Manitoba was the only Canadian province that was competing with New Brunswick to attract call centres in the early 1990s. By the mid to late 1990s every province in Canada was trying to attract them.

Manitoba is now out front its the data centre attraction efforts.

A number of large data center operators are evaluating Manitoba, Canada as a possible location for major projects. Why? Cheap, renewable energy, and tons of it. With power costs driving many data center site location processes, and corporate mandates for "green" facilities, the central Canadian province's ample supply of affordable hydro and wind power is attractive. Large power customers in Winnipeg paid an average of 3.6 cents per kilowatt hour in 2007, cheaper than the average rate in virtually every state in the U.S. except Idaho, as seen in our chart of state-by-state energy prices. That's all clean, green power from Manitoba Hydro, which generates power from 14 hydroelectric generating stations throughout the province. Not green enough? Manitoba Hydro also purchases the output of a 99-megawatt wind farm in St. Leon, Manitoba to augment its hydro generation capabilities.

New Brunswick cannot compete with Manitoba with its power rates. I don't know what the exact cents per kilowatt hour are in New Brunswick but suffice it to say it is at least 50% or more higher than Manitoba for large industrial users.

And that would translate into possibly several million a year in savings in Manitoba for a large data centre.

It would seem to me that peripheral places like New Brunswick should make every effort to be a low cost power location. It should be relatively easy way to generate competitive advantage (no pun intended).

That is why I must reiterate my concern over the strategy to generate power for the export market. The real strategy should be to find a way to develop competitive power rates here and market that advantage to data centres, large manufacturers, forestry firms, etc.

Here is the podcast version of It's the economy, stupid for March 30 - keep the feedback coming.

A colleague sent me this interesting article on taxation levels in the U.S. It is true that personal and corporate tax rates can differ widely from state to state but to do an accurate comparison you need to look at all the factors.

I will say that when I lived in the U.S., it was a bit weird that the city I lived in levied both a sales tax and an income tax. All three levels of government have far more taxing power than in Canada.

At the end of the day, all levels of government in the U.S. spend about the same as in Canada. Roughly 1/4 of the country's GDP (GNP) is government spending. Both countries spend about the same on health care (public funds) around 7% of GDP (the U.S. then spends far more privately than Canada). Both spend around the same on education (not including R&D - the US spends far more). Canada spends far more on other social programs (EI, etc.). The US spends far more (by a multiple) on defence. Both spend similar amounts on transportation infrastructure.

Like in Canada, there are two major factors to the disperate taxation by state. Some states/provinces generate a pile of taxes from non-traditional sources (Nevada casinos, Alberta oil) which theoretically should allow them to lower other taxes. Some states/provinces provide far less public services/social safety net which theoretically should allow them to lower other taxes.

Other than health care, I'll give you one quick example. A former colleague of mine had to move to the U.S. and after a thorough assessment decided they had to put their three kids in private school (where they lived they said that this had to be done). He pays something close to $14,000/year for health care and more than that for his kids education.

I would guess that most people would send their kids to public schools but I am just making the point. From an overall cost of living perspective - everything in - a place like Fredericton or Saint John is highly competitive - if you make a good salary.

I don't know what I like worse, outright naivete or pragmatism. The folks pushing for 'self-sufficiency' have almost no real grounding in reality. SS has become a generic term. However, the New Brunswick Union of Public and Private Employees' resignation that New Brunswick will always be a have not problem and taking the Bernard Lord position of wanting ever more Equalization is even more frustrating.

Once again, this is an organization with highly vested interest, taking a common sense (from their perspective) position. They argue for hiring more and more public sector workers on a population that is in slight decline. In order to do this, they argue for more Equalization.

No one ever asks the question why do we need thousands of more public sector workers now than 10 years ago - with no increase in population. And the union wants more.

What is really needed, of course, is more sanity. We need to provide good governments services but the growth in spending can't keep outpacing the growth in the economy. We need to work towards more economic self-sufficiency because, regardless of the union's position, Equalization will eventually be a dead end.

Eventually, the New Brunswick government budget will be twice the Ontario budget - per capita. It's just a matter of pure economics. That cannot continue in perpetuity. Either we will fix our structural economic challenges or some external force will impose a change.

KPMG is out with their 2008 version of the international cost comparison called Competitive Alternatives. I was waiting for this as the 2006 version confidently intoned that Canada's competitive cost advantage would hold all the way to an 85 cent dollar. Now it's at par and we still are 'competitive'.

But there is value to this type of analysis.

Just got back from the roast of Francis McGuire - the former Deputy Minister of Economic Development under McKenna and for awhile my boss (at least way up on the chain). He's a good guy and I am happy for him.


But an old colleague mused in conversation that if things had stayed on the trajectory, New Brunswick would have been far, far ahead in its economic development that it is today.


His logic - call centres to IT outsourcing to data centres etc. Waffle manufacturing to auto manufacturing, etc. An evolutionary path. We convinced IBM, Xerox, UPS, FedEx, etc. to put their call centres here - the next step would have been more value added stuff.


But I don't know. Nothing follows a linear trajectory. Service New Brunswick was the absolute leading edge in eGovernment in the mid 1990s and now, I am told, that in Eastern European cities you can get a smart card to pay for the bus and other city services with one microchip. You can pay for parking your car in a city lot with your cel phone. In Eastern Europe.


We need a new line of trajectory. We can learn from Francis and Mckenna for their hustle and can-do attitude but we also need to think bigger. We need to invest in infrastructure. We need to imagine how can keep our power rates competitive to sustain and attract industry. That gang wasn't about investing in the future. It was about getting through the recession of the early 1990s. It was about selling what we had (the call centre value proposition) not about real investments in building a broader value proposition for our economic development.


Consider Mercedes-Benz. I wrote the proposal for the Mercedes auto plant in 1994. It eventually went to South Carolina - with a $200 million 'incentive' package that basically involved building the infrastructure that the company needed to move there (extending runways, training the people, free land, etc.). New Brunswick would never have done anything like that. Not then. Not now.


And as for Mercedes? 15 auto plants have set up in the southern US since then with several hundred billion in new investment and tens of thousands of jobs.


And one other late night stat for you to chew on. Since we 'lost' (meaning never really tried) the Mercedes plant, there has been over $6 billion in Employment Insurance payments to people in New Brunswick - mostly seasonal EI payments to pay people not to work. We had an opportunity in the mid 1990s at the front end of Canada's longest sustained period of economic growth in its history (14 straight years without a recession) to really get it done. And we didn't. Now we are on the tail end of that economic boom, with a declining population, rapidly increasing government spending and almost no new private sector economic development (with the limited exception of the energy thing in SJ).

Good night and good luck.

NBT makes good contributions to this blog. Sensible stuff. He/she is correct that Ireland reduced 'statism' and that contributed to the economic resurgence but let's not make sweeping statements.

This chart is taken directly from the 2006 Irish Development Agency annual report. I know it is tiny but I don't know how to make it bigger. If you can read the note it shows the definition of "Cost per Job Sustained". This includes "all IDA expenditures to all firms in the period of calculation". From 1991 to 1997 the IDA made direct expenditures to firms (grants, training subsidies, free land, etc.) of 20,218 Euros (about $32,000 CDN) for every job created. By 2000 to 2006, that # had dropped to 12,485 Euros (about $20,000 per job CDN).

Now, just for comparison, Business New Brunswick provides about $7,500/job for the average call centre job. Of course, the taxes paid on the Microsoft jobs in Ireland are way higher than the average call centre in New Brunswick but I think you get my point.

Funny stuff. The forestry sector* in Ontario is about 1% of the provincial GDP. It's about 8% in New Brunswick. Pop quiz. Which province Ontario or New Brunswick has taken these steps recently?

Capped power rates for pulp and paper mills at a highly competitive rate.

Is proposing to reduce the stumpage rate for poplar hardwood by $2.76 per cubic metre to match the white birch rate, effective April 1, 2008.

Implemented a variety of tax-based incentives for the forestry sector.


Ding. Ding. Ding. Pat yourself on the back.


*Including:
Forestry and logging [113]
Wood product manufacturing [321]
Pulp, paper and paperboard mills [3221]

Or maybe not....

We all love to debate the merits, morality, legality, efficacy, etc. of the government using taxpayer funds directly to attract industry. From their perspective, they are looking at an ROI (return on investment). For example, if we give a company $5,000/employee they hire to train new workers and we get $25000 back in taxes paid over 8 years, that is a good 'ROI'. There are also rationale arguments against giving incentives.

My position is well known - if you read this rag very often. I think that governments should use incentives when it makes sense - to lose a good project because Quebec or Alabama coughs up more upfront goodies - on some quasi-moral grounds - doesn't make sense to me.

But after a little chat this week with someone closely involved with this stuff, I have to issue a major qualification to my position. Major.

I don't think you can 'lead' with incentives. In other words, if the main reason why companies are coming to your community is the 'incentive', then I think the naysayers are right. The company will use the incentive and then, likely, leave. If the underlying economics don't make sense and you are levelling the playing field with government cash, that's a losing proposition. However, I do agree that this has been done on some occasions.

I think incentives are something put on the table after you are shortlisted. Most of the big investment projects I have studied got to a 'short list' of jurisdictions (in other words, a list of areas where the economics and other factors made sense) before even having a serious discussion about tax breaks or free land or training grants or infrastructure funding.

The underlying business case (energy costs, labour costs, availability of labour, R&D capacity, business/industrial park infrastructure, transportation infrastructure, workers' compensation rates, legal/regulatory environment, access to supply chain, access to markets, etc.) must be favourable before even considering 'incentives'. And, I might add, governments should work on the former rather than the latter.

You can't bait good companies with incentives. You can attract bad ones. Anyone who has been in economic development for any length of time has seen 'shoppers'. Companies shopping around a project looking for large government incentives upfront (most likely because the private sector won't touch it). But those are doomed to fail (9 times out of 10) and governments should avoid them.

Economic development departments, supported by good government policy, should be competing directly in sectors where there is a strong business case to locate in New Brunswick. If there are no sectors where there is a strong business case to locate in New Brunswick, then Houston (or should I say Fredericton), we have a problem.

Incentives come later.

The Canada Foundation for Innovation (CFI) has announced another wave of R&D funding. $22.5 million in total. New Brunswick is getting about its usual share:

Universite de Moncton one project at $48,000

UNB one project at $115,000

0.7% of the total funding

Consistency. That's what we look for. Consistency.

For where your treasure is, there your heart will be also.
-Matthew 6:21


Anybody know how many new economic developers have been hired by the province in the past couple of years? I haven't looked at it in several years and at that time, there had been a deep cut.


I know they announced 42 new social workers and have hired literally thousands of health care and education workers in the past 8-9 years?


How many economic developers?

I took the kids to Horton Hears a Who over the weekend. It's standard kid movie fare but the plot centers around the Mayor of Whoville. The way the Council handles the 'in-camera' session is worth the price of admission. Any municipal politicians should see the movie just for that part. There is salvation. The mayor ends up being right and the council wrong.

Speaking of mayors, I see the mayor of Windsor, Ontario, Eddie Francis, "wants to keep families and cash-flow in Windsor -- a city hit hard by a downturn in the manufacturing sector -- by sending rotations of unemployed and willing citizens west to ease the labour crunch in Saskatchewan and Alberta. It's a win-win situation for all involved, Francis said, but the details of the plan need to be finalized before the Windsor-West route becomes a reality".

All due respect, mayor, it's hardly a 'win-win'. Splitting families apart for weeks and months at a time is not much of a win for anyone. Alberta is already complaining about the 'migrant workforce' and the increase in crime and the lack of any real sense of 'community' developing in many of the oil towns.

This kind of initiative is drastic and should be short term while Windsor gets its economic development in order.

IMO.

Here is the podcast version of It's the economy, stupid for Week 4 - keep the feedback coming.

Responding to my post earlier this week about a Centreville firm joint venture in China, a poster sent a really nasty reply related the good TJ story on the subject. In it, the writer states:

Thomas Equipment Inc. has inked a deal with a global manufacturing firm to produce its skid steer loader in China, a move that will see production shift from its Centreville plant by 2009.

Now, as I read this, the head office functions will remain in Centreville. I don't want to be cavalier about this but China is a reality and I would rather have a New Brunswick company with head office jobs here and manufacturing in China rather than both head office (the higher paying jobs) and manufacturing in China. Maybe, we should make New Brunswick the destination for North American head or back office operations of Chinese firms. Or maybe not. But just burying our heads in the sand and using examples like this to say that New Brunswick should cut itself off from the global economy makes no sense to me whatsoever.

Maclean's has its list of safest and most crime ridden municipalities in this week's edition. Apparently they took the top 100 municipalities by population and cross referenced them against the RCMP crime database. The problem is that the RCMP coverage areas are not the same population wise (and even municipal name wise). So then end up comparing Oromocto and Tracadie-Sheila with Toronto and Vancouver. A bit misleading, n'est-ce-pas?

Oh, by the way, you will be happy to know that Codiac, New Brunswick is a relatively safe place to live. I'll leave this as your riddle for the day.

This is a bone-head analysis. Even if the RCMP coverage area around Tracadie-Sheila (population 4,500) is in fact 50,000, you can't just say you are comparing the top 100 municipalities by population. That's just plain silly. Even if it is a "MacLeans Exclusive". Fredericton, is 92nd in Canada by population. Oromocto is 450th.

Sometimes I think MacLean's is so blinded by the need to have a WOW sotry on the front page that they do shoddy journalism. At least statistically, this fits the case.

Just took a quick look at the 2008-2009 NB budget. Read the summary here.

Marginal increase to Business New Brunswick's budget. Still only $7 million for 'investment attraction' and 'export development'. Out of a $7 billion budget. That's a nice round number.

Lots of new spending on most areas - Health care and education spending up well above GDP growth (for the nth straight year).

Business New Brunswick's budget is $52 million (although they claim $10 million in revenue) -so I guess the net budget is around $42 million. I think this is a small increase over last year but it's hard to know for sure. There has been a bump in something called 'loans and advances' but I don't really know what that represents. Does it include the tens of millions already out there in loans to textile mills, etc.? I don't know the accounting on this stuff.

All I can say is that Ontario just announced a $1.15 billion new program to attract industry to that province. Remember, this is just one of many Ontario programs.

And don't forget the $125 million given to Mr. Creative (Richard Florida) as a chair at the University of Toronto.


In New Brunswick,

Health care gets another $113 million. The population today is about the same is 1996 (using Census data). That billion more in health care spending seems to be working.

Social Development gets over $30 million more. Maybe that will be to help all the laid off forestry workers.

Natural resources department has been cut deeply. Maybe because all the lost forestry jobs mean we don't need as big a department.


I guess we will never see significant new dollars for economic development. Not from the Feds or the Province. So, the only alternative is to get tightly focused. We should scrap it all and put $100 million into the development of one sector that we think we could have some success in. Nickel and dime-ing all this stuff will get us nowhere.

I think it is a shame that our health care spending has more than doubled in just over 10 years - on a stagnant population. You won't hear one politician, pundit or otherwise say so but this is a shame. We should have found a way back in the 1990s to control health care costs - something slightly innovative maybe like making guys like me pay $20 to see the doctor - and plowed the additional hundreds of millions into investments in our economy and economic development. We would have grown the tax base and our population and would have been in a much better place.

It will be interesting to read the commentary tomorrow in the local press.

I stumbled across this blog, A Better Oakland, yesterday. It seems to me that a blog like this is a wonderful way to start engaging people in a wider discussion about their city and its development. Cities will spend hundreds of thousands of dollars on PR, they will hire consultants and do all the traditional stuff but how about just starting to dialogue with residents? Nothing overly formal. Just a daily or 2-3 times a week journal with reflections on the issues of the day.

No brainer, right?

This does the heart some good. I don't know the scope or scale of it but....

Thomas Equipment Inc., a company of Osiris Corporation (OSRS), announced that it entered into an agreement in principle for the production of Thomas Skid Steer Loaders with Singapore Technologies (ST) Engineering's Guizhou Jonyang Kinetics (GJK) subsidiary. Thomas Equipment's marketing, sales, quality control and related staff in Centerville, New Brunswick, Canada, will spearhead all Thomas activities and oversee production.

Did this story make the NB papers?

The folks in southern Ontario want Ottawa to shell out even more to prop up the auto sector there. Apparently, the $1.6 billion already announced in the past three years + all the new tax breaks has not been enough.

The editorial states "The Harper Tories are also in the business of helping specific businesses in a very big way. The Canadian Taxpayers Federation determined that during their first fiscal year in office, the Tories paid out $25 billion in grants, contributions and subsidies. That included $350 million to Quebec-based Pratt and Whitney Canada and $47.5 million to the Mont Tremblant ski resort."

Oh, where is a true fiscal conservative to go these days? $25 billion in one year. Guess how much of that came to New Brunswick? Well, we are 2.3% of the population so in 'fairness' we should have received about $570 million in "grants, contributions and subsidies" to companies here. Tee. Hee. Hee.

On a related note, here is the list of top new industrial sitings last year in the U.S. Notice that none of them were in a large urban area. Imagine a day in Canada when the top industrial projects (not including oil & gas of course) were not sited in Montreal or Greater Toronto (I guess RIM in Halifax would be a huge exception). Keep imagining.

Here is the weekly podcast. The format is getting better every week. Thank's to Mike for the music and the tips.


Weekly Podcast - March 16