposes, outside the province or municipality that pays us.

I believe that creating the culture among public sector employees such as myself to think about our role in building the local economy can be a win for the province. The massive buying power of our many well-paid public sector employees, with the right social constraints, can do a lot to reduce imports and raise our GDP immediately, without needing new legislation. Local businesses win with higher sales. Higher wages for employees of local businesses are possible. We would have higher tax revenues to pay for health care and other goods and services. And for those of us in the public sector who have demanded that taxpayers pay us what we believe is fair, I believe we benefit from doing the right thing and paying prices for locally supplied goods and services that are also fair.

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

This article first appeared in Brunswick News publications – June 3, 2020

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.