Time for a Provincial Economic Strategy

By Peter Lindfield, published in the Telegraph-Journal 25th May 2012

The New Brunswick government recently announced the framework for its economic strategy focused on innovation. Economic growth and prosperity plans are a government stock in trade, so it would be easy to dismiss the most recent version as simply more of the same.

That would be a mistake. The government’s Strategies for Innovation: A framework for accelerating the Province of New Brunswick is a valuable contribution to the conversation we need to have to address the problem of our faltering economy.

Prompted by the unprecedented efforts of policy-makers in the U.S. and the European Union (EU) to stabilize the global financial system, which required the injection of liquidity to loosen credit markets and restore credit flows, it looked as though the world economy had turned the corner, even if unemployment continued to hover at recession levels. The global economy was slowly transitioning from recession to recovery.

With the continued instability of the euro zone, policy-makers are facing the practical implications of the contradictions between fiscal austerity – if only in name – and the necessity for a renewed and massive fiscal stimulus to bring the world’s economy back from the brink.

This global instability has played havoc with New Brunswick’s economic security. In the U.S., manufacturing and housing construction continues to be weak, and the impact in this province has been substantial. Although there continues to be optimism that each next quarter will bring encouraging news, there is no consensus when this weak demand will turn around.

Major economic contractions historically have been followed by robust economic expansions, but in New Brunswick we can’t wait for the eventual economic recovery. We are beginning to see that the pace of renewed activity will be substantially slower this time around, reflecting not only the damage caused by the financial crisis but also the structural changes that have been underway for some time. These changes most notably involve the dramatic restructuring of manufacturing in developed countries and the increasing shift of global economic activity from developed economies to emerging-market nations.

There are limits to the ability of New Brunswick’s traditional economy to sustain growth and prosperity. What’s needed is another economy based on innovation while maintaining support for and continuing to grow our commodity industries.

The key challenge is how to accomplish that. In the past, targeted investment efforts led by government tended to focus on a specific promising industry. Support was provided in the form of subsidies, tax concessions and direct investments. There is widespread agreement today that this has been a challenging path in New Brunswick. Governments everywhere are not well equipped to identify the right industries. Governments cannot easily define those incentive structures that do not produce distortions. And governments have a poor record of supporting an effective path out of the initial startup phase. It is not surprising that there is little enthusiasm for government choosing winners and losers.

The New Brunswick government’s innovation strategy recognizes that government is most productive when it supports a broad set of values involving targeting R&D growth, co-ordinating government and private-sector investment, promoting work force development and removing restrictions on innovation and risk taking. While everyone knows that creating those values require substantial collaboration among industry, academia and government, this collaboration is still conspicuously absent in most industries.

A number of global trends present significant new opportunities for New Brunswick businesses: growing populations and rising prosperity in developing nations, steady increases in health-care expenditures in Canada and the U.S. and the proliferation of international supply chains. We have a historic opportunity to act while the world catches its breath, but the window of opportunity will soon begin to close. The government’s innovation agenda is an indispensable step forward.

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Filed under Economics, Innovation strategy, New Brunswick

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