McKenna Miracle: The Great undoing?
David Campbell is a Moncton-based economic development consultant and co-host of the Huddle podcast, Insights. The following piece was originally published on his blog, It’s the Economy, Stupid!, on Substack.
For the decade Frank McKenna was premier of New Brunswick, he put a relentless focus on economic development. 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, and ExxonMobil. 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, like IT and manufacturing, but the most success by far was in the call centre business.
The employment and GDP impacts were impressive. By the time McKenna left office in 1997, New Brunswick generated more than twice as much GDP adjusted for size from “administrative services” as Ontario and there were thousands more jobs than if that sector was only serving local markets. (Note that some of the companies were not classified in the administrative services sector, but most were).
At the time, skeptics said 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 roughly 25-30 years of data on this sector and there are a few insights:
- 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 per cent between 2013-2022;
- The sector’s employment peaked in 2006 and has dropped by about 10,000 since (down 34 per cent);
- 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 might have diagnosed the wrong reasons.
Those who said companies would leave when the “subsidies” ran out were almost entirely wrong. Most of the companies stayed for years after the initial grants and 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 per cent lower in the late 1990s and early 2000s to around 12 per cent lower in the last five years.
I think 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 per cent. 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. I still think that is a weak argument, and with the rise of remote work 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 Moncton (offsetting some of the losses elsewhere). But if we are to attract our share of those jobs, we need 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 more than 200,000 jobs between 2003 and 2022.
As for my provocative title about the undoing of the McKenna miracle, I think 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, or nudged, the culture forward and I think we are still seeing the fruit of that effort three decades later.
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