Economic development: All about the money, honey?

This is a recurring theme on this blog but I feel it is timely to raise it again.  Specifically I am talking about the role of government in support of economic development.

I’ve seen multiple people on LinkedIn peddling new federal government programs to promote cleantech development, help companies export, etc.  They are all under the umbrella of the Atlantic Growth Strategy.

Is the Atlantic Growth Strategy a growth strategy or is it a relatively small pile of cash doled out to firms by earnest bureaucrats?

This is a fundamental strategic issue for Atlantic Canada.  If the government’s goal is getting the regional economy back to a sustained level of growth, that may or may not entail more direct cash handouts to firms.  A true regional growth strategy would identify the causes of economic stagnation – low levels of inward migration, increased global competition, lack of new, high growth potential entrepreneurs, lack of multinational investment, etc. and then put some serious thought to what role can (or should) government play to influence positive economic growth?

It all seems to boil down to the cash.  It’s easier that way.  For government it is easy to set up a $20 million fund, build program rules around its distribution, dole out the cash and monitor the results.   It is hard – sometimes really hard – to positively impact economic growth.

As I have said before, I am not opposed to direct cash transfers – where there is a demonstrated competitive need and a strong ROI but if governments are looking at how they can influence economic growth in a positive way the thinking has to go way beyond cash to firms.  Best case scenario the cash has a slightly positive impact. Worst case it is just tax dollars crowding out private sector dollars – as many firms have told me government cash can be had at much better terms compared to banks or investors – so why not take the government cash?

Think about New Brunswick.  The economy is roughly $30 billion (real GDP).  If you want to see a 3% growth rate you will need the real GDP to grow by $900 million per year.  You won’t get this done by making a few zero interest loans to cleantech firms or giving up to $15,000 for a small business to start exporting.

ACOA has approximately 600 staff in Atlantic Canada.  The various provincial agencies (ONB, NSBI, etc.) have roughly 500 staff (conservative estimate) – roll up all local economic development agencies, CBDCs, allied organizations such as NRC, NBIF, Innovacorp, etc. and you get easily another 300-400 staff.  So we have roughly 1,400 – 1,500 people in Atlantic Canada paid by government to do economic development (somewhere around $100 million just in payroll and benefits).    There is about one economic development person for every 50 firms around Atl. Canada.   There is one economic development person for every 1.5 exporting firms (international exports).

With all this horsepower we should be able to move a little bit beyond doling out cash.