Shifting away from firm-focused economic development

Question:  At the most conceptual level what is the best model for government and community-supported economic development?  Do you a) offer programs and services to help individual firms invest and grow or b) do you work on broader actions that strengthen a jurisdiction’s value proposition for investment in specific sectors and opportunities?

I would suggest that most of the focus of economic in Atlantic Canada has been on individual firms with considerably less focus on broader opportunities.  I wrote about this a few years ago after I had completed a survey of economic developers working at the local, provincial and federal levels in New Brunswick.

I asked these folks – more than 30 in total (excluding management) – to describe what they did in a typical day.  Excluding management and administrative tasks, the vast majority of them worked in some way with individual firms to provide them funding (grants or loans) to help them accomplish some task – grants to hire new staff, develop a new market, subsidize an export development trip, implement a productivity program, etc.   Many of them were involved in the process of evaluating grant proposals, due diligence, following up on outstanding funding to ensure compliance, etc.

In fact, I remember (and wrote about) one GNB employee telling me that if “we didn’t have the cheque book, companies wouldn’t let us through the door”.

This is not to say there was nothing being done at a broader, value proposition level but it turned out, IMO, to be fairly thin.  ‘Sector development’ was a euphemism for developing a brochure that said we were good at “value added wood products” or something similar.  Again, this is too harsh – there were (and are) some bonafide efforts to strengthen the value proposition in certain areas but for the most part I would argue the vast majority of focus was (and even now is) on helping individual firms with direct incentives or other support.

When I started as Chief Economist in GNB I wanted to shift the focus from firm-level support to strengthening the value proposition for investment in areas (I clunkily called them opportunities) where New Brunswick had a core or nascent value proposition.  We have the right microclimate for wild blueberries, we have a ton of maple trees, we have a very long coastline and potential for new aquaculture, we have very interesting research capacities at our universities that could be exploited, we have strengths like official bilingualism, we have small but interesting clusters of activity that could be amplified.  We have agricultural land that could be better exploited  (maybe immigrant farmers?).  We have R&D infrastructure such as RPC that could be injected with steroids (not Eric Cook specifically, the organization).  We have one of the largest insurance back office clusters in North America as measured by LQ value.  We have a lot of natural resources that have not be developed at all.  We have one of the smallest tourism sectors measured by GDP contribution even though there are vast areas of untapped potential.  We have a small but interesting cluster of tech entrepreneurs.  On and on.

For the most part the response to this was either a) “that sounds like picking winners and losers” and we don’t like that; or b) it won’t work, New Brunswick can’t compete at a broader level, let’s just do what we can to help our firms grow.  If they are committed to New Brunswick we should do what we can to help them.

Don’t get me wrong, government did move in my preferred direction on several opportunities – cybersecurity, cannabis, etc. where there has been a very deliberate effort to build a wider value proposition and story that is supplemented by firm-level interventions but, in my opinion, I was unable to instill this at a cultural level in government and I look at the debate in the media today and feel we haven’t made much progress.  Part of the technical problem in government is that my model required cross-departmental cooperation which was, and is, challenging.

You can talk all day about ‘helping small business’ but, after my 25 years’ experience, the real issues are broader.  Are we a jurisdiction that encourages and supports entrepreneurial risk at a cultural level?  Are we properly differentiating between the thousands and thousands of lifestyle local businesses that serve local markets and have no real interest in growing beyond the borders of New Brunswick and those high growth potential entrepreneurs that want to start here and conquer the world?  Do we have a  proper focus on the entrepreneurship pipeline?   The evidence across North America is clear.  When you evaluate where most entrepreneurs who ‘conquer the world’ come from they either come out of an existing large firm (they got disgruntled with, think Nortel, BlackBerry, IBM, etc.) or they have a really cool idea incubated in an institutional setting such as a university.

We do want to ensure we have a good environment for lifestyle entrepreneurs/businesses in Minto and Neguac to thrive because strong local economies have lots of local competition for goods and services. We want many different pizza restaurants in Neguac to compete with each other.

But the focus should be on ease of entry and quickness of exit.  As I have said before this should be viewed as the Serengeti Plain.   Good entrepreneurial ideas should win and bad ideas should lose.

New Brunswick needs a surge in talent attraction.  I would double or triple the enrollment of international students in our public and private colleges and do a much better job of aligning that student base to the demands of the labour market. If we need hundreds of workers in our insurance, hospitality and other back office industries – then train people to work in those industries.  If our IT firms are calling for a specific set of skills, lets focus on that.  If our tourism industry needs workers, ditto.

In a perfect world almost all of our immigrants would come through the education system here.  I realize that is not practical but it would solve a ton of current problems with the system – the inability of small firms to recruit internationally, the time it takes to get people here, the significant bureaucracy involved, etc.  Essentially firms would hire out of schools, colleges and universities just like they do today.  The only difference would be the accent of the new employees.

Beyond that fundamental requirement for growth, I still urge those in charge to revisit the idea of ‘opportunities’.  If you don’t like the term, find another but there is pent up opportunity latent in our university research institutes, in our natural and human resources, in our geography, in our tourism potential, in nascent clusters, etc. that is getting little focus because the 400+ people paid to do economic development at the local, provincial and federal level in New Brunswick are mostly focused at the firm-level.

In the long run, the term ‘comparative advantage’ is what ensures that jurisdictions can thrive.  We need to reground our economic development thinking in this principle.