No province, city, or municipal district in Canada is without some office dedicated to the elusive activity of economic develop- ment. More jobs, faster growth, higher tax bases, better living standards " all part of the admirable goal of ”œdevelop- ing the economy.” But how effective have our efforts been?
In Canada, these economic development efforts can be loosely organ- ized into the following categories:
The ”œaren’t we great” approach. One of the main jobs of the economic devel- opment office is to extol the virtues of their region and to convince businesses that this is where the action is. Slick brochures and sexy videos try to lure footloose businesses. Cities use every- thing from the presence of a major sports team (”œWe have NHL hockey!”) to local parks and natural amenities to sell the city as a great place to live and work.
The tax carrot approach. If nice parks and sport teams are not enough, this scheme goes one step further by using tax breaks, tax credits, or other financial concessions to seduce specific industrial sectors. For example, most provinces use tax credits to attract the film and TV pro- duction industry. It’s a desirable sector to attract because it is non-polluting, cre- ates service sector jobs, is renewable, and probably most of all, attracts hot movie stars who can double a restaurant’s busi- ness just by walking past it.
The government partnership approach. This is code for ”œpour in buckets and buckets of public tax dollars to prop up a questionable business idea, and hope for the best.” This approach almost always ends badly, and everyone knows it. Yet it gets votes.
The Holy Grail of value-added approach. This method tries to identify ways to ”œadd value” to natural resources by doing more processing, milling, refining, slaughtering and packaging at home. I call this one the ”œHoly Grail” of economic development, as public offi- cials chase and chase after a very elusive prize " a bustling secondary manufac- turing sector, a big factory on the edge of town with lots of jobs for their kids. The concept is appealing, but it usually unravels when the type of manufactur- ing the town is trying to attract has no economic rationale for locating there.
The level playing field approach. Alberta has been the champion of this radical idea. The notion is for the gov- ernment to quit picking winners and let the market decide what makes the most economic sense. In Alberta’s case, the playing field has been levelled by lower- ing taxes and reducing the red tape for all sectors. The results are mixed. No doubt the province’s economy is the hottest on the continent, but that is arguably more the result of high energy prices. And many correctly point out that despite the rhetoric about not pick- ing favourites with special concessions, the provincial government has done just that with the royalty structure it has designed to jumpstart the oil sands development by deferring most royalties until capital costs are covered. Without question, the lower taxes in Alberta cre- ate an enticing business environment, but can that be maintained when a com- peting province (or country) manages to out-do you with even lower taxes?
The cluster development approach. This concept tries to identify the exist- ing strengths already present in a city or region and build on them. This idea has appeal. Rather than spending all your time and money chasing a sector you don’t have and never will have, why not work with what you’ve got? If the cluster sector happens to be one trapped in a long-term, downward tran- sition (e.g., agriculture), use that to springboard into a related sector with a brighter future (e.g., bio-tech). The inevitable result is a dozen major cities in the country all claiming and wanting to be a world-class bio-tech centre. The reality is, of course, something else.
What makes economic develop- ment so tricky for policy- makers is that it is really hard to pinpoint what it means to develop the economy. The economy " the system whereby land, labour and capital are combined with entrepreneurial energy to create wealth and (we hope) improve our standard of living " is a social creation. It is not concrete like a piece of real estate that can be ”œdevel- oped.” It is at its root only a conceptu- al notion, a set of agreements and customs among its agents. How do you develop something as cerebral as that?
The answer lies in policy-makers creating a setting in which entrepreneur- ial energy can best do its job, while at the same time working to fill those holes that may be left by enterprise alone. Rather than trying to lure businesses that don’t naturally fit within a region, why don’t we invest more in building up the creative and innovative energies of our young entrepreneurs? Sure, lower taxes help. But in the long run, it’s not lower taxes that will keep tomorrow’s economy healthy, it’s new ideas.
It’s the scientist in the lab saying ”œThat’s interesting.” It’s the manager saying ”œWhat if we try it this way…” It’s the entrepreneur saying ”œHey, I’ve got a great idea.”
The most critical aspect of economic development is investing in Canadian brains. The country with the best, the brightest, and the most creative work- force will propel tomorrow’s economy. Even the most level playing field in the world will lie empty if we don’t equip our labour force with the creativity and innovation they need to play the game.