Category Archives: Business attraction

Research: Catalyst for Economic Growth

Published in the Telegraph-Journal 2nd October 2012

New Brunswick’s universities have been involved in much of the prosperity and growth in every industry in this province. There is a long history of university-industry partnerships that have supported the successful commercialization of university research as well as the creation of many competitive spin-off firms. The development of innovative products and services in existing companies and the generation of thousands of jobs in New Brunswick has been the hallmark of successful university collaboration with industry.

But in recent years, universities and scientific research centers have not been the catalysts for entrepreneurship and regional economic development in the way that similar and more successful institutions have in other regions. Even though there have been notable successes, New Brunswick’s university-industry collaboration is falling short. University and corporate business leaders need to more aggressively support start-up ventures and mid-size firms.

This represents a huge opportunity for New Brunswick.

There is a need to create new engines of job growth. As the demand for expertise and experience outpaces supply around the world, New Brunswick must take steps to increase its pool of talent. Other countries are already investing heavily in research and development. In Asia, R&D spending is forecast to overtake U.S. levels in the next five years, due primarily to remarkable growth in R&D investment in China.

In New Brunswick, the private sector may have limited capacity to create the jobs and prosperity needed to restore economic stability. The ability of the government to act as the generator of economic growth has become limited because of the province’s fiscal obligations. Essentially, the longer we wait, the more challenging the economic situation will become.

New Brunswick should follow the lead of New York City Mayor Michael Bloomberg to meet this challenge.

In 2011, Bloomberg and the New York City Economic Development Corporation announced that the city was seeking responses from universities, research organizations and related institutions to develop and manage an applied sciences research facility. The city’s objective was to strengthen its practical sciences capabilities in order to maintain a diverse and competitive economy, particularly in fields which lend themselves to commercialization and capture the considerable growth occurring within science, technology and research. Bloomberg committed the city to making a significant capital contribution in addition to providing city-owned land.

“A new, state-of-the-art applied sciences research school would be a major asset for New York City as we develop a 21st century innovation economy,” said Mayor Bloomberg. “The City is committed to finding the right partner and providing the support needed to establish such a facility because research in the fields of engineering, science and technology is creating the next generation of global business innovations that will propel our economy forward.”

A substantial applied sciences research centre with similar objectives of creating global business innovations is needed in New Brunswick, even if the financial commitment would be substantially less than the US$3 billion of New York City’s total expenditure. Rather than re-purposing New Brunswick’s current universities’ budgets to serve corporate objectives, creating additional world-class capacity to New Brunswick’s existing science and technology communities would allow the province to stay globally competitive. As with Bloomberg’s model, a substantial percentage of the costs will be carried by a consortium of collaborating universities, international applied science and technology organizations, as well as private sector partners.

This capacity would not only substantially enrich the province’s research capabilities, but would lead to greater commercialization and expand the province’s economy. While some of the development would be for academic use and would include teaching space and laboratory facilities, much of the focus would be on providing the business acumen needed to drive commercialization in startup and early stage firms.

We know that investing in innovation is the key to creating a robust and expanding economy. This initiative would be a strong demonstration of the province’s commitment to making these critical investments.

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Filed under Business attraction, Business strategy, Education, Entrepreneurship, Innovation strategy, New Brunswick, Universities

Four Ways to Promote Growth

By Peter Lindfield, published in the Telegraph-Journal 8th May 2012

New Brunswick’s current level of prosperity is below average in Canada. The jurisdictions competing against New Brunswick are winning more than their proportional share of business in most industries while our demographic profile is characterized by slow growth while a shortage of skilled labour is being used as a quick filter to dismiss investment in the province.  The challenge appears in many ways to be a vicious circle—without an adequate supply of skilled workers, industry will find growth difficult and slow growth is a disincentive for skilled workers to locate here.

To address these issues, the New Brunswick government has selected six key sectors where it will concentrate its efforts for future economic development: value-added wood, industrial fabrication, information and communications technologies, biosciences, aerospace and defence, and value-added food. Premier David Alward additionally underscored the importance of using innovative methods to develop natural resources to increase exports. While the marketplace will determine winners and losers, policymakers must make specific choices on where and how to invest.  One of the key questions is how much investment will New Brunswick need to support these target industries for the medium term. How much money is required for New Brunswick managers, investors, researchers and workers to invest in the time required to ensure results? The answer lies in determining what revenue sources can be dedicated to this extraordinary task.

One answer to this question is avoiding the crowding out of investment by instituting government expenditure management. For this reason, restructuring public expenditures is the most prominent of four growth promotion measures that can be undertaken by government. Each represents difficult but necessary decisions and posses their own element of risk.

A change to tax treatment is the second growth promotion measure. This takes two forms. One is tax reform involving the restructuring of the provincial tax system. Eliminating fiscal disincentives to hiring labour while rewriting the various tax schedules to encourage work, investment and innovation would provide real assistance. The second form is raising the Harmonized Sales Tax (HST) by two per cent at the earliest opportunity. Although there will be opposition to any tax increase, government would do less economic harm if the increase were tied to the simplification of New Brunswick’s tax codes. The strong upside of an HST increase is a revenue stream of $250 million per year.

Privatization offers the third growth avenue. A focus on privatizing commercial enterprises other than genuine public services would increase revenues. It would also promote economic efficiencies by creating organizations with management better attuned to market signals. Privatization further enhances growth by assisting in the finance of non-essential government services without burdening the productive side of the economy with additional taxes or fees.

Regulatory reform promises the fourth broad avenue. Of all obstacles to growth promotion, Atlantic Canada’s regulatory thicket notoriously has played a role in making each of its constituencies’ economies more inflexible and less dynamic. Antiquated labour laws, accompanied by rigid rules effectively have rendered regional labour markets unresponsive to economic signals. There is a broad recognition that labour market regulation has become a significant impediment to growth. Other regulatory interferences span the horizon from arcane licensing requirements to barriers to trade that actively discourage investment and business expansion. It is time for the Atlantic Provinces with the support of the state of Maine to revamp these rules.

A profound change has swept over government finance and it does not involve just a few bad quarters.  While the short-term prospects for the global economy remain uncertain, it is increasingly apparent that what lies ahead will involve a longer-lasting instability. In this setting, it is imperative that we make the best of our critical investments.

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Filed under Business attraction, Economics, Fiscal Policy, Government transformation, Innovation strategy, New Brunswick, Tax policy

The New Federal-Provincial Government Relations

Published in the Telegraph-Journal 2nd March 2012

Finance Minister Jim Flaherty insists that his government’s March 29th budget will feature jobs and growth alongside the expected belt-tightening measures that have been the hallmark of the Conservatives’ austerity drumbeat over the last year.

While it’s reasonable to assume that measures to foster and support growth will be included in the budget, we have already had a glimpse of the new federal-provincial relations governance model that provides the rationale for its future actions.

“We ran on a clear mandate to create jobs and growth, and to do that by making investments while at the same time making sure that our deficit falls and we return to balance,” Prime Minister Stephen Harper said, adding that “other governments will have to make their own decisions in their own context.”

The provincial context to which the Prime Minister is referring is without the involvement or even interest of the federal government. Harper’s vision of federal-provincial relations has come more clearly into view since his party received a majority last May. Recent actions include the federal government’s unilateral take-it-or-leave-it plans for health transfer payments to the provinces. Ottawa has committed to continue increasing health payments to the provinces at six per cent annually until 2017 after which the rate would be tied to economic growth and adjusted for inflation. That currently is estimated to be about four per cent but Flaherty has said that the rate would never fall below three per cent. Flaherty has said that every province has its own situation to deal with, and the federal government is being generous with its new plan.

Harper has given increasing attention to areas in federal jurisdiction, such as financial institutions, international trade and aboriginal affairs, while emphasizing that the federal government has no interest in provincial areas of responsibility. When asked whether there might be national ramifications to provincial jurisdiction, Harper responded that “we understand that obviously some of the administration of that is the responsibility of the provinces and territories, but we’re acting on a clear mandate of the people.”

This has significant implications for the future of New Brunswick. Federal transfers and equalization are most frequently and immediately brought forward as examples of how smaller provinces could lose out in the face of the new federal government drive to download responsibilities to provincial jurisdiction. The federal government line is that the authority to proceed down any path, unencumbered by federal constraints would give the provinces unlimited scope to design their own futures. Many will welcome the federal government’s retreat from the provinces’ business. They will emphasize the opportunities offered by the no-strings-attached funding that will accompany this devolvement.

They will also have discounted the profound role that the federal government has played in the economic development of each province. From the 1970s to the early 1990s, federal government organizations such as the Science Council of Canada and the National Advisory Board of Science and Technology undertook research into innovation systems, technology extension systems and the industrial policy that became world-renowned. The results of those studies emptied into the famed granting agencies that include the National Research Council that are now indispensable innovation and productivity growth engines. Academics at universities across the country prepared studies elaborating on specific regional experience. The blueprints created by these and other organizations were subsequently used to design and develop innovation-fostering zones in areas such as the Ontario Technology Triangle. In Atlantic Canada, the work of academics studying the importance of federal-provincial cooperation and collaboration resulted in the formation of the Atlantic Canada Opportunities Agency, the cornerstone of economic development for this region.

Each set of research findings underscored that government has a complex but critical role in the development of regional and provincial competitive advantage, involving support for both horizontal and vertical productivity-improving investment. Canada’s economic reality reinforces those findings.  We need a national dialogue on federal-provincial relations that emphasizes the future of competitiveness and prosperity for all Canadians.

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Filed under Business attraction, economic development, New Brunswick, Tax policy

Corporate income tax is not the critical investment factor claimed by the right

Published in the Telegraph-Journal 28th February 2012

More than 20 per cent of the capital delivered over a six year period by Business New Brunswick was contributed to companies that declared bankruptcy or ceased operations, according to the Canadian Press. The response by BNB Minister Paul Robichaud to news that about $150 million in repayable loans, loan guarantees, equity investments and grants was disbursed to companies that no longer are in business was that his department is going to improve the selection of future investments to increase BNB’s investment success rate.

University of Moncton academic Donald Savoie took the opportunity to advance his thesis that New Brunswick can no longer afford to subsidize business in this province. Because New Brunswick has a deficit it cannot sustain and federal transfers are almost certain to decline in future, “some tough decisions need to be made,” Savoie said.

To Savoie, one of these tough decisions should result in the elimination of economic development agencies such as Business New Brunswick in favor of promoting New Brunswick’s per cent corporate income tax rate which at 10 per cent is tied with British Columbia and Alberta for the lowest in Canada.

What assumptions underpin this solution and do they hold water?

The first assumption is that the corporate income tax is the critical or most powerful factor in business investment decisions. In fact, business investment decisions do consider tax impact as well as labour, management and infrastructure as part of a cost evaluation strategy. But investment evaluation criteria also involve other key factors: the availability and cost of real estate and physical structures; the quality of information technology infrastructure including the presence of technology vendors, bandwidth scalability, last mile reliability and coverage and the cost of redundancy; the availability and reliability of power, water, gas and other utilities; availability and provision of basic services and the cost of living; and the quality of public and private transportation. Of critical importance are human resources factors such as the size, availability and education and experience characteristics of the workforce, labor costs and soft issues related to work performance and attitude. When considered together, tax policy is only one factor among many for businesses to consider. Those jurisdictions that have chosen lowest tax as their sole business investment attraction feature have, without exception, never possessed any lasting competitiveness advantage.

The second assumption is that government has little or no role to play in determining regional competitiveness or prosperity. But key advantages such as receptive and collaborative government policies involving competitive incentives and subsidies are often an important component of location decisions when firms consider their investment options. Today, government is heavily involved in virtually every business location success story whether through the provision of workforce training, support for innovation networks or the development of technology parks. Whether analyzing business successes in Finland, Ireland, France or Silicon Valley, government has been prominently involved in providing the physical and in some cases intellectual infrastructure that underpinned their success. Closer to home, the achievements of Ontario’s Technology Triangle, the emergence of burgeoning health care and biotech clusters in London, Hamilton and Toronto and the surging oil and gas centers in Calgary all have government inducements, incentives and subsidies at their core.

The profound challenge for government is to ensure that it does not contribute to distortions in markets at the same time that it ensures that public investments are transparent and accountable. But every successful business area in the world has an organization with BNB’s mandate at its core. The government needs to ensure that it engages the mechanisms to make that BNB and others in its orbit operate effectively and efficiently. If relying on corporate income tax as the sole inducement for business investment has any chance of working, it is incumbent on its proponents and supporters to prove evidence that it represents a desirable solution with measurable benefits to New Brunswickers.

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Filed under Business attraction, Business strategy, economic development, Tax policy