Winter wonderland

Ever have one of those conversations that just blows you away.  I toil away here every day in columns, blogs, reports for clients, conversations, etc. trying to expand the conversation around economic development far and wide.

I ran into the head of a fairly large manufacturing firm in New Brunswick tonight at a Christmas party.  I won’t say who or which industry because he and I were chatting in the friendly confines of punch and cookies – not for wide distribution.  But I have to relay some of the conversation.

First we chatted about his business and then turned to government – of which he didn’t have much good to say and then I asked him what he thought we should do if we really want to reach economic self-sufficiency.  He said without even a second thought that we need to focus on 2-3 industries and invest like crazy in them up and down the ecosystem (my word there).  He then shocked me by saying that the government needs to go out and attract in the largest multinational player in that specific industry.  He said the large players anchor the cluster and use a lot of SMEs in the market.  Even if the SME (like this guy’s firm) doesn’t get any work they benefit from the cluster that builds up around the large anchor player (he cited the auto plants in Tennessee).  He proceeded to name a number of services that they had to use suppliers in Montreal and beyond – increasing costs and reducing efficiency. These suppliers gravitate to the areas that have the large industry players. 

By the way, that response was to my question “How do we create an environment that leads to 50 more firms like yours springing up in New Brunswick”.

Then I said to him that some company leaders have said they don’t want these big firms coming in and bidding up the price of labour and stealing their talent.  His response?  “That means we just have to work harder and smarter.”  That’s gold, Jerry. Gold (reference to Seinfeld – not this guy).

It’s one thing when a consultant like me says that we need to attract large anchor companies in key strategic industries.  It’s also one thing when the occasional economic developer says it (and increasingly they do say it) but when the captains of industry are saying it, then someone should start listening.

By the way – final point.  This guy had nothing but good things to say about NSBI.  I guess they must have operations in Nova Scotia as well.  That says something as well.

New Year’s resolution for me.  Get out to more parties where I can bump into more CEOs.

23 thoughts on “Winter wonderland

  1. The NB strategy of recent times is to encourage new business start ups and hope they grow to something more than a government funded family business. This approach will have the occasional success but the figures don’t lie. Most start ups simply do not make it. It is the lowest probability bet we could make.

    What is disappointing is NB goverments feel we cannot play in the big leagues while we die a death of a thousand cuts.

    We need a fresh approach and a positive attitude. Ontairo just attracted the new Toyota plant with hundreds of well paying jobs and tons of spin off for the equivalent of the Caisse branch bail out and the Atholville yarn factory. We can play in the big leagues if politics takes a back seat to ED.

  2. First, LOTS of people make the argument about ‘clustering’, its been in the ED literature for over a decade. I can’t remember if it was here, but I remember a story about how the NB government wasn’t even looking at funding certain industries because of the ‘clustering’ theme-namely that if it doesn’t have to do with energy and St. John they aren’t interested. We KNOW they like clustering and they HAVE those companies mentioned above-trouble is, they’re all owned by Irving.

    However, to take the government’s side, its one to TALK about ‘just go out and get a big company and manna will fall from heaven’. That’s the ED equivalent of saying ‘now just go buy lottery tickets and win the lottery, invest that ‘at the track’, and use that to find all the gold that’s buried under ground’. EVERYBODY says to ‘do that’, its doing that that is part of the problem. And I’ll repeat, in some respects its also the ‘defeatist’ way, the swooning character in a movie saying ‘somewhere out there is a company that will take care of us and everything will be lovely’. That’s sarcasm but people know what I mean. The tech sector here in Waterloo never got started by Waterlooians or Ontarians running around the globe looking for a saviour. One showed up right here homegrown. The universities and governments all got together and grew it right from the students. Keep in mind that that ‘cluster’ is by no means secure, although more secure than most others.

    Then of course comes the problem with that. Southern Ontario has a ‘cluster’, namely an automotive cluster that is now on government life support. So here’s a situation where a ‘cluster’ means the devastation of an entire favoured region. So imagine what that would be like in a small province-well, actually you don’t need to, look how fast the government bent over for Irvings’ tax concessions for the NG terminal, and that’s a deal that didn’t even NEED concessions.

    As for the auto plants, that’s a whole other issue. However, the one big lesson is just how big an importance education funding is, which has always been lacking in NB. In the US southeast they are finding training costs because many are ‘illiterate’-sound familiar? That’s something that COULD give NB a competitive advantage, but that’s not part of a ‘cluster’, so it gets little interest.

  3. Mikel, what are you arguing for here? Orphaned industries with no clustering? For every point there is a counterpoint and to be sure there are potential problems associated with having clusters and attracting in large firms to anchor those clusters but I think the pros outweigh the cons.

  4. I thought it was pretty self explanatory. Let’s forget the jargon shall we. There is no such thing as an ‘orphaned industry’. We live in a global economy. It’s not like some company is sitting around thinking ‘if only we had a local supplier’. There ARE local suppliers, they simply can’t match international prices.

    The short of it is this is just a fancy way of re-stating your main theme-get a large multinational company of some sort and other companies will spring up around it. That’s fair enough, although like I said, I suspect if you asked ANY MLA or government bureaucrat they would LOVE to bring in virtually ANY company like that. It’s how to do it that’s the problem.

    The other side is that there is no intrinsic reason why supporting local small businesses CAN”T lead to a larger international exporter-in fact it’s already happening. Just go to kijiji or any small retailer and they all sell over the internet-very few will specifically state ‘we really don’t want to be any bigger’. I just listened to the CBC about, virtually the last north american blanket producer. They have always functioned as a supplier of lamb meat, and now make tartan blankets as well-all done from close to New Liskeard, an area further north in ontario than it takes to get to New Brunswick.

    Going back to Atlantic Fine Yarns, the essential problem seems to be that as a national company, they were fishing for a provincial government to keep bailing them out-as will most companies. At least a local company like the guy in Miramichi will add in more reasons to stay put than pack up and leave than how much subsidy he’s getting.

    So in a nutshell:
    1. They are already using the clustering theme-atlantica and energy. Problem is you guys don’t like the clusters the government does.
    2. The word cluster is typically used by government to mean any reason not to subsidize people they don’t like. EVERY small business is part of a ‘cluster’, its not ‘orphaned’. In fact they usually try to cluster as much as possible. Agriculture is a good example here.
    3. Bringing in and developing a whole new cluster is virtually impossible. Developing local clusters is already being done and often just needs a little regulatory help.
    4. And that manufacturer may be saying one thing, but talking idly at parties isn’t the same as when government offers a subsidy to bring in a direct competitor. Either he’d be the worst manufacturer around, or the dumbest.
    5. Southern ontario is a perfect example of how virtually ANY cluster is simply a pyramid scheme waiting to unravel. To agree with NBT, what you need is a thing called capitalism-LOTS of unrelated medium sized companies competing in the market place. That way when ONE goes down, like forestry, they don’t all follow. That seems pretty self evident as well. As usual, the problem is how to get there.

  5. This is a debate based on statistics. The odds are a lot better that a start up will make it big from a population of 10M than from an area with 0.73M. When considering the government funding, VC and banking concentrations in southern Ontario and the odds are against NB start ups.

    Not impossible, just a low probability bet; we should not give up on start ups nor should we give up on business expansion and attraction.

  6. I read recently that a January 2009 Halifax conference on worldsourcing (the global supply chain) features a number of speakers that that will expound on the connection between cluster development and site destination interest by MNCs. I’d be interested in how Atlantic Canada stacks up in this equation. Moreover, the literature on clusters, especially by Porter, reviews the importance of suppliers and competitors to create sustainable competitive advantage. Government figures less prominently as a key factor in virtually the entire literature and in Porter’s lexicon is not even part of the diamond.

  7. “1. They are already using the clustering theme-atlantica and energy. Problem is you guys don’t like the clusters the government does.”

    I think ‘you guys’ have in this blog supported the idea of an energy cluster. But there is no government energy cluster; there are just a few construction projects with no attempt to build an energy cluster
    around them. ‘Atlantica’ is just a bunch of highway projects. The NB government does not do ‘clusters’; it doesn’t have the guts or the vision to do so.

    No one is suggesting one cluster; southern ON is suffering now, but it is still a much better place to start up a business than NB. Southern ON has many clusters; the auto industry just happens to be a big one.

  8. Odds is an important concept because odds change-NOT based on demographics but on basic facts. At the track the horse you bet on doesn’t depend on the number of horses but on the circumstances. If it rains, the odds change.

    So we can say from the reasoning above, SINCE there are millions of people living in Calcutta, the odds of getting more small businesses are greater. Of course that’s not true, not remotely because you have lots of dirt poor people with no access to resources.

    So let’s look at education, specifically the old standby-animation. There is already one quite successful company who has said they’d love to see other companies, even competitors. So you CAN do like David says, run around the world throwing money at a big animator and HOPE they take the bait-and your money-and stick around.

    There is another option, namely education in the work force. Like I’ve said, DOING animation is a breeze, the software makes it extremely easy. So start with an animation festival, then put massive money into grants for licenses for software. Put money into contests for high school kids and money to companies to hire more interns. Have an internet station or a television station and feature it.

    What happens from that is those are the ‘seeds’ that THEN attract your multi national investment, which is what just happened with Chalk Media and RIM. And again, RIM set up in Nova Scotia not because of the handouts, but because they were impressed with their educational system.

    Software development incidentally, doesn’t need a cluster AT ALL. It does need high speed internet but can function without it. The highest growth rates are in SERVICES, NOT manufacturing.

    That’s why I say that the FIRST priority is having local development that makes sense. It’s good in and of itself, and it leads to outside development.

    However, the government DOES do clusters, they say it all the time and regularly reject proposals for funding that don’t fit in. However, like the above poster says, government can’t go out and start a company doing X just because it makes sense in a cluster-somebody has to step forward. But to state that governments don’t even fit into the equation is downright silly.

  9. Great. NB should be booming with successful start ups. Our efforts have been fully focused on community growth and start ups for the last 20 years.

    So, are you suggesting we just need to spend more and wait longer? Guess that explains the exodus to Alberta. Patience and faith are wonderful but eventually they are overtaken by hunger pains.

    NB needs to be competing for businesses that can prosper here.

  10. As mentioned by Richard, there’s a difference between what government SAYS and what it does. The idea that NB has focused on community growth is laughable, they have NEVER done that. As David chronicles, there has been an exodus from New Brunswick for years, the government never even paid attention until there was a potential labour shortage. Entire northern communities have been decimated and they hardly care. In Miramichi they had to at least pretend to make an effort, but that’s really all its been. In Dalhousie the only community growth is that now that all the industries are gone, the town may actually get the prison that its been promised for over a decade and a half.

    In McAdam they don’t even WANT provincial help for community growht, all they want is local access to the resources and heve developed their own community forestry model-but the province won’t even grant them THAT-they prefer to change legislation so that UPM can ship out wood to be processed elsewhere.

    You can read Donald Savoie’s book from the late 90’s, I forget the name but its easy to look up. He had a case study using Kent County and the (at the time) burgeoning window production industry. As Savoie often says, if ALL levels of government aren’t working together on ED, then it fails. In this case study he points the finger squarely at the province (and provides evidence)-and this was during the reign of Frank McKenna when supposedly the province was in ‘business mode’. So imagine it now.

    So people shouldn’t confuse a few grants to small companies as ‘community growth’. That’s BUSINESS growth and only for select companies. Going back to the animation model, they did finally pony up some dough for Fatkat, but the province STILL hasn’t come out with a tax credit plan for cultural industries, and this is two years since Nova Scotia announced theirs.

    As for spending more, that’s a given. NB spends by far the LEAST percentage of its budget on education, and has some of the highest tuitions at its second rate universities in Canada. As for the wait, there is no wait. FatKat is already growing and for cultural industries there IS no waiting-just go look at Youtube sometime. In Moncton there was a story a year ago about a guy trying to build an NB television industry-has he been heard from since? The NB government ALREADY has co ops, they just cater them to the construction industry. To develop a co-op model you don’t even need to send kids away, like I said, its all internet based. Find some company and offer them twenty kids from a local high school or the college of design in exchange for credit. SOME of that already goes on at a minimal level-you might find a proactive teacher here or there, however, to get it going at a larger level you need provincial leadership, which is lacking. But again, politicians respond to issues that are presented them, they don’t go looking for them. In case readers have missed it, last spring was a good example of where current politicians priorities are-a one day run through of three readings to double their pensions. What does THAT tell you about priorities.

  11. Google ACOA. Started 20 years ago as the largest ED effort in the region they are focused on community growth. Among other things, they hired and funded 150 professional ED and placed them in 15 NB communities. Community ED efforts have funded water treatment, sewage treatment, community halls etc.

  12. Again, thats NOT community growth, that’s ‘community upkeep’. That has virtually ZERO to do with economic development. They also build bridges, imagine Juniper going up to Microsoft : “hey, you want infrastructure? We just put a new dam over the Keswick River!”.

    That goes back to David main theme of this blog. When you count EI and other ‘infrastructure’ spending by the feds, New Brunswick ranks as high as anybody. The problem is that that is NOT ‘provincial growth’, those are handouts that serve only to keep a province on life support.

    You’ll notice that even when it comes to high speed internet ACOA won’t even touch something like that-which is at least closer to ‘community growth’ or economic development than a bridge or a water treatment plant. Hell, you can give pennies a day to the United Way to help build a well in a rural african village-but those villagers don’t go around calling it economic develpment. It isn’t even ‘community growth’, its simply ‘community SURVIVING’.

    But if the above poster wants to call water and sewage treatment and community halls examples of community growth then we’ll just have to agree to disagree-except for one further point-ACOA is federal, NOT provincial, and we’re talking about provincial initiatives here. By that thinking the province has even pimped out Moncton’s courtroom to a private developer because they won’t even fund a courthouse that is at least ten years in the making.

  13. You just identified the root cause of the problem; our so called ED money is not going to ED projects.

    BTW ACOA is different in each province with priorities influenced by the provincial government. For example, PEI prioritized aerospace and now Biotech for extended periods of time; the province and ACOA work together to make this happen and have some positive results.

    As Mikel points out, the funding for the community Enterprises and municipal infrastructure that NB has prioritized has had little ED value. if this funding was focused on a true ED initiative, we might be reaping benefits.

  14. “However, the government DOES do clusters, they say it all the time ..” but don’t do it. They say it but don’t do it. NB governments have a short-term focus on job creation before the next election; there is no long term focus on R&D or anything else that would support sustainable economic development, not to mention any particular cluster.

    “SINCE there are millions of people living in Calcutta, the odds of getting more small businesses are greater. Of course that’s not true, …”

    Actually, it is true.

  15. Well, if you think that is true you’ve never been to Calcutta. You’ve also never even walked down the hallway of a mall. But you can check out any farmer’s market or mall kiosk and you will see DOZENS of small business enterprises. In the Oromocto Mall they had two women who are actually clothing designers AND manufacturers. Problem is, they simply can’t find a retailer. That’s part of a bigger issue but I’ve written before about how the Co-op in Fredericton isn’t really much of a Co-op, they sell all kinds of high priced sweatshop clothes and don’t even provide a forum for local manufacturers-which is what Co-op retailing was originally about.

    Even here in ontario the ‘average’ worker will talk about doing two or three different jobs, and like I said, go to kijiji or any craft show and you’ll see TONS of examples of small businesses ‘trying to make a go’. The problem is that they simply have no support, legislation favours cheap crap from China. Even here its usually not commented on, but face it, at this point there is no way NB can compete on costs-that’s why they are trying to at least make money on the ‘gateway’ concept.

    So there is TONS of creativity and production out there, so that’s no excuse. As for ACOA that’s more complex, SOMETIMES the priorities are spelled out, sometimes not. It’s true that there’s a reason why at this blog fingers usually point at the province-even in cases where the feds are the problem there is the provincial connection, and like I said, guys like Savoie state quite clearly that the province was and is the problem. In criticism sometimes we see David do the same as Savoie and blame the feds, that’s because people have the ‘idea’ that the purpose of a federal government is to help out when the lower level of government is so incompetent or just plain crooked. That’s why people accept a provincial government, because for centuries LOCAL government was so crooked.

    But we don’t know who the anonymous poster is so we don’t know how much of that is fact, but it is largely moot, because we agree that the problem is the province. But like I said, just because you don’t like the clusters, doesn’t mean they aren’t clusters. In EVERY province initiatives support a few players, and unfortunately, or fortunately in NB that means one thing-Irving. They ARE New Brunswick’s ‘cluster’. Because they are so big and ubiquitous people are trying to bypass them and ignore the elephant in the room and claim that there is no cluster development, but that’s not true. Construction, resource extraction, energy, are ALL features of the cluster, but again, we all seem to agree that its the WRONG cluster. So the question becomes, ‘how do you change economic development?’ I’ve said the answer so many times I’m sure readers can fill in my answer.

  16. “FIRST priority is having local development that makes sense…”

    Of course, it isn’t always easy to know what ‘makes sense’. That’s the problem in picking and choosing, from the government’s perspective. Many established businesses (whether ‘local’ or introduced) fail because of flaws that were not immediately apparent.

    The best basis for cluster development, IMHO, is natural resources. R&D in these areas can have many spin-offs, some of which will lead to other clusters (e.g. IT, data handling, energy utilization, etc). Natural resources are anchors, not as transportable as, e.g. animation. In my mind, that makes natural resources a much better basis for long term economic development.

  17. I think that natural resources should be foundational for cluster development as well. However, there are 21st century industries in ICT, green energy, etc. which are not based on the traditional definition of natural resources. Maybe animators are a natural resource – of sorts – although sometimes they just disappear. Come to think of it, so do the fish and the trees and the minerals in the ground. There’s a lesson in there somewhere.

  18. “They ARE New Brunswick’s ‘cluster’”

    They certainly are the beneficiaries of opportunities provided by the province. But they illustrate the lack of interest on the part of government in long-term development strategies. Energy is a good example; the Irvings of course want a new refinery with as few strings as possible. They want a piece of the action in the expansion of Lepreau. Government wants the jobs that go along with these. You can call that a cluster if you want, but all it is from NBs perspective is a handful of construction jobs. That is not what the NB government says it wants, but that is all they are prepared to act on. There is no attempt to create a cluster there that I can see. I don’t blame the Irvings for this; I blame gutless politicians.

  19. “However, there are 21st century industries in ICT, green energy, etc. which are not based on the traditional definition of natural resources.”

    That’s exactly right, and is why R&D is the key.

  20. Focused R and D is important to our economy. However, it cannot be a blank cheque with no accounmtability. There are lots of Federal dollars available for that type of academic research.

    Like ED strategy, NB’s r and d funding needs to be focused on strategic areas with good probability of economic spin off. There are lots of ideas worth exploring right here on David’s blog. It would be prudent to identify some criteria; this is what our 400 plus ED professionals could be (maybe are?) working on. Some ideas:

    Relatively short ROI (years not decades) ie things like traditional pharma would be ruled out

    Some differentiating characteristic and or competitive advantage ie at least not copying our neighbours

    Clearly identified and addressable market demand ie not competing solely on price

    etc. This all sounds elementary but we should not take it for granted; politics trumps logic.

  21. Oil refineries also use a lot of high tech. A lot of research goes into it, it just won’t be there. But for lepreau that’s always been a problem because UNB has always focused heavily on nuclear research-there are a lot of companies in that ‘cluster’, so energy IS definitely a cluster, I’m not just making that up. It’s far from just construction.

    But resources brings us back to basic democracy-let the people with the resources decide how to use them. McAdam has a proposal, and there is no reason to suspect that other areas back provincial initiatives in forestry-FAR from it, again, go watch “Forbidden Forest”.

    It’s a basic democratic right that you are I shouldn’t get to decide how McAdam uses its local resources. Don’t want to sound anti bilingual, because far from it, but COR was onto something, which is no doubt why the media kept haranguing them on the language issue. If you go to places in Europe you see the various possibilities. One region may take one forestry model and run with it, other regions use a different model, then in five years you see which model was more successful. Interestingly enough that’s how Switzerland introduces ALL legislation-its tried in a small area first to see how it works, then if successful its more widely introduced.

    But all this is moot without some kind of mechanism for changing government priorities.

  22. ” this is what our 400 plus ED professionals could be (maybe are?) working on”

    I agree that the R&D needs to be focussed, but we won’t likely get useful direction from the ED industry. Sorry, but, bah, humbug, that is a recipe for disaster. Almost as useless as asking a business school for advice. Your statement re plenty of funds already available just is not correct; NB is under-invested in R&D. Compare our research investments per capita to those in many US states for example.

    You can’t really predict where R&D will go in terms of products; that’s what science is all about, after all. I would invest in natural resources science and teach the scientists how to be enterpeneurs, rather than piss away money on advice from ED ‘professionals’ who have rarely created a job.

    “that’s always been a problem because UNB has always focused heavily on nuclear research..”

    Ha, ha. Is that your joke for the day? UNB focussed on nuclear research????????? Most of the nuclear research is done in ON; and that’s most of the highly-paid jobs are. If GNB really cared about using energy as a cluster, they would hang Lepreau II approval on getting a bunch of those jobs here with long-term funding and tie-ins with universities. They haven’t done that because their focus is construction jobs.

    “A lot of research goes into it, it just won’t be there. ”

    What the heck does that mean?

    “McAdam has a proposal”

    I think you mean ‘a few of the people living in MacAdam have a proposal’. Presumably their proposal was sent to democratically-elected politicians in Freddy Beach.

    “Interestingly enough that’s how Switzerland introduces ALL legislation-its tried in a small area first to see how it works, then if successful its more widely introduced”

    Yes, that’s the model used here for health care; provinces tinker and best practices become adopted nationally. The best practices approach is used all over the world.

  23. McAdam’s proposal have been put forward by the Mayor of McAdam as well as council-you don’t get any higher than that. It’s a whole proposal, again, go see Forbidden Forest or go to the McAdam homesite. They’ve even been supported by the national banks which are still in McAdam.

    For nuclear research there is some at UNB and there are a number of companies made up of nuclear engineers (not as big as other places, but a lot for the size of UNB). My point is the same as Richards’, that the bulk of research WON”T be done in NB, but ontario. You’ll notice that that wasn’t even a concern of the province when they were looking at the two nuclear proposals. However, there have been several announcements about nuclear jobs that are done in province and those can’t be ignored, just like the jobs for that industry can’t just be discounted-that’s where clustering comes from.

    But again, for R&D there is only so much the province can do-primarily as mentioned here often-set up the infrastructure. The medical school is a start, there is now tons (relatively) of research going on at the Beausejour Health centre thanks to its medical background -and the fact that it exists.

    So that goes back to the point about what the province should be doing in the areas it can-namely education and setting up infrastructure. That’s why I mention the television station idea, like TVO or Saskatel. A provincial television station would easily create thousands of jobs-a place to buy, say, animation. SOME of that animation would get picked up nationally, some internationally. In case people don’t know, most canadian documentaries are FAR more popular internationally than in Canada. There is one native woman who makes a lot of native documentaries who talked about how she was mobbed in Japan and had tributes in Europe, but I don’t even remember her name.

    R&D essentially comes from an emphasis on all the things NB is poor at- science, math, etc. I think it was David who talked about how many students were coming out with ‘social’ science backgrounds. Yet schools do VERY little to push science, almost nothing at all. And like it or not, that’s where scientists and researchers come from, if they aren’t there-there will be no industry.

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