All economic development is local

Tip O'Neill, a former Speaker of the U.S. House of Representatives, is said to have coined the phrase "all politics is local" although apparently Wikipedia folks now dispute this.

A few years ago, I built on that phrase to conclude that “all economic development is local”. This doesn’t mean that there are no provincial or national benefits from economic development but that most benefits accrue in a local economic area. We have lots of data to confirm this.

I think it is helpful to whip out this old saw in our current time as we talk about projects in the national interest or Atlantic Provinces collaboration or other grand notions. “A win for community x is a win for us all!” seems to be a common refrain these days.

When I was Chief Economist at GNB I used to sit beside a politician from the Acadian Peninsula during cabinet meetings and he leaned over to me one day and said “every time we announce a new economic development investment in Moncton, I lose a few votes in my riding”.

I sympathized with him, and this is why I have hardened my view that every region in New Brunswick (or Canada) should make a good faith effort at economic development. Not all places have the same assets and attributes - and therefore cannot be expected to grow at the same rate - but all should leverage what they have to try and foster a strong economy, and provincial and federal supports should be in place to support those efforts.

IMO, this is how we avoid the north of England or the Appalachia effects that have given rise to populists, anti-immigration, anti-trade and anti-Klaus Schwab.

We have a pretty good idea that making trade flow better between provinces will benefit the national economy. We might even be better positioned to reduce our reliance on U.S. imports. But it seems to me there will be winners and losers from freer trade. As I have pointed out before, there are many locally focused industries in Nova Scotia and New Brunswick that are considerably less productive than their counterparts in Ontario or other places in Canada. This could be the reason why in many of these sectors Ontario firms already do more business here than local firms (e.g. IT services in New Brunswick, public relations/marketing firms, management consulting, etc.).

Make it far easier to do business and make it socially acceptable to use an Ontario firm over a New Brunswick firm and that is what you will get. Now, as I have written before, the competition could lead to NB firms pulling up their socks and getting more competitive. Or it could just lead to a continuing reduction in provincial GDP here from these industries as the work moves increasing to Ontario.

Some will shrug and say, so what? The consumer gets a product or service at a lower price or better quality so who cares if local firms go out of business?

Then, either a) we have industries here that can offset those loses (leading to a win-win outcome) - more Nova Scotia wine sold in Ontario and more Ontario management consulting firms doing business in Nova Scotia.

I’m not 100% convinced of the asymmetry of outcomes neither am I convinced it will result in a grand kumbaya. Let’s agree it is a grand experiment.

I still think about the fact that Australia gave up on domestic auto manufacturing and replaced it in large part with a significant boost in natural resources development. They figured out the benefits of importing cheaper and better cars from elsewhere meant that a domestic industry didn’t make sense. But crucially, they offset the loss with natural resources development. I’m not saying its all rosy in the land down under. They have demographic challenges and other issues. But I am saying the loss in one area was made up for by an increase elsewhere.

What is that elsewhere in Atlantic Canada? Mining? More aquaculture? Natural gas development? Clean and green energy development? Information technology?

One thing is for sure. When you open up borders even further more stuff leaks out. The challenge is simple: For every $1.00 of investment that leaves (think Vestcor), we need to attract $1.50. For every $1.00 of imports, we need to foster $1.25 in exports. For every one talented person that walks out the door, we need to bring two in.

Atlantic Canadian provinces are more exposed to open borders than most other jurisdictions in North America. It’s too late to put the genie back in the bottle.

We need to steer into the skid. And for those ever in that situation, it’s not easy.

We may grudgingly clap and smile through gritted teeth every time another place does well but in the end, all economic development is local and if provincial and national policies lead to rising disparity we could end up with J.D. Vance as our next Prime Minister.