McKenna miracle: The great undoing?

For the decade Frank McKenna was premier of New Brunswick, he put a relentless focus on economic development - and a big part of that was convincing national and international firms to set up export-focused operations in the province. These companies had names like FedEX, UPS, RBC, Fairmont, Marriott, Air Canada, CIBC, ExxonMobil and many more. By my count there were around 30 multinational brands that had customer service and back office operations in New Brunswick.

There were also efforts made to attract other industries such as IT, manufacturing, etc. but the most success by far was in the ‘call centre’ business.

The employment and GDP impacts were impressive. By the time he left office in 1997, New Brunswick generated over twice as much GDP adjusted for size from ‘administrative services’ compared to Ontario and there were thousands more jobs compared to if that sector was only serving local markets in NB. Note that some of the companies were not classified in the administrative services sector but most were.

At the time, skeptics were saying that these companies would only stay as long as the subsidies were in place or that if wages and other costs went up they would revert back to their base (mainly in the GTA).

We now have rough 25-30 years of data on this sector and there are a few insights from that data:

• The administrative services sector GDP contribution in New Brunswick (in real terms) peaked in 2007 and has been declining since. The real GDP contribution is down 21% between 2013-2022.

• The sector’s employment peaked in 2006 and has dropped by about 10,000 since (down 34%).

• By contrast, the GDP contribution and employment in this sector in Ontario have increased since 2006.

So, were the critics right? They may have been partially right but they had might diagnosed the wrong reasons. Those who indicated companies would leave when the ‘subsidies’ ran out were almost entirely wrong. Most of the companies stayed for years after the initial grants/payments ended. As for those who said the firms would leave if operating costs rose, it is true that the wage spread narrowed from around 25% lower in the late 1990s/early 2000s to around 12% lower in the last five years.

I think maybe a big reason for the sector’s decline in employment and GDP has been the increasing difficulties with staffing. In the past few years, the job vacancy rate has doubled. In Q1 2023, the job vacancy rate in this sector in New Brunswick was 6.4%. To have 925 vacant jobs in a single quarter is very high.

Is it possible the critics were right and that over time these big national and international firms want to have their back office and admin operations closer to the mother ship (head office)?

I still think that is a weak argument and with the rise of remote would might even be less relevant today.

What is true is that over the longer run companies will locate in jurisdictions that are perceived to have a strong business case. This includes operating costs, workforce, productivity, and other factors.

Make no mistake. There are still a lot of jobs being created in administrative services. The former premier himself was key to TD putting a huge new centre in the Moncton a few years (offsetting some of the losses elsewhere). But if we are to attract our share of those jobs, we need to a strong business' case.

Unless of course the AI experts are right and all the jobs disappear but that is a story we have heard for at least 20 years. According to Statistics Canada the administrative services sector across Canada has grown by over 200,000 jobs between 2003 and 2022.

As for my provocative title about the undoing of the McKenna miracle, I think the the answer to that question is no. McKenna was the first Premier (as far as I can tell) that believed New Brunswick could compete and win nationally and internationally for business investment. He changed/nudged a culture forward and I think we are still seeing the fruit of that effort three decades later.