New Brunswick: It could be worse

I read the AG’s report on BNB’s largest financial assistance program this morning.   It’s an interesting report but there isn’t much in there that is new.  There is some interesting data on the number of financing programs/dollars over the past few years (not including the most recent years).

But a few things stood out to me:

The first is the AG’s conclusion that there is no integration of financial assistance and the department’s strategic objectives.  As strange as that seems and I would fully agree.

She concludes BNB doesn’t “report publicly the results of the FAIP against its three measurable areas, job creation, job maintenance and leveraged capital investment”.    I have said this many times.

She recommends publishing measurable targets.  Amen.

Where it gets interesting is on page 25 where she talks about the province’s ‘payback calculation’ on grants/forgiveable loans.  I have talked about this before.  BNB will determine an estimated amount of new tax revenue to the provincial coffers from the new job creation and base their assistance on a payback on that assistance (for example a $1M grant will be paid off in three years from incremental tax revenue from the project).

She thinks this could be done better but doesn’t go as far as making this public (at least I didn’t read this going through it this morning).

I have said and continue to insist that we must go even further and determine an incremental tax measure for economic development efforts as a whole.  It’s not enough to calculate this just on loans or grants.  The overhead associated with economic development must be included as well.  In other words, for every taxpayer dollar invested in economic development, we get $x more back in incremental tax revenue.  This is the one sentence measurement that would radically alter the face of economic development in this province.

I would say that a majority of folks I talk to about this are very wary about such a measure but I don’t see any other way.  What else would we measure?   When you spend on health care, you get health care services – which are more or less measurable.  When you spend on education, transportation, etc. the same.  What is the delivery from economic development?

It must be about growing the economy and it must be about generating incremental tax revenue to support public sector spending.

The common retort to this is “even if there isn’t an economic ROI, without us it would have been worse”.

So that’s the objective for economic development in New Brunswick “It could have been worse”?

Not very ambitious, folks – but at least it gives us a replacement for our driver’s license.  New Brunswick: It could be worse.

I have said that there will be good years and bad years but over the longer term, economic development must be about growing the economic pie or don’t make the expenditures at all.

To me that is the greatest failure of the AG’s report.  She looks at one program of BNB in isolation and runs it through a auditing calculus like any other department review.  It would have been very helpful for her to at least make some comments on the effectiveness of economic development.  Particularly as we are now embarking on a reform agenda.

I’ll leave this for now – I could write all day on this but I have a day job.

10 thoughts on “New Brunswick: It could be worse

  1. This would be THE best Economic Development project we could undertake – measure it’s results. This would necessitate answering a whole slew of tough questions that once answered would result in clearer strategic (and more effective) thinking.

  2. Funny you mention your “day job”. I have one too. And if I spend money and can’t measure what return (financial or otherwise) I’m getting for it, I get canned.

    It drives me completely nuts to think that BNB should be investing in T-Bills instead of entrepreneurs. What drives me even more bonkers is that BNB is supposed to give advice to businesses on how to start and grow, but they don’t know how to run their own shop. BNB needs to look in the mirror, get its own house in order, learn how to run a business and apply it. For a lesson in how to write 50 pages using different combinations of “worked with partners to…” (which I translate as “threw money into this group hoping they would do something worthwile with it.”), please read the BNB Annual Report.

    I remember one of the old adages of a great New Brunswick businessman, “If you can’t measure it, you can’t manage it.” I can only hope that InvestNB is the cure for what ails BNB. Seems like the boss has some good street cred (and, as Mr Boudreau mentioned, some political ties). My apologies for the rant – point is I couldn’t agree more and the complacency and lack of accountability have to stop for ED to start to show returns for NB. Less bureaucrats, more do-ers. I’d even go so far as to tie compensation of BNB staff to performance, similar to any other venture capitalist.

  3. In other words, for every taxpayer dollar invested in economic development, we get $x more back in incremental tax revenue. This is the one sentence measurement that would radically alter the face of economic development in this province.

    Under normal economic conditions, policies in Fredericton should not manipulate taxes and spending based on short-run job creation. Instead, it should maintain fiscal balance and low marginal tax rates to promote long-run growth. For far too long we have seen the mentality that only government bureaucrats should have their hand on lever when it comes to economic development, when in reality, they should take their hand off the lever and allow the invisible hand to guide growth and prosperity which, in the long-run would allow entrepreneurs, wealth/job creators, innovators and R&D to thrive.

  4. ” the invisible hand ”

    Ah yes, the magical invisible hand (cousin to the magical flat tax fairy). History, however, shows that govts that invest in projects that stimulate R&D or the right infrastucture can trigger long-term economic development. Govts can and do develop policies that push economies in the desired direction. NB’s problem is poor decision-making, now coupled with a lack of capital to invest.

  5. @Mike

    “What gets measured, gets managed” is a pretty common mantra within business.

    I think this would be THE SINGLE BEST thing we could do for economic development efforts. (yep, I’m repeating myself)

    In business, metrics have a much deeper impact that are often appreciated. Metrics, with constraints and definitions defining “good” and “bad” results , drive vast improvements in productivity. Without such definitions, things can get pretty shifty, fuzzy, and superficial. Without clearly defined metrics, strategies become vague, accountability becomes a shell game – and spin and charisma can begin to trump results.

    I can appreciate the dilemma faced by those in NB Econ. Dev. though. The process of defining the metrics could quickly degrade into the electorate lamenting the past – and instead of positive forward looking thinking – degrade into a witch-hunt to hold someone accountable for past fumbles. So, despite the benefits, NB Econ. Dev. (under whatever banner they hold now) will be incented to sweep such things under the rug. BUT, contrary to what they perceive as “risky”, with strong leadership, the daggers may be kept at bay – and if this happens, we can possibly turn this into a very positive and beneficial discussion.

    With metrics in place, along with constraints and definitions of what are good and bad results – then real honest to goodness strategic discussions can occur. Without them, its all just hand waving.

    PS… on another tangent, this is one of the reasons why government involvement in economic development is so complex. They have too many conflicting interests and thus are often ineffective in undertaking anything but grassroots initiatives that involve education, or other more fundamental influences. The government is accountable to the people, but its the people who create wealth and development. When we abdicate our responsibility for this – we will always remain disappointed.

  6. Actually, to cut through your sarcasm richard, the invisible hand model (when, say, a government is transitioning out of a recession/communism) has been widely looked at. Much for the fact that under such a model government’s tend to be much less corrupt, organized, efficient and benevolent. Mostly because there are restrictions on what they can do, thus there tends to be more focus on providng public goods, such as contract enforcement, law and order, some regulation and leaves most allocative decisions to the private sector (i.e. the invisible hand).

    The exact opposite is true on what is sometimes called the “helping hand” or the “hand-grapping” model (we fall probably somewhere in-between those two models.\). There we see government’s becoming much more involved in promoting private economic activity, where some firms are pushed to the forefront by government and some are killed off. In this model you will probably even see more bureaucratic corruption, not to mention, legal framework plays a limited roll, while business familes have close relations or ties and become intertwined with those that make policy decisions (see Alan Rock, Larry Gulch et al.) Anyway, I’m all for a good look at policy changes to BNB, I just hope they realize that sometimes government can be the problem from the start and not the solution. That doesn’t mean they can’t create and environment where both the private sector and the public sector can mesh to strengthen the economy from a bleak perspective to a more manageable one.

  7. Dude, give it up. The ship sailed long ago on the ‘invisible hand’-why don’t you just say “god”? You can sell that crapola on retard blogs, but nobody is buying it here.

    Newly developed capital markets have been so rife with corruption that the worst government looks positively bullish. Go do some research on what happened to the Soviet Union when markets opened. Most russians now yearn for the ‘good old days’ of communism. Out west its never discussed in Canada, but the mining markets in Alberta and BC have long been considered more corrupt than most third world countries. Heck, this is an industry where a dude got thrown out of a helicopter and it barely sparks an interest.

    It’s so obvious even CAPITALISTS don’t believe that anymore. What would Goldman Sachs do without ‘big government’? You think a SMALL government could pony up that kind of dough to bail them out?

    In NB its even more clear. Forestry companies haven’t paid taxes for over a decade-hate to resort to sarcasm but I missed the part about how much innovation and competition is going on in that market. David frequently points out that under Lord small business taxes were practically ZERO. And the number of small businesses under that free for all regime went down.

    So virtually ALL the evidence is pointing the other way. It’s easier nowadays to argue the opposite, that it is the PUBLIC sector where growth and innovation is most pronounced. The private sector in NB contributes less than 3% of the budget of NB, how in the world in anyone’s right mind can that be ‘too high’?

    And of course the ‘invisible hand’ is used in cases where people usually have never even read the guy who penned it. Adam Smith was HUGELY distrustful of businesspeople, and pointed out the invisible hand functions because its a ‘tenet of humanity’ that people will invest in markets close to where they live because they know and trust those people. Yeah, THAT holds true today!

    But be happy, you can go to CBC and in these days of deficits, EVERYBODY is talking about how evil that ‘big government’ is. Sadly, they seem to forget that its a big deficit because PRIVATE markets have dropped the ball and are worth very little.

  8. ” Much for the fact that under such a model government’s tend to be much less corrupt, organized, efficient and benevolent.”

    Data, please.

  9. I dumbfounded why we are seeing the invisible hand as an all or nothing thing. The invisible is the force behind how we allocate our scarce resources when we are free to pursue our self-interests – it is meant to articulate that it is through our actions, not our words, that we allocate the best use of scarce resources that have alternative uses. The “invisible hand” is not good, or bad, or old – it just is. Even Smith ended his days as a customs officer, burning his clothes that were “illegally imported” – the opposite of how an advocate of “the invisible hand” would behave. So… to get at least one thing straight, he described a social force – he did not advocate for its complete adoption as a method of social organization. But somehow the invisible hand has evolved to be some sort of dividing line by which we thrown stones across.

    What we are instead discussing (when the “invisible hand” comes up) is the means of economic coordination we use within our economy. The coordination by means of price is effective for certain factors of production, but this effectiveness breaks down when there is too much control concentrated in one area. This is the same for government fiscal decisions. Government is also a means of coordinating our scarce resources, and is the best means to coordinate certain goods, but like markets, this method of coordination can also break down.

    We are just managing a bunch of teeter-totters in balance…. So I am constantly amazed at why we need a drastic delineation between the two sides. Both sets of thinking are required… and at some point, we just have to get on with it… and eliminate the resource sucking red hearings from our discussion.

  10. David frequently points out that under Lord small business taxes were practically ZERO. And the number of small businesses under that free for all regime went down.

    I’ve never really bought that argument. Mainly because small firms and individual taxpayers (many who tend to run small biz) are at a disadvantage right from the get-go in New Brunswick because larger firms, mostly one in particular, have created a monopoly on government resources whereby big government contracts tend to come their way at the expense of everyone else. Thereby stifling competition and, in the end, shortchanging small biz and entrepreneurial start-upers (not a word_.

    As I see it, there’s always been a problem with our system in general because the name of the game isn’t creating a healthy competitive environment where business, both small and large, can thrive, it’s more about whether you can self-select politicians and reward politicians with perks are really good at appropriating resources for things that reward very narrow interests. Why do you think the Court brothers are so unpopular with this political establishment? Plain and simple, they chose to stand up aganist it as a matter of principle instaed of sticking with the status quo. A stance that has led Ivan Court to many difficult public smearings over the past 2 and a half years.

    I don’t agree with Ivan Court on a lot of things, but I do stand by the man in his fight for the little guy (i.e., the small businessman with a morgage and three kids, the starving student looking to set up shop in NB after graduation, those that can’t heat their homes in the coldest months of the year). The way I think this can be done is to remember why free enterprise matters (much more than a meddling big government which rewards power special with a narrow view) and to make that particular argument as much as possible. And let me tell you, that argument cuts across political party, it cuts across the way that we define our ideology, and it goes straight to exactly why we should care about freedom in the first place. If competition and freedoms are curtailed so that monopolies, big government and special interests rule the roost, we are doomed to continue on the path to ecomic destruction. Simple as that.

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