Category Archives: Job creation

We Need to be Ready for Immigration in New Brunswick

Shanghai Times Square, and bus 926

Published in the Telegraph-Journal 7th May 2013

The shortage of skilled labour in the Alberta oil sands has become a vexing issue that today is emblematic of our thinking about how Canada can maintain its prosperity in the 21st century. A similar lack of labour exists across the country. The Conference Board of Canada has forecast that within 10 years, there will be a shortage of more than a million workers across Canada. This shortage is a serious risk to our potential to compete into the future.

In Atlantic Canada, a third of the population will be over 65 in less than two decades. In the absence of Atlantic Canadians suddenly having radically larger families, the region will need to dramatically increase its immigration levels in order to compensate for the steady out-migration that continues to characterize the region. Even promising growth in some industries, in ship building in Nova Scotia and oil and gas finds in Newfoundland and Labrador, has not stemmed the flow of young people from the Atlantic provinces to the West.

For New Brunswick, the great challenge for the 21st century will be to find and attract the people we need to rebuild our economy and way of life. To achieve this, we will need to provide immigrants with real opportunities. We will need to embrace the ways they will reshape this province and integrate them into our communities.

The solution would appear straightforward enough: simply open New Brunswick’s borders to immigrants and wait for people from other countries to populate the province. The reality is more complex.

To grow our population and maintain our standard of living, we will need to welcome thousands of immigrants, a far larger number than are attracted to the province today. To compete with the magnetic pull of cities such as Toronto, Montreal, Calgary and Vancouver, New Brunswick communities must grow substantially and sustainably. Immigration is not a panacea, but ignoring immigration and its attendant diversity, as well as its beneficial effects on trade, innovation and international networks, is not an option. We need to realize that an essential and defining part of New Brunswick’s identity and brand must be that the province is recognized as an open and welcoming society.

Enormous transformation will be necessary for New Brunswick to achieve economic success in the near and medium term. Radical alterations in immigration policy — and the dramatic demographic changes that will be brought about by the large-scale arrival of immigrants to this province — will not come without wrenching dislocation.

In her 1961 classic, The Death and Life of Great American Cities, urban activist Jane Jacobs argued that “economic development, no matter when or where it occurs, is profoundly subversive of the status quo.” This is a succinct explanation for the failure of many policies and programs that generate and support economic development and why they are not implemented. New rules of the game can be an inherent threat to those that benefit from the status quo.

This argument has it that the real preference of those with entrenched influence in many cases is the maintenance of the status quo rather than disruptive economic development. It is also an explanation for why there is so much public obsessing over labour shortages, lack of innovation and shortfalls in investment, but relatively less discussion of the more radical approach that substantial increases of immigration would represent.

Currently, the issue is largely moot. While the imperative to stabilize New Brunswick’s population is real enough, there are substantial challenges associated with keeping immigrants in this province. Attracting skilled workers is one obstacle to be overcome but retaining them is another. New Brunswick first needs to be viewed by the world not as a second-class destination but as a place of opportunity equal to Ontario, Alberta and Saskatchewan.

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Filed under Immigration, Innovation, Job creation, Unemployment

Troubling Signs on the Economic Horizon

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Published in the Telegraph-Journal 3rd May 2013

We didn’t need to review the data to know that the New Brunswick economy has not fared well in recent years. The combined effects of the decline of traditional industries such as the forestry, weakened U.S. markets in the wake of the 2007-2009 financial crisis and cutbacks in government-sponsored construction have resulted in low or no growth across the province.

The output numbers tell part of the story. The province saw GDP fall by 0.6 per cent in 2012 after increasing only 0.2 per cent in 2011. According to Statistics Canada, goods-producing industries fell 3.6 per cent with declines in construction, mining and the energy sector, while manufacturing declined 1.6 per cent. Services output barely rose at 0.4 per cent in 2012 with marginal gains in finance, insurance and real estate services.

Unemployment has maintained a persistently high level and sits at more than 20 per cent in much of the province outside the three cities in the south. Despite the efforts by the Alward government to reduce its costs, the fiscal deficit continues to grow as does the net debt. The latter has climbed to more than $10 billion.

The U.S. is New Brunswick’s most important export trading partner. A particular concern continues to be the American economy which has effectively stalled since the financial crisis.

On the face of it, an American economic recovery seems to be well underway. The U.S. GDP expanded at 2.5 per cent on an annualized basis in the first quarter of 2013, following marginal growth for the previous three-month period. But even this apparently positive figure masks other more disturbing signs that an economy whose recovery has not matched the pace of past expansions could now be facing a deceleration in its own modest growth rate.

In fact, adjusted for those changes due to temporary fluctuations in inventories maintained by corporations, the U.S. economy’s annualized growth rate shows a steady deceleration over the past three quarters, falling from 2.4 per cent to 1.9 per cent to 1.5 per cent. Other economic measures, from retail sales to the index of leading economic indicators, exhibit symptoms of fragility or even outright declines. The alarm has been sounded by numerous investors who are now concerned that the U.S. has entered yet another spring slowdown.

It is possible that the U.S. economy is merely in transition. But this time may be different. First, after adjustment for inflation, wage compensation hasn’t increased since 2010 and in the absence of higher incomes, consumers have been reluctant to increase their purchasing to pre-recession levels, even with record-low interest rates.

The weakened EU economies have made it much more difficult for the U.S. to increase growth by boosting exports. Today export sales are barely growing, and sales to Europe’s hardest-hit economies have actually declined.

In the interim, Washington’s dysfunctional politics has resulted in numerous unproductive policy moves, instead of the reforms that are sorely needed. And while the U.S. federal deficit has been significantly reduced, the sudden contraction in growth will serve to slow the economy even further, reducing growth in America’s economic output this year by as much as 1.5 per cent. That loss in economic activity will equate to 1.5 million fewer jobs.

In spite of the weaknesses in global economies, the New Brunswick government has admitted its spending cuts and the lack of major infrastructure projects on the horizon will impede economic growth in the province.

“Reduced levels of public sector capital spending along with the absence of any new major projects in the private sector will limit the contribution of capital investment to economic growth. As well, fiscal consolidation at all levels of government will serve to weaken overall economic growth.” Mr. Higgs said.

In the circumstances, it is critical for the government to revisit its commitment to what has become a counterproductive push for austerity. The New Brunswick economy shows little capacity for sustainable growth in the short term. It is necessary now to ensure that the capacity of the economy to recover in the medium term is not jeopardized.

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Filed under Austerity, Fiscal Policy, Job creation, New Brunswick, U.S.Economy, Unemployment

Start-ups Are the Key to Our Future

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Published in the Telegraph-Journal 19th April 2013

In a province where traditional industries have been in decline, substantial reliance has been placed on new business formation to support New Brunswick‘s economic growth. But entrepreneurship has always been a risky proposition. Whether launching a tech start-up, a small business, or an initiative within a large corporation, the odds are overwhelmingly against the entrepreneur. Harvard Business School researchers have recently estimated that more than 75 per cent of all start-ups fail.

For decades, business founders had been taught that success involves writing a business plan, pitching it to investors, assembling a team, introducing a product and selling it as aggressively as possible. This is the conventional approach and prevailing wisdom of business schools, government economic development agencies, financial institutions and investors.

But recently an new methodology has called into question the logic of business planning and discarded much of what we thought we knew about the process of starting a company. Called the “lean start-up“, this new methodology favours “experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development“.

One of the forces behind this new methodology is Steve Blank, a consulting associate professor at Stanford University, National Science Foundation principal investigator at the University of California at Berkeley and Columbia University and extremely successful founder of numerous high-tech start-ups.

Blank holds that business plans are one of the fundamental reasons why failure rates among start-ups are so high. The traditional business plan typically includes a five-year forecast for income, profits and cash flow. The assumption behind writing a business plan is that it is possible to figure out most of the unknowns of a business in advance, before funding is raised and the idea is actually executed.

According to Blank, “no one besides venture capitalists and the late Soviet Union requires five-year plans to forecast complete unknowns. These plans are generally fiction, and dreaming them up is almost always a waste of time.”

Conventional business plans contribute to the likelihood that entrepreneurs who can convince investors to fund them then begin to build the product in isolation from their markets, with little if any customer input. Too often, after months or even years of development, entrepreneurs learn the hard way that customers neither need nor want most of the product’s features. And in today’s fast-moving markets, even good ideas can be made obsolete very quickly.

Blank concedes that business success is predicated on too many factors for one methodology to virtually guarantee that any single start-up will be a winner. But on the basis of hundreds of start-ups, in university programs that teach lean principles, the more important claim can be made that using lean methods across a portfolio of start-ups will result in significantly fewer failures than using traditional methods. In the last five years alone, more than three dozen universities have begun to incorporate the lean start-up methodology in their program portfolios, with immediate and documented success.

A lower start-up failure rate would have profound economic consequences in New Brunswick. The province’s economy increasingly is being buffeted by the forces of globalization and disruption. Its traditional industries are rapidly losing jobs, many of which will never return. To ensure economic viability in the long term, the province must rely on successful entrepreneurship. The growth of jobs across the province will need to come from new ventures, and all New Brunswickers have a vested interest in fostering an environment that helps them succeed, grow and hire more workers. The rapid expansion of start-ups is critical to supporting the transformation to an innovation economy. Universities, government, financial institutions and investors each have a key role to play.

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Filed under Business strategy, Education, Innovation strategy, Job creation, New Brunswick, Universities

Have We Started to Consider the End of Outsourcing?

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Published in the Telegraph-Journal 7th December 2012

In recent interviews with business media, Apple revealed that it will begin to manufacture computers in the United States for the first time in years. “Next year we’re going to bring some production to the U.S.,” said Apple CEO Timothy Cook. This announcement comes on the heels of decisions made by companies such as General Electric which are moving some of their manufacturing operations back the U.S. after years of outsourcing their production offshore to countries such as China and India.

Reversing the offshoring trend —insourcing— to bring manufacturing back to the U.S. addresses a number of challenges: transportation is simplified and less expensive, intellectual property is more easily protected and costs can be managed with greater transparency closer to home. Companies are better able to manage innovation and productivity because they are more involved in the key elements of production. But these developments don’t mean that the era of outsourcing to offshore locations is over. Nor does it mean that jobs that have been offshored are coming back to North America in large numbers.

Many offshore outsourcing decisions were based on the single determinant of dramatically less expensive labour. In many cases, offshore labour was so cheap—fifty cents an hour against as much as $20 an hour in North America—that it compensated for higher costs and risks in other areas. Labour arbitrage may have been a determining factor for many firms seeking to reduce costs, but there are other advantages to countries such as India and China. Offshore labour generally lacked troublesome unions, and safety and environmental conditions tended to be less onerous than in the West.

There is another reason that many U.S. companies are reconsidering their commitments to offshore production. Any one of four critical risks can torpedo an outsourcing relationship: economic fundamentals, behaviour, execution and relationship management. Reviews of outsourcing relationships increasingly reveal that many were not well managed. Relationships frequently lacked common, shared metrics which then led to disagreements about quality. Overlapping operational and contract management roles contributed to interpretations of metrics that were overly dependent on management of the day. With no agreed objective measurement of performance, misunderstandings about success were often difficult to avoid. Maintaining an effective outsourcing relationship requires conscious ongoing investment of management expertise as well as financial. Since the rationale for offshoring was cost cutting, some firms were unwilling to contribute to that investment. Poor economic fundamentals often were unresolved.

Changes in the global economy have caused many firms that had been committed to offshoring to reconsider their options. The cost of fuel is one of those key changes. Shipping cargo is much more expensive than even ten years ago as oil prices have tripled. The cost of wages in China has increased exponentially and is forecast to rise at more than 15 per cent per year in the medium term. In the U.S., labour unions have become more compliant if not more acquiescent in the wake of the 2007-2008 financial crisis. Unions are more agreeable to making deals that reduce the costs of wages and benefits to corporations. Productivity has increased substantially in the U.S. largely as a consequence of robotics, computerized inventory control, voice recognition and online commerce. This trend has accelerated during the current recession with the result that productivity increases have compensated for higher labour costs. Labour has become a smaller proportion of the total cost of finished goods.

There is a dawning realization in many U.S. firms that management failures have been chiefly responsible for the reversal of commitment to offshoring and outsourcing of all kinds as the economics have changed in favour of bringing jobs back. Although much of American manufacturing many never return, the rebirth of even a portion of manufacturing will require a rethinking of the critical role of management to the survival of the firm.

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Filed under Economics, Foreign Direct Investment, Innovation strategy, Job creation, Labor force management, Offshoring

Job Creation is a Two-Part Challenge

Published in the Telegraph-Journal 2nd November 2012

It has been five years since the financial crisis began to unfold. The global economy has yet to recover and governments in Europe continue to fail. People in countries around the world have been asking where jobs and growth will come from. They are losing patience as the political solutions that appear to have worked in the past seem to be wholly inadequate to the task. The revolution may not yet have come to politics, but it may already have arrived in economics.

Political leaders could once have counted on government to kick-start the economy into growth. Tax reform and investments in education, roads and infrastructure arguably are good ideas and are necessary. But these measures in themselves will not resolve the deepest and most intractable unemployment problem that the world has faced since the Great Depression of the 1930s.

In Brussels, a recent European Union summit on growth and jobs featured an agenda focused on familiar public policy goals:  infrastructure investment, broadening the single market, promoting research and innovation, enhancing manufacturing competitiveness, establishing the correct regulatory framework, developing a tax policy for growth and harnessing the potential for trade. The summit also featured a special discussion spotlighting potential measures to boost employment and social inclusion and adopting initiatives to tackle youth unemployment.

These are praiseworthy goals, as are Obama’s job growth objectives in the run-up to the November elections, but these goals and objectives reflect policies that Europe and the U.S. have been attempting to implement for the past four years. In that period, European unemployment has risen steadily and the U.S. economy remains mired in uncertainty and flat growth. Why should government fiscal stimulus suddenly address the anxiety over the need for jobs when it apparently has failed to do so for more than four years?

The answer for fiscal conservatives is that the failure of the economy to respond adequately to fiscal stimulus, mostly in the form of various quantitative easing measures, is a clear indication that even the concept of government intervention has been a failure.

The reality is that there are two separate foundations for economic growth and job creation. New job creation and economic activity depends largely on the private sector where the key role of government is deregulation and public expenditure reduction. It is still not clear how much government policy can do to inspire the creation of the Next Big Thing, even under ideal conditions.

Restoring jobs lost by firms in industries that have lost their global competitiveness is important as creating new jobs in new industries. In Canada, some of the firms that have experienced challenges in recent years are in the natural resources sector where a combination of factors — foreign competitors’ lower costs, foreign government subsidies and a Canadian dollar that recently has risen in value from 65 cents — has conspired to place real pressures on many of these companies.

Since 2008, more jobs have been lost in manufacturing and other traditional industries. These jobs did not disappear because of inadequate corporate strategies, poor planning or lack of financial controls. They vanished primarily because of weakened housing demand in the U.S., a collapse in consumer incomes, falling asset prices and other elements of macroeconomic instability and disruption. These jobs will not return because of deregulation and government cost-cutting.

While job creation is associated with deregulation, job recovery depends on the supportive actions of government and jobs may not return to the same companies or even the same industries. The purpose of macroeconomic stimulus is to pull the economy out of recession and preserve jobs in existing industries, which in turn helps to strengthen new businesses. While the economy remains weak, excessive reductions in government spending will serve only to deprive new business of revenues. For government to receive support for public policy, the public must be aware of these apparent contradictions.

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Filed under Globalization, Job creation, Uncategorized

Prosperity Not Coming From Public Sector

By Peter Lindfield, published in the Telegraph-Journal 31st August 2012

Since Premier Alward took office, provincial government expenditures have fallen and only a relatively small number of private sector jobs have been created. The province’s economy is forecast to grow at less than 2 per cent in the near term. One immediate response to this outlook is that it is the responsibility of the private sector to create jobs. That these jobs have not materialized points to the shortcomings of New Brunswick industry and the causes offered for these shortcomings have ranged from low productivity growth, an excessive reliance on U.S. markets, to a pervasive lack of competitiveness in some sectors. Some have responded to the problem of slow growth and unemployment by suggesting that government needs to do more to create jobs. The argument is that we need only to bolster the number of workers in the public sector to have a healthier economy.

A key theme of this argument is that the provincial government should create an infrastructure investment program, contract the private sector to rebuild New Brunswick’s highways, bridges and municipal water and sewage systems in order to supercharge economic growth and create jobs indirectly. This expansion of New Brunswick’s balance sheet would create opportunities to hire workers and buy products and services from other New Brunswick companies and quickly restore private sector confidence. Newly employed workers would spend their wages in communities that would otherwise be economically depressed and the confidence of New Brunswick retailers would benefit from the suddenly increased purchasing power of these workers.

This Keynesian solution has been met with some success when applied by Canada’s federal government. And it can be argued that direct government investment in conjunction with quantitative easing is what saved the U.S. from economic disaster in the wake of the 207-2009 financial crisis.

But there are severe limits on the ability of the New Brunswick government to leverage this solution, for a number of reasons.

First, the New Brunswick economy has hit a borrowing wall, partly as a consequence of its heavy government debt. Increasing deficits at a time when interest payments continue to escalate – carrying charges on the debt are currently at $600 million and rising – is a solution certain to raise the eyebrows of credit ratings agencies. These agencies already have downgraded New Brunswick’s credit worthiness over concern about its tax-supported debt and the cost implications of the province’s long-term demographic trends. This downgrading prompted Finance Minister Blaine Higgs to say that, “years of overspending are continuing to hurt New Brunswick’s future.” The prospect that his government would support economic growth in New Brunswick with government expenditures alone is remote indeed.

Second, New Brunswickers have lost confidence in the social returns of government jobs and our ability to afford them. This loss of confidence has coincided with demands for expenditure reductions, and government employment has been chosen as a target. If government engaged in macroeconomic expansion without any other significant and confidence-restoring transformation, prosperity may still not be assured. Engineering government spending would only bring demands to make offsetting cuts elsewhere with a consequent loss of jobs associated with those cuts.

Government policymakers can no longer address this problem through fiscal stimulus because even these policies would be likely to underperform in part since, to the majority of the public, they will not be confidence building. In fact, fiscal stimulus increasingly has been viewed primarily as a benefit to elites.

We have become skeptical of government’s abilities to act alone to create prosperity. In turn, that skepticism has made successful policy more difficult to engineer. The critical challenge is lack of trust in the authority of government solutions. The way out of this dilemma is for trust to return over time, both in government and the private sector. New Brunswickers will then spend and invest, bolstering both aggregate demand and supply in both private and public sectors. But because trust is more easily destroyed than restored, this will take time, an increasingly valuable commodity in this province.

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Filed under Fiscal Policy, Job creation, New Brunswick

More Trouble in the U.S. Economy

By Peter Lindfield, published in the Telegraph-Journal 31st July 2012

Last week’s numbers confirmed what many economists and analysts had feared for the last three months—the U.S. economy is slowing down. Gross domestic product (GDP) for the second quarter grew only 1.5 per cent, down from 1.9 per cent during the first quarter of 2012. These postings were down from 4 per cent at the close of 2011. Even so, growth in the second quarter was actually greater than many had forecast.

According to the U.S. Department of Commerce (DoC), GDP, which accounts for the value of all goods and services produced, rose at a 1.5 per cent annual rate after a 2 per cent gain in the previous quarter. Household purchases, which account for about 70 per cent of GDP, grew at the slowest pace in a year. The DoC reported that in the first 12 months of the recovery which began in June 2009, the economy grew by just 2.5 per cent, not the 3.3 percent that was earlier forecast. That is inconsistent with the known history of economic cycles that states the deeper the downturn, the higher the bounce. According to this model, recoveries start aggressively with a bang, especially when so much fiscal and monetary stimulus has been injected into the system.

There’s no doubt that the coming November elections, Europe’s debt crisis, and the so-called fiscal cliff threaten to keep what has been a fragile expansion from taking hold. The fiscal cliff represents more than $600 billion in pending U.S. tax changes, reductions in defense and other government programs that will take effect automatically without any action by U.S. lawmakers. These complex dynamics have already adversely affecting retail, wholesale and commercial sales across the economy. The impact of uncertainty has been to constrain the willingness of business to make important decisions such as hiring new employees, making capital investments and restocking inventories.

Federal Reserve chairman Ben Bernanke is scheduled to meet with policymakers next week to discuss whether further measures will be required to boost growth and drive down an unemployment rate that has remained above 8 per cent for more than three years. Speaking to Congress, Bernanke had declared that the Fed was prepared to take further action in response to “economic activity (which) appears to have decelerated somewhat during the first half of this year.”

Mario Draghi, president of the European Central Bank (ECB), has stated that the ECB “is ready to do whatever it takes to preserve the euro.” But the European Union is now on life support and no-one is taking bets on its survival. Without unconditional support from Germany, the EU may still be a political, economic and social experiment that failed to catch on.

Against this backdrop, it is surprising that such significant disagreements continue among policymakers and economists on the issue of economic activism, as represented by the 2009 $814 billion program of fiscal stimulus, housing and  automotive subsidies and numerous other regulatory interventions. That there is still disagreement about whether activist government support was even necessary in the immediate aftermath of the 2007-2009 crisis is unfathomable. The U.S. Treasury’s equity support of banks through the Troubled Asset Relief Program, and the Federal Reserve’s support of commercial paper market and money market mutual funds may have been the only factors to slow the free-fall. It is astounding that there should exist such patent unwillingness among some policymakers and economists to concede that government saved the world from sliding into an economic abyss worse than the Great Depression.

Now, as the recovery continues to fade in the U.S., many are asking whether it ever really had caught hold. It is a reasonable question for the more than 12 million people unemployed in the U.S. contemplating the difference between slow growth and no growth.

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Filed under Economics, Fiscal Policy, Job creation, U.S. Election 2012