Over the past two months I have met with a number of business leaders in the manufacturing sector in New Brunswick and on several occasions, I toured their operations to better understand what they do and how they do it.
The purpose of these meetings and tours was to educate me about the sector so that as our research program at UNB over the summer progresses, we understand the opportunities for growth in the sector, the headwinds that New Brunswick manufacturers face and what could be done to turn economic headwinds into potentially a tailwind.
I have learned that manufacturers in New Brunswick are even-keeled and committed to their communities and the province. I also learned that from the producer’s perspective, New Brunswick is a hard place to do business and grow, in the sense of increasing the scale of production.
This difficulty is not because of economic, or business conditions, for the most part. It is from policy decisions made by a succession of governments in New Brunswick and Ottawa that have not been sensitive to the impacts on the competitiveness of our exporting producers. Governments of late do not seem to appreciate that their policy decisions have a particularly large impact on manufacturing because it is so exposed to global competition.
In my meetings I’ve asked why we aren’t seeing more investment in machinery and equipment in New Brunswick to drive productivity growth, and why aren’t wages rising to resolve labour shortages? The answer seems to be that there has been a steady increase in costs to produce and in getting goods to market that east into the margins (some of which would be what the person on the street calls profit) that would otherwise be available to invest and raise wages.
The problem is not that there has been on particular high-cost policy, but rather an accumulation of what appear to many who do not own businesses to be small, unrelated “manageable” changes.
Family Day, rising WorkSafeNB premiums, minimum wage increases, rising Canada Pension payroll taxes are a few examples of recent policies that directly increased payroll costs for employers with no accompanying increase in labour productivity. Exporting manufacturers, which are a large proportion of the New Brunswick sector, can’t pass these cost increases on to the end consumer or the distributor because of the competition they face in the destination market.
If the physical product or services that an employee produces does not increase, then the total share of firm revenue going to meet payments to their employees reduces their cash flow and capacity to invest in equipment, wages or growth activities like marketing.
The federal carbon tax imposed only on New Brunswick in the region, plus the rising costs of electrical power and natural gas are further erosions of the margins between revenue and costs for our manufacturing sector. A less-appreciated problem is that the uncertainty over what these costs will be in the future raises the risk of investing in New Brunswick, which is a further chill on the sector’s growth.
Regulation was also raised as a problem for producing in New Brunswick. Many of our province’s manufacturers operate in more than one province. The manufacturing and transportation sectors are integrated across the region; so the fact New Brunswick has failed to harmonize its regulations with those of other provinces in the region necessarily raises the costs of “red tape” here.
It was pointed out to me that the costs of these regulations – which can be the paperwork for reporting, or changing a label or packaging as required with changes to regulations – are sizeable fixed costs that represent a larger burden for small- and medium-sized producers relative to large companies. New Brunswick has a lot of small- and medium-sized manufacturers.
If we want our economy to grow, then we don’t need a government which seeks to privilege or advantage manufacturing. But we do need a government that starts by ensuring that there is no undue disadvantage for our producers, and achieves a situation where policies do not discriminate against manufacturing.
As economists Baily and Bosworth have observed for the United States: “The key to expanding … exports and reaching manufacturing’s employment potential is to have companies, domestic and foreign, judge it is profitable to manufacture here.”
The policy goal must be to see more investment, higher labour productivity, higher wages, population growth and GDP growth.
To put it bluntly, government must be sensitive to the impact of its decisions on the profitability of producing here, relative to somewhere else.
Since the election of the Higgs government in the fall, I have been asked many times if New Brunswick has a “pro-business” government. My answer to this point is, no. Less anti-business is not the same as pro-business.
There is a clear and objective measure of a government’s performance with respect to making New Brunswick a good place to build a business – dollars of private sector investment. So far, by this measure the PC government is not putting points on the scoreboard.
Premier Higgs, you have some work to do for that to happen.
Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.
The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.
