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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

A ‘Turning Point’ for N.B.

Herb Emery

Turning Points is a webinar series put together by Alex Leblanc, executive director of the New Brunswick Multicultural Council. The discussions which take place in Turning Points are continued in David Campbell and Matt George’s podcast, “Growing Pains.” The goal of the initiative is to stimulate a bold discussion about how to help recover and reimagine economic prosperity after the pandemic, and it has resulted in some revealing insights into how New Brunswickers view their own economy.

The series’ purpose of re-imagining New Brunswick’s economy after COVID-19 fits with Yogi Berra’s famous advice: “If you come to a fork in the road, take it.” Many people I talk to convey to me that they see our province as being stuck at a fork in the road. Yet I would argue that we ignore the possibility that we quietly picked our fork, by stealth, design or accident, some time ago.

The province may not have the luxury of re-imagining its future, because the future is already here.

The third Turning Points session was focused on the growth of New Brunswick’s GDP and economy. I presented evidence of New Brunswick lagging economic growth since 2006. This slow economic growth resulted in slower population growth, an aging population and growing public debt. Yet even though the economy slowed, public expenditures did not immediately follow suit, resulting in an increase in spending that remained regularly higher than revenue. This gave New Brunswick the dubious achievement of leading the provinces in debt accumulation. Only a collapse of oil prices allowed Newfoundland and Labrador to surpass us.

In January, Premier Higgs proposed a GDP growth target of two per cent per year. This is roughly in line with average GDP growth for the province until 2006, when export growth stalled for good. Population growth based on higher annual levels of immigration would achieve half of the premier’s GDP growth target. The remaining one per cent of growth would come from a combination of innovation, investment and upskilling the workforce to improve labour productivity. To accomplish all of this, the province needs to grow its exports.

There is a dividend to GDP growth. If pre-COVID-19 economic conditions and increased government revenues had continued for ten years, then, as long as public expenditure could be held to its current rate of increase, we would be able to retire much of the public debt we have accumulated since 2006. Failure to restrain spending means that the growth will not do much for the debt situation, as much of the growth dividend would be captured by public sector employees rather than taxpayers. If we fail to restrain the growth of public sector spending and compensation after the COVID-19 disruption, we will repeat the mistakes of the post-2006 period. We will be back to borrowing more to meet permanently high levels of public spending, and all without a revenue source to pay for it.

Over the course of my involvement with Turning Points, I have repeatedly polled the audiences for their opinions on the subject matter. The audience cannot refuse to answer or waffle, a feature I adopted after hearing it used by Matt George on his podcast (so you can imagine my surprise when I heard Matt refer to these types of questions as “Herb questions”). The audience was asked for their views about the relative importance of GDP growth. Their answers, some of which seem surprising and conflicting, nevertheless have an explanation which I will lay out here.

Sixty per cent of the webinar audience viewed GDP growth driven by investment and population increase as critical, while another 23 per cent considered it desirable. Eight per cent of the audience felt this type of growth was unnecessary and another five per cent considered it damaging. Overall, our audience seemed to believe that the premier’s growth target was the right policy direction.

The second question dove a little deeper into the geography of GDP growth. Two per cent of respondents believed that their personal well-being would improve by moving to another province. Nineteen per cent believed that their well-being would improve from the growth of their local city economy. Another 36 per cent believed that their well-being was tied to the growth of the provincial economy, and 12 per cent saw their well-being improving with growth in the Maritime economy.

Thirty per cent of the audience believed that we should “Abandon the fixation on economic growth and pursue ends that sustainably improve health and well-being with the income we have and the population that chooses to live here”. So one third of the audience did not support growth as a primary objective for the province.

Since at least 2006, the no-growth minority of the population has seen their preferred future for the province come to fruition. The province has chosen to pass up on growth based on exports and actively blocked investment in sectors of traditional strength. Public sector investment equals the value of private sector investment, which means that the government controls growth and development as much, if not more, than the private sector. New Brunswick has eliminated income inequality by culling the population of high income earners in the private sector.

Thanks to the post-2006 de-industrialization, particularly in the northeast of the province, our province stands alone in reducing carbon emissions to levels demanded by the federal government. Big business, often mistakenly labelled “monopolies” by New Brunswickers, has given way to reliance on very small business to create jobs. Broad public sector employment growth has replaced falling employment in the service sector over the past decade as New Brunswickers embraced the joys of consuming low price imports. We haven’t really needed or wanted massive immigration like other provinces, which has allowed us to maintain “social cohesion” that Brexiteers in the U.K. would envy. New Brunswick has deep poverty, but it is not a poor province.

New Brunswickers indicate that they have among the highest life satisfaction in Canada. Indeed, life satisfaction in our province is higher than in Nova Scotia and Ontario, where many of our out-migrants move to. Perhaps it is malcontents that move. I guess the New Brunswick response is, “good riddance”.

In addition, many New Brunswickers don’t see a need for growth of the provincial economy since they live in places like Moncton, Fredericton, Woodstock and Edmundston, all of which are along the Route 2 corridor and are growing as fast as other cities their size in the rest of Canada. They have the local benefits of growth, a virtuous reputation for living in a low emission province and the benefits of spending income from the rest of Canada and future generations that comes from being part of a slow growing “have less” province. The last thing they want is a big industrial project up north disrupting this utopia.

I guess in some way, the Turning Point series is for people like me. I am coming to accept that the politics and culture of the province advantage interests which prefer the economic status quo rather than growth. New Brunswickers don’t seem to feel economically vulnerable, despite relying on other regions of Canada and future generations of New Brunswickers to pay for our high standard of living.

If Matt George posed his underrated, overrated question to New Brunswickers, I expect that many would answer that GDP growth is overrated in importance for our standard of living. If I asked a Herb question it would be “Is all of this sustainable without growth”?

But I have my answer. You are betting your house on it, literally, so it’s your gamble to take.

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 17, 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.