Confidence is the Key to Economic Growth

By Peter Lindfield, published in the Telegraph-Journal 4th May 2012

Policymakers have called for caution on austerity measures in the New Brunswick economy. But while Finance Minister Blaine Higgs’  commitment to fiscal prudence has been to support policies intended to prevent future crisis-inducing fiscal and financial imbalances, his remedial solution is consistent with a strategy of gradual adjustment. These policies include reforms that are intended to strengthen long-run growth. This is not the same as indiscriminate fiscal austerity.

Premier David Alward this week announced that his government’s soon-to-be-unveiled innovation agenda will serve to promote growth in New Brunswick. The apparently contradictory messages of the Premier and his Finance Minister are actually complimentary. They point to the need for a measured approach in which Mr. Higgs’ fiscal prudence and Mr. Alward’s growth-oriented reforms operate in tandem.

This tandem approach will require significant political discipline.

Without reinforcing expectations and reassuring investors on the strength of fiscal prudence policies in the medium term, any short-run growth project runs the risk of failure. Quite simply, the notion that structural reforms, however desirable, could achieve economic growth in the near term without expenditure management reform is an illusion. But, as Atlantic Provinces Economic Council president Elizabeth Beale and economic development expert David Campbell have warned, too much austerity runs the risk of hindering economic growth and exacerbating the fiscal problem. Since fiscal contraction is not expansionary, it slows growth, depresses tax receipts and leads to the expansion of government deficits.

Not everyone agrees that aggressive austerity measures are an obstacle to economic growth. Supported by academic research, some economists have argued that fiscal austerity could actually support economic expansion. But expansionary contraction has not worked in the field. Ireland, Greece and Spain are ample evidence of that. Moreover, academic support for this view has been undercut by a reappraisal of the evidence by the International Monetary Fund whose recent forecasts suggest that the eurozone is now threatened by a second recession, with even Germany showing signs of weakness.

Instead of across-the-board spending cuts, Mr. Higgs has targeted outlays that unnecessarily divert resources from activities that make the economy more efficient.  His fiscal stabilization program is based on unambiguous and vigorous actions leading to a progressive reduction of this burden will have the result of restoring confidence which has been under siege by concerns about the negative consequences on growth of considerable public debt.

Fiscal consolidation and structural adjustment are needed then, but New Brunswick also needs to pursue a growth agenda. The positive impact of these government-supported growth programs will take longer to take hold than the growth-inhibiting effects of austerity. The favorable expectations supported by these growth initiatives should dampen the impact of fiscal restraint until those growth initiatives have had an opportunity to achieve their full impact.

In New Brunswick, the recent challenges of demographics, weak demand in export markets and industries in transition have been a distraction from the province’s real crisis which is borne out of historic indecision, lack of focus, and insufficient financing, all of which have served to undermine confidence. For a lasting solution to this crisis, the underlying problems will need to be dealt with squarely. Beyond fiscal stability, New Brunswick has a serious problem of competitiveness. Attempts to overcome these underlying problems by applying quick fixes that only serve to mask the symptoms will not be sufficient to the task. The current government appears to be gaining a keen understanding of that challenge.

The New Brunswick government’s current policy mix of fiscal prudency and support for growth in key industries is fundamentally the right one. Whether it is sufficient to turn New Brunswick around will depend in large part on whether the private sector will respond positively to its growth promotion strategy. If it does not, Mr. Higgs will be forced to become more creative in ways to contain economic anxiety without undermining the credibility of the government’s long-term economic agenda.

Two Universities and the Province’s Shale Gas Outrage

By Peter Lindfield, published in the Telegraph-Journal 1st May 2012

The Université de Moncton and the University of New Brunswick are planning to hold a two-day, science-based forum in June with the objective of discussing the future of the province’s natural resources economy and the positive and negative elements of shale gas development. The event organizers are targeting the participation and involvement of 200 stakeholders from government, opposition, industry, environmental groups, citizens and owners of agricultural property.

The forum will bring a much needed perspective to the shale gas development issue. What it will not do is address the key attribute of the shale gas development phenomenon in New Brunswick. The assumption heading into this event is that science or data will address the fundamental opposition to shale gas drilling. The opposition to shale gas is not only focused on the hazards of drilling. The opposition to drilling today is centered on the outrage expressed by many who no longer trust industry or government to operate in their best interests. And now, the universities are in jeopardy of falling into this black hole.

Shale gas drilling is a prime example of locally unwanted land use that arouses not irrational outrage but quite rational sentiments of not-in-my-back-yard (NIMBY) opposition. From a national, and regional perspective, the product of shale gas wells may indeed be a good thing. Natural gas is a relatively clean source of energy and is environmentally superior to dirty fossil fuels such as coal and oil. But gas wells are not great neighbors. Instead, they are ugly, they are noisy and they are intrusions into people’s lives. While everyone across society may be better off with more shale gas in our future energy portfolio, there is no denying that everyone would better with those gas wells in someone else’s back yard.

Shale gas drilling is not a Frank Gehry-designed factory operation nestled in a corner of the province. Instead, it is a forest of well-head structures, fleets of trucks and other drilling infrastructure dominating the landscape. This approach of downplaying the negative side effects of drilling by appealing to the importance of shale gas to New Brunswick economic development prospects has added insult to injury. Instead of mollifying protestors, it has added the outrage of dishonest disrespect to what are considered to be the substantive downsides of drilling itself.

The gas drilling companies have been aware from the outset that they never stood a chance of persuading opponents that their opposition was irrational, and that shale gas drilling would be a good thing for their neighborhoods. According to this view, protestors in the community are irrational economic development-potential destroying ideologues instead of average citizens attempting to protect their community’s lifestyle and property values.

In the face of this, industry, government and academics have been feigning surprise at the opposition to shale gas in New Brunswick. For some time, proponents have stated that they could not understand how anyone could object to making progress in this critical and desperately needed opportunity of economic development. The forum’s chair, the Université de Moncton’s Roger Ouellette has stated that shale gas is an important question for New Brunswick, which has traditionally relied on a natural resource-based economy and faces fiscal challenges going forward. Some have gone so far as to tie shale gas economic development to the ability of the province to afford entitlements such as health care, education and social assistance. This view, which completely ignores the seething outrage that figures so prominently in this issue, and baldly states that shale gas drilling is necessary to pay for the economic and social entitlements of this province’s citizens, may come back to haunt its proponents.

A Cautionary Tale of the Limits of Innovation

By Peter Lindfield, published in the Telegraph-Journal 27th April 2012

An innovative product and proposal does not always guarantee a successful bid. That hard lesson was learned in no uncertain terms by an automobile manufacturer recently. Its unsuccessful proposal calls into question the business model used by smaller players in a fiercely competitive bidding environment, even if they are fast followers.

New York City Mayor Michael R. Bloomberg recently announced that Nissan had won that city’s Taxi of Tomorrow competition. The Nissan NV200, a light commercial vehicle already in use on streets in Asia and Europe, beat contenders from Ford and Karsan, a little-known Turkish vehicle manufacturer. Over a three year period beginning in 2013, the NV200 will replace the current vehicles and carry the official New York taxi designation for 10 years.

New York’s yellow cab fleet numbers more than 13,000 official vehicles, the majority of which are Canadian-made Ford Crown Victoria sedans. Crown Vics are an impressive transportation incongruity in the world’s most famous city. Crashing over the thousands of craters that disfigure the city’s road network, passengers can enjoy a full madrigal of squeaks, groans and rattles that is emblematic of Gotham’s taxis.

Although it lost out against its Nissan rival, Karsan’s V1 arguably was the most innovative solution in the competition. Its rear-mounted 2.4-liter 4-cylinder engine contributed to a more efficient and space-saving platform and a Karsan spokesperson stated that it could run on compressed natural gas or accommodate a hybrid or purely electric powertrain. The firm showed off the V1’s ability to load and carry a wheelchair passenger by utilizing a ramp mounted under the taxi’s body, which could be deployed to either side of the vehicle. Neither the Ford nor Nissan models were designed to meet the New York Taxi and Limousine Commission’s request to make their vehicles compliant with the Americans With Disabilities Act.

Promises of economic development benefits were intended to reinforce the value of its proposal. Karsan received substantial support for its bid in Brooklyn where the company had committed to building a factory that potentially would have created hundreds of jobs.  Nissan, which has its American headquarters in Tennessee, plans to build the NV200 in Mexico.

So on the face of it, Karsan’s bid had the twin benefits of an innovative design and the promise of job creation. What went wrong?

Karsan is a relative newcomer to vehicle manufacturing. Founded in 1966, the firm builds vehicles in Turkey for Peugeot, Citroën, Renault and Hyundai. But the Karsan model was rejected after officials decided that the risk associated with awarding the contract to a company with little experience in the American market would be too great. New York City commissioned the global automotive consulting firm Ricardo Inc. to conduct an analysis which concluded that while Karsan had demonstrated “the will and technical capability” to build its proposed taxi, the company was “a new manufacturer, with a new manufacturing paradigm, not familiar with the U.S. regulatory framework, with no current sales, service or support infrastructure” in the United States.

Karsan’s bid was dealt a further blow when Mr. Bloomberg stated that he was not optimistic about whether Karsan’s proposal for a Brooklyn taxi factory was even feasible. “I don’t think between now and two years from now we could site a new school, much less a new industrial plant,” Mr. Bloomberg said.

An overreliance on its innovative product figured prominently in its losing proposal. Could Karsan have mitigated the perception that it was not yet ready for prime time? Auto industry analysts will question why Karsan did not choose to forge an alliance with Hyundai, with which it was already doing business and which has the necessary sales, service and support infrastructure.

Rather than choosing to go it alone, firms in every industry increasingly are leveraging joint ventures, consortia and other alliance arrangements to compensate for operational shortcomings. Doing so could have helped to address New York’s concerns about whether Karsan had “fully evaluated the risks and countermeasures required to ensure that their product will deliver and maintain the same level of maturity as that of their competitors over the life of the contract.”

The Risk Communications Dynamics of Shale Gas

Published in the Telegraph-Journal 24th April 2012

For some time now, gas companies have explored the development of natural gas trapped within shale deposits across parts of New Brunswick. It is a process that brings with it uncertain environmental risks but certain lifestyle annoyances including noise, truck traffic, and the visual disfigurement of the countryside. For some people in the local community, gas drilling has more downside than upside. For these people, local opposition is justified.

However, there is a case to be made for shale gas projects which are undeniably positive for the organizations proposing them. Gas projects are arguably good for other reasons. Natural gas would be welcomed if it could substitute for less environmentally friendly fossil fuels. And there is no question that gas projects will be good for some people in the affected local communities in New Brunswick. The winners will be those who will gain access to employment or business opportunities, royalties or other economic benefits.

In his iconic book, Responding to Community Outrage: Strategies for Effective Risk Communication, pre-eminent risk communications consultant and former Rutgers University professor Dr. Peter M. Sandman states that the distinction between hazard (implying not only a threat to life, health, safety, or the environment but everything substantive, including noise and property value) and outrage (implying anger, fear, worry and concern) is not a distinction between data and emotions or between data and values. “Outrage and its elements are as real, measurable, tangible and controllable as hazard and we have better data on outrage than on hazard in many cases,” said Sandman. The dissemination of data may have an impact on the perception of hazard (more safe, less unhealthy, less pollution). Outrage is not simply a distraction from hazard. While both are legitimate and important, outraged people tend not to pay much attention to hazard data.

This exposes an obvious challenge. A project that does more harm than good for most local stakeholders can still meet with approval if the opponents are less passionate. Reducing the passion of opponents can assist a committed minority of activists to gain approval for a project that the majority weakly opposes.

However, a project that achieves greater good than harm for the majority of local stakeholders can still fail to gain approval if those who oppose it are more passionate. Increasing the passion of opponents can assist committed activists who are in the minority to prevent approval of a project that the majority supports but only weakly.

This is not subversive radicalism. This is how democracy functions. “In elections we count noses and while people need enough passion to make it to the polls, any additional passion doesn’t mean additional votes. In issue controversies, the impact that people can have is proportional to their passion,” said Sandman. The most important factor in whether that project is approved or rejected by decision-makers is often how many local stakeholders passionately and actively oppose a project. So activists who oppose shale gas drilling will attempt to increase the passion of shale gas opponents, while shale gas sponsors will attempt to decrease the passion of their opponents. Both sides are making rational decisions. Despite the exasperation of shale gas project proponents, this is not a distortion of democracy any more than legislative lobbying is. Some technical experts have resisted the pressure to consider outrage when making risk management decisions. They insist instead that data, rather than the emotional public, should determine the foundation of policy. But outrage factors are not misperception of risk. They are instead intrinsic elements of what to us constitutes risk. This recognition needs to be the starting point to a respectful treatment of an issue that will have historic implications for the people of this province.

Province Needs to Look Outside for Solutions

Published in the Telegraph-Journal 20th April 2012

There is an emerging agreement that New Brunswick needs to make conscious, strategic choices to shore up its position in industries that align with its strongest, or potentially strongest, growth engines.

New Brunswick faces economic challenges as it competes not only internationally, but with regional locations for jobs, people and prosperity. The province’s critical economic engines are infrastructure and structural costs, education, regional networks and collaboration, brand identification and demographics and immigration. When all these economic engines are working efficiently, New Brunswick is as strong as its strongest link. But one faltering engine can constrain the others and affect the entire economy.

In New Brunswick, these engines have shown signs of losing power. Its weakest link, demographics and immigration, is playing a disconcertingly large role in defining the province. Bringing back the energy to New Brunswick’s educational system will be a challenge. Continuing to pursue creative solutions to structural costs and infrastructure issues and reinforcing neglected linkages are necessary to supporting this province’s emerging industries and opportunities.

Infrastructure and structural costs are on par with many competing locations and government has brought confidence to bond markets that its fiscal policies will soon achieve financial stability. Relatively lower wages and the lowest small business tax rate in Canada are offset somewhat by high energy costs. Not all firms have the same structural penalties, but the high cost of energy is a major obstacle to sustained growth in some sectors.

Education should be one of New Brunswick’s strongest links. Universities historically have been disinclined to admit that they are in competition with one another. But New Brunswick universities are showing signs of stress because of inadequate investments and increasingly are viewed as providing less value than those in competition regions. Enrolment is down in a number of faculties as students vote with their feet and choose other university destinations.

Public funding of universities needs to increase to bridge capabilities in research and development, networked dorms, laboratories and technical centers of excellence. At the same time, tuition costs will need to be kept in check to avoid the prospect that students looking for value and firms seeking specialized skills are not motivated to look elsewhere.

Business leaders today agree that innovation requires collaboration and vigorous networks of ideas, technical competence and expertise. The New Brunswick region performs acceptably well when collaborating among businesses and between government and the private sector. It is less successful fostering networks that extend beyond the Maritime region where many New Brunswickers are clearly outside their comfort zones. Reinforcing success must become a priority.

It has become a truism to say that New Brunswick does not possess a distinctive brand. Although government has made several attempts to communicate a comprehensive value proposition to potential investors, New Brunswick businesspeople are uncertain what to communicate outside the province. The result has been less foreign direct investment than most of its counterparts across Canada.

One of the most profound challenges facing New Brunswick today is attracting and retaining individuals with the skills that are employees need and which are critical to economic stability and growth. New Brunswick is facing a potential population decline and the demographic trends are not favorable to the province. Some workers who are in greatest demand are migrating to high-wage regions in Canada leading to shortages in New Brunswick. The province has experienced difficulty adding immigrants to increase the population of the province in part because job prospects are notably better in other provinces.

To continue as we are will mean that New Brunswick cannot prosper in comparison with other regions. The task is intimidating but it is not too late. We can start by comparing New Brunswick with other competing jurisdictions and understanding their successful strategies. A significant challenge will be getting the private sector to support the necessary investment and action that need to be taken today.

The Future Of Education Is More Than Technology

Published in the Telegraph-Journal 16th April 2012

In 1968, the Ontario Provincial Committee of Aims and Objectives of Education in the Schools of Ontario submitted its report, Living and Learning, to the legislature. Better known as the Hall-Dennis Report, it denounced Ontario’s regimentation of schools and classroom practices and called for the wholesale reform of the education system.

The report advocated an individualized program of instruction for the development of the potential of the child, the removal of corporal punishment, and the curbing of competition in the classroom and rote learning. According to Hall-Dennis, schools should be “viewed as a place of personal growth and development based on a learning process of self-discovery.” They called for replacement of rigid expectations, segregated grades and subjects with a system of education revolving around the individual needs of the student, with a minimum of supervision and guidance.

The report also highlighted the need for schools to respond to the unique demands of a fast-changing urban-technological society and the initial excitement generated by the report resulted in experiments such as team teaching and the heavy use of audio-visual instruction. It was not long before complaints began to accumulate about functional illiteracy and lack of readiness for the discipline of the work place or post-secondary education.

Almost 45 years later, the impact of the Hall-Dennis Report still resonates, not only in Ontario but across Canada. And questions about the purpose of education are still on the minds of teachers, parents and students.

With persistently high rates of illiteracy, some parents feel that the school system has abandoned its responsibilities. Their frustration is made more understandable since for decades parents were told that, unlike professionals, they lacked the expertise required to educate their own children.

Teachers are also frustrated. They are told that the knowledge and understanding they have acquired from years of classroom experience is not equal to the task of preparing students for the work world or post-secondary education. Critics claim that the knowledge teachers received in their training is being dismissed as anachronistic in light of the ever-changing demands of the market.

The Hall-Dennis Report placed a spotlight on the need for schools to make greater efforts to impart social skills to help students deal with their problems. If necessary, social skills would take priority even over a basic education. But there can be no essential conflict between good education and good citizenship; one cannot exist in the absence of the other. Students who are not able to clarify their interests and to articulate their responses to the world in the light of reason, history and the expanse of human experience and thought are not likely to become informed, thoughtful citizens or innovative and productive workers.

Commerce was never at the core of the traditional liberal education. Instead, it was the duty of the teacher to cultivate those capacities and skills which would prepare a student to carry the obligation of citizenship and to begin the exploration of the intellectual and spiritual life.

We need in Canada today a fundamental debate over the intellectual and moral objectives of our children’s education. This debate cannot be distilled to conventional policy discussions over methodologies of teaching or the constraints of funding. Important as these are in context, when they are allowed to define the parameters of the debate, these policy options foster the impression that there is disagreement only over fairly narrow technical issues which could resolved by further empirical study. This is most emphatically not the case today.

On the face of it, a liberal education model harkens back to an earlier time. But it is instead fundamentally in harmony with the views of education emerging from Canada’s growing number of parents, teachers and students who are dissatisfied with the educational establishment.

Universities are the Lifeblood of Innovation

Published in the Telegraph-Journal 13th April 2012

The effectiveness of university-industry research and development (R&D) partnerships is at the core of the drive to supercharge Canada’s innovation engine. There is incontrovertible evidence that this push is built on substantial success. Countless university-industry partnerships have supported the successful commercialization of university research. They have resulted in the creation of many competitive spin-off companies, the development of innovative product and service portfolios for existing firms and the generation of thousands of jobs in industries across the entire spectrum of economic activity. It is not an overstatement to say that in Canada university research has been a cornerstone of innovation in every growth industry over the last 60 years.

That is not to say that universities are without their critics. Those industries that rely on university research complain that the processes of technology transfer, commercialization and invention management are fundamentally flawed by universities’ insufficient attention to the need for rapid progress in making innovation marketable.

Governments fund universities without setting their explicit research objectives and universities are left to determine their own research agenda, generally autonomously at the level of individual departments. There has been criticism of this approach by some in industry who would prefer that universities focus on practical research and that government provide guidance to that end. Industry lobbyists increasingly are pressuring government to support economic growth and job creation by encouraging universities to shorten their research timelines to reflect the near term by shifting their focus – and funding – from basic to practical research and commercialization.

This presents a profound challenge to universities. It is with basic research where breakthrough discoveries and technologies are most likely to occur, although if they are frequently distantly removed from being commercial products. It is precisely because the lead time to generate marketable products is often so long that many firms in the private sector effectively have abandoned basic research. From manufacturing to mining to the life sciences industry, industry has dramatically downsized its investments in basic research in favour of collaborating with universities.

The immediate beneficiaries of technology transfer and commercialization is the university itself rather than industry. This is counterintuitive and may appear unproductive to the private sector. However, it may require many years for university basic research to translate into viable inventions and even longer for inventions to reach the market. Even successful, patentable discoveries are not likely to achieve a significant return on investment in the short term. If university researchers capitulate to the demands of industry to trade long term basic research for a focus on developing practical inventions, commercialization may only involve picking the lowest hanging fruit. Long shot breakthrough innovations in industries such as biotechnology will be less attractive if decades are required for commercial products to reach the marketing stage. Under the pressure of short term results, and without the benefit of hindsight, the most promising research may never be undertaken at all.

In the race to capture the benefits of innovation, the rest of the world is not standing still. China has redoubled its effort to increase basic research funding although it is too early to determine the results of this investment, or even its trajectory. Other nations are making ambitious investments in R&D, reflecting the recognition that the critical function of basic research should not be placed at risk, even if there appears no immediate practical application of that research.

None of this is to suggest that a focus on the commercialization of innovation should not be better funded or that universities should not support industry by engineering a more efficient and productive technology management and commercialization platform. But as other nations are discovering, and as Canada’s record has already demonstrated, successful university innovation involves focusing on basic research while effectively supporting commercialization, not substituting the former for the latter.