The Pictou/Michelin $25 million economic development paradox

Michelin is reducing its workforce in Pictou county by 500.  As a compensation, the firm is setting up a $2 million fund to support those – former employees or others – that want to start their own small business.  They will offer loans up to $100,000 and business support from the firm.  The repayments of the loans will be turned back into the fund and be re-lent out to other small businesses in need.

At first glance this sounds like a really neat thing to do.

Michelin is taking 500 jobs out of the local economy – and probably many more through a reduced supply chain.  If those jobs pay $50k that means a reduction in income of $25 million in the county – not including indirect and induced effects which would push that number much higher.

What does a $25 million decline in income do to the local economy?

Using average household spending data for Nova Scotia, we can estimate the effect.

It reduces current consumption by some $19 million.  It reduces spending on food by $2.7 million (including a loss of $725,000 in restaurant sales).   It reduces local property taxes by $500,000.  It reduces spending in those DYI home improvement stores by $150,000. It reduces spending on household furniture and equipment by $675,000.  It reduces the local market demand for vehicle maintenance and support by nearly $500,000.  It reduces the local market demand for eye-care and dental services by nearly $200,000.

Now, of course, this isn’t real.  There will be more EI payments in the short term.  People will dip into their savings to continue personal spending, etc.

But the illustration makes the point.  You had $25 million – and more – coming into Pictou from outside – inflating the size of the local market for goods and services.  That goes away and our response is to go out and encourage more small businesses – 97% of which rely on that local market for goods and services.  If you deflate the restaurant market by $725,000 and encourage five new restaurants to start up what is the net effect?

What Pictou really needs is a replacement for the $25 million.

So, would a better alternative be to invest in efforts that lead to another large scale exporter?  How about an incubator for export-oriented start-ups?

I don’t actually know the answer but I do know that if you are a small business in Pictou county you now have another source of capital – along with PNS, ACOA, CBDC, BDC, and others depending on what sector you fall in.  Maybe there was a gap that Michelin can fill.  Maybe Michelin will do it better – the article states that in other communities this program has supported 84 businesses and lent more than $7.5 million which has created approximately 1,300 jobs.  If the bulk of those jobs are export-based, that would likely replace the lost Michelin income for Pictou county.

But I hearken back to a meeting I attended in the Miramichi after the closure of UPM.   The new strategy, I was told, was the community was going to focus on tourism and small business.  I warned them of this exact problem and challenged them to think about how to truly replace the $50 million in lost income and local demand.   Of course the Miramichi has mostly replaced this demand now – through its 2,000 migrant workers to Alberta who send their paycheques back to the community (although supply chain benefits are gone).

Unfortunately, we tend to lack basic knowledge about how economies grow and that translates into suspect policies and programs.

I’d like to see stakeholders in Pictou sit down and have an honest discussion about how they could really replace $25 million in lost income and local demand.  It may involve targeted small business funding but my suspicion is the community needs a broader view.



4 thoughts on “The Pictou/Michelin $25 million economic development paradox

  1. I’m afraid, in the short to medium term, the Miramichi solution will apply here as well.
    Digby, where i live, is an example of reliance on tourism & small business.

  2. It would be interesting to hear your opinion on the NB Green Party’s economic platform. It appears to be all about encouraging very small businesses, while failing to recognize the importance of exports.

  3. I don’t know enough about it but they do push self-sufficiency – local food, local energy, etc. which romanticizes the role of the small business. I think we should be adopting more localism – I like the idea of distributed energy systems, the 100 mile diet, etc. but we live in an ever globalizing world and the Green Party’s view – despite having very smart people in its leadership – is quite naïve. People are shopping more and more on line. They are buying services from far and wide. Our industries are competing with firms from around the globe like at no time in our history. Because of this we need at least some, globally competitive export industries.

    Remember, my preoccupation is based on a view that we should be self-sufficient as well – i.e. have an economy strong enough to cover the cost of our public services and offer enticing career opportunities to young people and immigrants. We don’t really have to that today – at least to the extent I would like it.

    A party on the periphery can push good but currently marginal ideas.

  4. I don’t think that idea is as ‘marginal’ as you think. For one thing, hasn’t that been your complaint about both the liberals and tories? That they SAY some stuff about investment but typically favour small business?
    Part of your reasoning is nonsense, as there is no reason that small businesses cannot be focused on exports. And given automation, its very clear that the way of the future is quite small firms. I worked over the winter for a company that made dining room tables and sells them all over the country. They ‘compete’ on a large scale, doing work that you would think is fairly labour intensive. Yet the entire production is done with only a dozen guys (including the owner), and they usually have to lay people off during the summer.
    You are right that the world is global, so small firms have a huge marketplace. That hasn’t even been remotely tapped, I know several small business owners in NB who still have websites that look like they were done in 1995. I know several who don’t use the internet at all. I went looking for a cobbler locally to fix a pair of boots, I couldn’t find any, and ended up shipping them to Texas to be repaired. That guy has expanded his facility about tenfold since going online.
    The greens are certainly marginal, but its worrying that some of the ‘smartest’ guys around think that what by most measures is the ONLY game in town, are ‘marginal ideas’. Just to illustrate that point, I went to Invest NB to see how those ‘benchmarks’ are going, and their most generous data has them creating just over 2000 jobs. In June of last year the province lost 5200 jobs. Which tells you just how effective those large international investments have worked out.
    You also miss the fact that in your pet issue of shale gas, the oil industry states that 90% of the companies IN the industry are defined as ‘small’.

Comments are closed.