Validating economic development

I had a telephone conversation yesterday with a guy who is not convinced that EGM, ACOA, BNB, etc. are worth the money.  He made a sweeping statement about scrapping them all.  He was particularly sure that these agencies weren’t doing much for Moncton.

I’ll tell you exactly what I told him.  You can have a legitimate debate about the value of EGM.  You can have the same debate about ACOA or BNB.  You can even debate the relevance and functions of Moncton Industrial Development or the City of Moncton, Dieppe or Riverview’s economic development departments.

But you can’t debate the relevance and legitimacy of economic development efforts collectively in Moncton.  There are few cities in Canada that have benefitted more from proactive economic development efforts than the Greater Moncton region.

Here’s why.

There are roughly 72,000 employed persons in the Moncton CMA.  If we add up all the customer contact centres (like ExxonMobil’s 900 employees), manufacturing firms (like Molson), warehouses, etc. that were brought into the Moncton region through economic development efforts (i.e. there is an almost 100% chance they would not be here without a deliberate act of economic development officials), you get somewhere between 6,000 and 8,000 jobs.  We tend to overlook the warehousing sector but I can tell you that the efforts of the intrepid Peter Belliveau over at Moncton Industrial Development are the single reason why many of these regional distribution facilities didn’t go to Amherst or even remain in central Canada.

So, take a mid-point of 7,000.  This, of course, is not including all the micro-economic development efforts like helping new startups, small IT firms, etc. and it certainly doesn’t take into consideration the efforts to grow the retail sector.   But for simplicity, take the 7,000.

We need to add an economic multiplier to the 7,000.  Basic macro-economic theory tells us that every new job added to the economy has a multiplier effect.  In other words, if you add 1,000 new jobs, you need 57 new retail workers, one new lawyer, two new doctors, etc.  The multiplier can range between 0.6 per primary job created upwards to 4 or 5 if you are looking at a sector such as automobile manufacturing.  Given the type of jobs created through direct economic development efforts in Moncton, I would say the multiplier is likely on the lower end – say 0.7.

This means that another 4,900 people working primarily in the service sectors (retail, food) but also construction, etc. have their jobs because of the economic activity generated by the 7,000.  In total, then almost 12,000 people currently employed in Moncton owe their jobs directly to the economic development efforts of people in these much maligned organizations.

So, 72,000 total employment in the Moncton CMA of which almost 17% are directly the result of economic development efforts. I haven’t done this type of analysis across Canada but I suspect this would be on the high end of economic development success stories.

Of course, the issue is much deeper than this back of the napkin analysis.  In 1996, there were roughly 55,000 employed persons in the Moncton region.  That means that the majority of the net employment growth from the mid 1990s to today is due to economic development efforts.  The real question is what would have happened in Moncton without these efforts?

Certainly, some economic development would have occurred anyway.  The lower paying call centres might have trickled in as they were on the prowl for high unemployment regions in the late 1990s early 2000s.  But the Royal Banks, the UPS’s, the ExxonMobils, the OAOs, the Molsons, the Purolator Couriers, the FedExes -all would not be here in all likelihood.

Without this development, downtown revitalization would have likely not happened.  Forget about new schools and hospital expansion.  It is likely the new airport would be a figment of your imagination.  You can forget about population growth an in-migration as well. 

In other words, this stuff is all interconnected and you can’t ignore the proactive role of economic development. 

The new dentist that sets up in town doesn’t realize this and neither does the latest lawyer to hang out a shingle.  The guy setting up the new pizza shop doesn’t spend much time thinking about it and neither does the real estate agent – many of whom generate a significant portion of their income from people moving into Moncton to work in these jobs.

But it matters. 

And in 2009, instead of questioning the relevance of economic development, we should be spending our time figuring out how to emulate the success of the past 15 years.  You can be sure there will not be 5,000 new customer contact centre jobs over the next 10 years.  Where will the new jobs come from?

If you gut the economic development function and demoralize it you will save a few bucks but to what end?

2 thoughts on “Validating economic development

  1. David, I started reading this blog about two years ago. At that time, I was extremely sceptical that active economic development of the type you discuss was effective in any significant way. My view was simply that companies are going to locate where labour is plentiful and skilled and/or cheap, markets are accessible and taxes are competitive. And while I still think these factors are important, my opinion on the importance of the economic development efforts you support (and undertake) has changed 180 degrees. It has happened gradually over the past couple of years, but looking back, even I’m amazed at how thoroughly my mindset has changed, largely based on your arguments and discussions on this blog.

    I know sometime within the last two years you stopped blogging for awhile and you wondered if it mattered and if you were making any type of difference. Well I can tell you in my case at least, it has made a huge difference.

    For the record, I’m in gov’t but not the economic development field, although it is a big interest of mine.

  2. Thanks for that. The truth is that governments can’t engineer economic development but there are a lot of things they can do to create the conditions under which private industry will consider investing in their jurisdictions. My goal is to convince governments and community leaders to help create these conditions – and that, in a nutshell, is my definition of economic development.

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