It's The Economy, Stupid

I dip my toe into the economic development incentives pool in my column this morning.  This tends to be a subject that gets people worked up.  There is a group of folks that deeply oppose any kind of government ‘incentives’ to attract or foster business investment.  There are others that are more pragmatic.

You will note that I hardly mention the role of government as a bank for business.  In my mind, the banking function and incentives are two different things.  The government as bank model is based on the government putting aside money – say $100 million – and then deciding what companies get a chunk of that money.  That model necessitates hundreds of staff across the province evaluating business plans, trying to match small businesses to funding programs, developing ever more elaborate funding mechanisms, doing financial due diligence just like a bank, etc.    This is a world view where mostly local firms don’t have enough cash to fund startups and expansions and the government should step in and play that role.  The argument is that the private banking system is dysfunctional in a place like NB.

When I talk about ‘incentives’ I am talking about business investment that has a choice where to go.    Companies that are able to put their business investment in the jurisdiction that makes the most sense to them.  In that competitive reality, New Brunswick needs to have a value proposition that is attractive relative to other jurisdictions (this value prop goes way beyond incentives) and that can easily include tax holidays, low royalty regimes, discounted rates on public utilities, etc.

I touched briefly on a point worth reiterating.  I do not think New Brunswick should give away the farm to get a little business investment.  The fire sale approach to economic development has been tried and failed in a lot of places.  You can make up for a weak value proposition by ever increasing government largess towards the business.    Governments, industry, education and other key stakeholders need to make the kind of investments that build the underlying case for businesses to invest and incentives end up being a small part of the overall package.

Very few people would buy a very crappy car just because there was a deep sale on it.   If they did fall for it once, they wouldn’t make the same mistake twice and they would tell all their friends the car was very crappy.  It’s the same with economic development.