By Peter Lindfield, published in the Telegraph-Journal 29th May 2012
In his story of politics in New Brunswick, Front Benches & Back Rooms, historian Arthur T. Doyle recounts how from 1825 until about 1875 the shipbuilding and lumber industries of Saint John and a dozen other communities “were at their zenith” and that New Brunswick and the port of Saint John “were on the economic map of the world.”
But within a few short years, the province’s economy began to unravel. The shipbuilding industry had changed from making wooden ships to steel at the same time that a worldwide depression caused the collapse of markets for lumber products. “Shipyards, sawmills and factories closed one after another and the economy entered a long, long winter,” wrote Doyle.
Apart from a brief respite in the post-Second World War era when the forestry boom saw many thousands employed on the rivers and in the mills, New Brunswick has underperformed since the turn of the 20th century.
If New Brunswick is to restore its economic dynamism, it will have to do so in the same way as the U.S. did in its post-1995 productivity revolution – by reforming its unproductive industries. The key to the U.S. productivity transformation was not the rise of the so-called new economy industries, but comprehensive and relentless reform in the old economy.
Under the pressure of withering competition – both international and domestic – old economy industries, such as retail, logistics and rust-belt manufacturing, adopted not only the new information technologies, but utilized older technologies that they had ignored for decades, such as numerically controlled machinery, optical scanners and quality process tools.
More competitive firms overtook and replaced older companies that could not or would not undergo necessary transformation. By contrast, New Brunswick has a very low rate of company turnover. Complicating matters, government investments figure so prominently in the balance sheet for some New Brunswick firms that politicians are disinclined to jeopardize the jobs that are associated with these companies by discontinuing support. Underperforming “zombie” companies can operate for years in this environment, blotting out the sun for more productive and innovative firms.
Today, structural reforms in government, which have been discussed for so long, are finally taking hold. Health care, education and government are the public-sector categories most in need of reform. There are enormous opportunities to improve productivity and because a substantial amount of New Brunswick’s revenues flow to these cost centres, productivity increases will significantly improve the fiscal picture.
These industries are backed by powerful groups with vested interests which either will promote reform if their interests are served or impede it if they are not. The key factor to the success of this reform is the willingness of the New Brunswick public to compromise.
Over the years, some in New Brunswick have been insistent that there is an elusive magic industry – “a game changer” – that will propel a rebound in the economy. In fact, there is no such magic industry, whether in manufacturing or services.
New Brunswick’s problem is not choosing the wrong industries, but substantial inefficiency across the board.
New Brunswick’s efforts to forestall the shift to a more productive economy have proved not only futile but harmful. In the effort to preserve jobs, New Brunswick has reinforced some of its most inefficient industries and effectively has instituted a policy of comparative disadvantage. Contrary to ambitions, New Brunswick is only efficient in a narrow segment of economic activity.
The underlying root of New Brunswick’s torpid performance is too little competition in the rest of the economy. Competition, including the ability of new players to displace entrenched incumbents, is the key to the much-needed leap in productivity. To succeed in the long term, New Brunswick should adopt as its reform slogan that without competition, there can be no competitiveness.