Nova Scotia's economic development efforts 'haphazard,' Graham Steele says
Small change in interest rates or U.S. exchange rate can have more impact than government spending
Can we please speak frankly about the emperor's new clothes?
After watching Nova Scotia politics daily for 18 years, I've reluctantly come to the conclusion that nobody in government has any idea how to develop the economy.
If they knew how, it would have been done a long time ago.
Instead, we're just about exactly where we would be if successive governments had done nothing at all — a little ahead of the other Atlantic provinces, a little behind Quebec, a lot behind the western provinces.
I wince when I hear politicians promise how they're going to "create jobs" and "grow the economy." I used to be one of those politicians. All parties do it, and it's nonsense. They have no idea how to do it, but they're trapped into a rhetoric of pretending that they do.
The simple fact is that no politician can control an open, trading economy like ours.
We are a tiny province of under a million people, hanging off the edge of a continent without a strike-it-rich, royalty-gushing resource base of oil, gas or potash.
A small change in interest rates or a small change in the U.S. dollar exchange rate has more of an impact on our economy than all of our government's economic development spending combined.
Snap and snip
There are many problems with the way economic development spending is talked about in politics, but let me mention two.
First, the amounts the government has to spend on economic development are really small in comparison to the overall economy. The government can't measure the impact of what it's doing.
Second, nobody knows what would have happened if the money hadn't been spent. You can't run double-blind experiments with an economy.
As a result, our politicians are making decisions without good information.
That doesn't upset them. They can't prove their ideas are working, but more importantly, nobody can prove their ideas are not working. In politics, that's gold.
Snap a picture with this successful entrepreneur, snip a ribbon at that successful company. It's economic development by anecdote.
What about the impact on the overall economy, minister?
Ssssh. Snap, snap. Snip, snip.
Perversion of language
Furthermore, governments routinely pervert the English language when it comes to economic development.
The word "invest," in particular, should sue for damages.
The government never spends money, it only invests. Look at any news release on economic development — or for that matter, any news release.
It's a perversion of language because investments have rates of return and levels of risk that can be compared and ranked. Good investment decisions require rigorous analysis.
Government spending isn't disciplined that way. There's no true comparison between different ways of spending money. There's no rigorous analysis.
The one economic development tool that everybody seems to agree on is the payroll rebate.
In theory, it's a no-lose proposition. The rebate is only paid after a job is created and after the employee has been paid for a full year.
In the real world, it's not so clear. Nobody can say for sure what would have happened if the payroll rebate hadn't been offered. Would the jobs have been created anyway? Sometimes.
In some industries, the payroll rebate is already priced in. Businesses could live without it, if their competitors could. But if even one competitor is getting it, everybody has to apply for it.
That's spending, but it sure isn't economic development.
The McNeil government deserves credit for recognizing that the old model of economic development wasn't working.
They blew up the old Department of Economic and Rural Development and Tourism, and good for them.
The problem is that they seem to have no idea what to do next.
They're caught between rhetoric and reality, so their economic development efforts appear haphazard.
I can't find any consistent line that explains when they'll say yes and when they'll say no. At least they're saying no more often than previous governments, including the one in which I served.
Is all economic development spending bad? No, that would be going too far.
For example, our banks are very conservative when it comes to business lending, especially in rural areas. There's a market failure here, an unmet need for investment and working capital.
That's why Oxford Frozen Foods, for example, routinely has to come to government for support, even though it is an established, successful business.
So there is a role for government in the face of market failure, but it has to be carefully circumscribed.
The emperor is wearing a loincloth, but that's all.