Industrial policy and economic development
When governments decide to heavily support and favour specific industries, that is what has been called industrial policy. The provide this support either through tax breaks, cash, low/no interest loans, blocking competition, favourable legislation, favourable government procurement, etc.
We seem to be entering a new age of industrial policy – particularly but not exclusively related to the greening of the economy.
This week the feds and the Quebec government announced hundreds of millions of dollars in support for a new hydrogen project in that province – green because it uses biomass to create the energy needed to produce the hydrogen.
We have talked about this before – EVs, the supply chain, possibly mining, certainly all efforts to green the grid, all lined up for huge subsidies and support. As mentioned yesterday the federal government here is in large part just trying to respond to the massive incentives offered now in the US.
Regardless of where you are emotionally or intellectually on this, it is an issue that has to be discussed. New Brunswick can’t just bury its head in the sand while other governments dole out hundreds and hundreds of millions – or it can bury – but then it won’t be able to play ball.
Which is my problem with industrial policy in general.
When the Canadian government and multiple provinces decided to attract Hollywood – and poured billions in subsidies – New Brunswick decided not to play ball.
When we decided to build a massive auto manufacturing sector through subsidies and protection under NAFTA, New Brunswick got nothing.
When we played industrial policy with the aerospace sector – New Brunswick got basically zip.
Quebec decided a few decades ago to pour massive subsidies into the pharma sector. We did not.
There are more examples.
Again, I am not even sure we should be playing in some of these big supported industries but as we look to the future, we will stay on the sidelines again?
Michelin just got another $100 million for a modest expansion to its operations in Nova Scotia – so this isn’t just a large province issue.
If governments are investing hundreds of millions in green hydrogen projects in other provinces, will we see that investment here? If governments are pumping out cash for SMR development, will we see that here? If there is large scale cash/subsidies put into the EV supply chain including mineral mining – will we see the ribbon cutting here?
As I have written elsewhere, New Brunswick is consistently at the bottom of the list of provinces for government subsidies (all levels of government combined). The chart below is for 2019 but I have looked at the data going back years.
I’m not making the case for a massive increase in subsidies but I am saying we need to understand what is happening elsewhere and have an important conversation about how we should respond in the best interest of NB tax payers.
Because we may lead the country in the lowest subsidies to industry but I can tell you we are at or near the top of the provincial table for EI usage, Equalization payments, CPP/OAS/supplement payments, etc.
Many, prossibly a majority of people will look at that chart and say, "Good for New Brunswick," but that is what keeps us at the top of the 'have-not' list. EVs, windmills, solar power, are all industries that cannot exist on their own yet, but eventually they will. We can subsidize them or we can accept a massive increase in power rates, which amounts to the same thing to a taxpayer, and let the jobs go elsewhere. The balance is difficult, if not impossible to get right, but subsidies are part of any governments calculation, and we must accept that the princess kissed a lot of frogs before she found her prince!