On Musk and economic development

The overarching theme of my now 30 year career has been trying to understand the drivers of a sustainable economic growth model. Not growth for growth sake but growth to meet specific societal needs. In the 1990s it was the surplus talent pool that needed jobs. Now it is enough economic growth to ensure we can sustainably fund public services for the next 20 years or so.

One of the key sub-plots of this story has been the sources of business investment specifically in the context of a place like New Brunswick - small, peripheral, but with some interesting assets and attributes. Should the focus be on attracting national or international firms (the so-called ‘branch plant’ approach) or on trying to nurture investment from within - do stuff to support local entrepreneurs so they grow to the point they are exporting and eventually become substantial, competitive national or international firms themselves (Irving, McCain, Cooke, Savoie, Caissie, etc.).

Of course it is never a binary choice but decisions made by government set the focus.

There is no doubt that Premier McKenna wanted to attract high quality national and international firms to the province. He had a room at the Royal York in Toronto where deals would get done (as they say, I never was invited). Him and his team spent an enormous time recruiting companies.

This approach was used to revitalize economies across the advanced world - Ireland, the southern U.S., etc.

They received some pushback from local business leaders. I remember the chair of the Moncton Chamber of Commerce’s board on the front page of the newspaper criticizing the attraction of another large firm to the city - and was surprised. In the U.S. many Chambers actually fund business recruitment campaigns. At least some Chambers in New Brunswick actually complained about efforts to recruit business.

Of course all things being equal it would likely be better to see dozens of new entrepreneurs build global companies from New Brunswick - as they tend to be more committed to the place of the head office, invest more in philanthropy and other activities etc.

But this is hard to do. The multinational firms already have global sales channels and business relationships. They have large R&D departments and the whole apparatus of conducting business across international borders. To build those firms from New Brunswick is hard and to try and do it with government prodding - tax breaks and other support - is even harder.

Because what a locally-led economic development program needs is entrepreneurs that want to build global businesses and that have the temperament and skills to do so. And, after 30 years of studying this stuff, that turns out to be really hard.

I just finished Walter Isaacson’s biography of Elon Musk. It was interesting (although I affirmed my view that the best biographies are written after a person has been dead for a while and have had a chance to marinate).

Entrepreneurial success at scale tends of have certain ingredients: a challenging upbringing, book smarts or street smarts, appetite for risk, early success in one venture that provided the capital for even greater risk taking, a sense of mission, etc. Daniel Isenburg, who we had on the Insights podcast, has studied these highly successful entrepreneurs and concluded they are not particularly nice people.

I don't think our schools and alley ways are filled with potential Musks just waiting to be discovered. In the past 20+ years we have massively expanded the government funded efforts to encourage entrepreneurship - incubators, accelerators, funds to send entrepreneurs to even more swanky incubators and accelerators in other cities. We have R&D programs and training programs. By my count there are over 700 economic developers in the Maritime Provinces - or one for every 80 businesses across the region - and we still have not seen a lot of high impact entrepreneurship.

We have seen some - don’t get me wrong - but not enough to make a big move of the needle on GDP growth.

The IT sector in New Brunswick, which is primarily NB based (or international firms that bought in via an acquisition) - is impressive and has built up a substantial base of export revenue for New Brunswick. But it generates only a quarter of the export revenue of the ‘call centre’ sector which is all externally-based firms.

Now, before you get all cranky - there is certainly a difference in the value-added and it is true that the call centre sector is in decline while the IT sector is growing but the example is still valid.

One big mining project would generate more annual export revenue than the entire IT sector.

These pages are like a journal for me to write down my thoughts. If a few folks read them, great.

We have had great natural resources-based entrepreneurs but those resources are finite. We have had a number of exciting tech entrepreneurs but many sold out and became multinationals anyway. We have many smaller entrepreneurs that are playing key roles driving competition at the local level in construction, retail and local services.

Ontario has 175 IT firms with at least 200 employees in the province. BC has 66. Quebec has 95. Nova Scotia has 11. According to Statistics Canada, New Brunswick has one.

Now that is somewhat misleading as a group like Mariner Partners has multiple companies under one roof and a company like Innovatia has far more than 200 employees but some are outside the province. I assume other provinces have the same issues, however.

In fact, New Brunswick has a higher share of its IT firms in the 50-199 employee range than any other province -but it is hard to break out and become a large firm.

Where are New Brunswick’s Elon Musks? Lurking in the halls of academia? In India filling out their paperwork to come to Canada? Dreaming about better ways to build a mousetrap in Minto?

If we want an entrepreneurship-led growth model moving forward, we will need to see a few - 20-30? more? - attracting hundreds of millions of dollars in investment and leading to hundreds of millions of dollars in export revenue each year.

Ideally we would have both. Amazing entrepreneurs building really cool firms and national and international firms also investing in our province.