[Note: Following is the text of an address delivered by Derek Butler, executive director of the Association of Seafood Producers, October 30, 2008 to the Rotary Club of St. John's.
Butler's theme is both familiar and timely in light of recent decisions by the provincial government in the processing sector. The audio of Butler's interview with the Fisheries Broadcast on the transfer of two licenses to existing plants can be found at seafoodproducers.org.]
Thank you, it is very kind of you to invite me to address you today. Good to be here, and again, I appreciate the invitation.
When a baby was killed when an airplane crash in the western USA in 1989 by being ripped out its mother’s arms and dashed up against the bulkhead, a political “solution” was proposed by having a federal law requiring babies to be strapped into their own seats on airplanes....
Well, that sounds eminently reasonable, I think we could all agree on first blush. Much of political rhetoric is based on this kind of illustration. Serious issue: step 1, identify the wrong problem, and be seen to be fixing it.
Or politics often identifies isolated problems to be solved, - not as trade-offs within an over system constrained by inherent limitations of resources, knowledge, etc.
Let’s see what happens with the airplane illustration.
…such a law, requiring parents to purchase an extra seat, would divert a portion of the traffic to cheaper alternative modes of transportation on the ground – most of which have higher mortality rates than airplanes, the result being that over a period of a decade, there would be an estimated saving of one baby’s life in airplane crashes, a loss of nine lives in alternative ground transportation, and an additional cost of $3 billion. [“An impact analysis of requiring child safety seats in air transportation,” Child Restraints Systems on Aircraft, Hearing before the Subcommittee on Aviation of the Committee on Public Works and Transportation, House of Representatives, July 12, 1990, p.215.]
The story illustrates dramatically, even graphically, the consequence of public policy defined on the basis of good intent, emotion.
Most - certainly too much - public policy is based on the intended consequence of that policy. “Save babies lives in fast braking or crashing airplanes.”
But you can only judge a policy by its actual outcomes, not by its intended consequence. The actual consequence is what counts. Sounds redundant, but it needs saying, and repeating.
Again, to quote my favorite economist, Thomas Sowell, “…the purpose of any policy tells you absolutely nothing about what will actually happen under that policy.”
The earlier example of child restraint on airplanes – which comes from his book The Vision of the Anointed: Self-congratulations as a Basis for Social Policy - leads to a new policy with a potential cost of billions, and more sadly, lives.
I am happy to say, after years of study, the FAA decided against the change, given the cost-benefit analysis above.
But that is how we too often approach things: with the intent, and often good motive, but without consideration of consequence, or outcome.
And I use it today, to illustrate a contention I’ve come to possess about how we manage and direct the fishery, in terms of public policy.
A fish plant closes?
Well, let’s save that fish plant. Noble goal, and in some sense, eminently feasible even, certainly for a given period.
A given number of actors – mayors, MHAs, ministers and union leaders, even new plant owners – can bring the forces to bear to save a given plant.
Having spent some time either working in or observing the political process – the world’s best spectator sport – I’ve come to see this as a classical political problem from this side of my career: identify the wrong problem, and then fix it or implement a policy with one intended consequence, and get an altogether different result. Ignore the result, and claim success.
Plant closes? Then let’s save the plant.
But why is the plant closing?
Is there enough resource to sustain it?
Is there a sufficient work force?
Does the plant have a procurement strategy? Is it overburdened with regulation? Does the plant have insufficient margins, squeezed between paying x for raw material, and only getting x-plus back from the market? Does it produce what the market wants, at the price point and in the quality form the market desires or requires?
We don’t often ask these important questions as much as we consider what might be the impacts on that particular plant closing on the local workforce and community.
Instead, we need to go back to the real business options, and there are just two, to maximize the value of the industry, to drive up incomes.
One, we can reduce our costs, and two, we can increase our revenues. Or we can try both.
The FFAW is on to the latter, as if that will solve all of our problems, but in a rather simplistic fashion. Just get more money out of the market. Charge more for the product. Ask for more money from those who buy our seafood.
Well, as I’ve reminded them in collective bargaining on occasion, when they suggest that is the way to tackle our problems, it doesn’t work that way.
GM did not lose $38.7 billion dollars in 2007 simply because some guy on the lot forget to flip up a higher price on the windshield.
They didn’t lose $2 billion in 2006, because someone in accounting forget to add a bigger digit to an invoice.
They lost money for structural reasons, related to tax liabilities, pension funds, labour costs, and a host of issues.
And asking the consumer for more money for those costs is not the solution, because in a free market, something is worth what you are willing to pay for it.
That includes a room in this hotel, an apartment or house for rent, or even something less tangible, like membership in Rotary.
And same for our seafood. It is not worth what we invest into it, the cost of harvesting, or production, or inventory costs, or financing costs. It is worth what the market wants to pay, or more precisely, is willing to pay.
Same thing for every stitch of clothes on your back, and every meal you’ve ever eaten.
That’s the economics and business reality of the world, and has been some time.
And let’s not have any of that foolishness that it doesn’t work. We are richer than 98% of the rest of the population of the earth. We are healthy, well-fed, satisfied beyond belief materially.
On the real indicators that matter: caloric intake, infant mortality, maternal deaths, life expectancy, access to potable water, literacy, you name it, democracy and free markets deliver.
All this to underscore that the fishery is a business, and just like much else of what we do to make a dollar, it should be structured so as to perform in that context; we can’t just ask the market to pay for our problems.
I am new to the fishery. I worked in, as the introduction noted, a completely different field, literally and geographically. This job is my first career employment in Newfoundland, which I started in 2004 when my wife and I moved home, like so many do, or want to.
I joke I am one of the few people who has come home to work in the fishery.
But work is a stretch. That’s not to say people in my business, in processing or harvesting, don’t work hard when they work.
But we have million dollar boats, and two million dollar boats, and multi-million dollar fish plants that all work for months, if not mere weeks.
That’s underutilization, or to look at it another way, overcapitalization, monies unavailable for investment in retirement funds, tourism, small business, education or training. It’s the opportunity cost of our structure.
If any airplane flew a mere 10 trips a year, and spent the rest of the time on the ground, we’d recognize we had a problem.
If Sobey’s was open just a few months a year, we’d laugh at their chances of making a go of it.
If hotel said our rooms are only for rent April 15 through end of Sept, and we have people sitting on the lawn waiting to get in in July, who might gladly take a room in October, but we close then, all our staff are on income support, we hope they’re around again in the summer when we open, cuz we stay closed for the winter, even though people are coming, we’d rather squeeze all our business into a few months…
What would we call it? …well, we’d call it the fishery.
Because we’ve done just that. And for too long it has been good enough. FAO and the World Bank have just released a report a few weeks ago called The Sunken Billions, addressing this same problem the world over. Some $50 billion, at a conservative estimate, representing the value of the fishery gone missing from the wrong structures and overcapacity.
Our problem is we have chosen to dissipate the wealth, with our structural inefficiencies, among as many participants as possible, to ensure we keep as many people working, spread it around, save this and that town, save this and that fish plant.
Well ask yourself: is it working?
Are our young people staying around because things are so good?
Towns repopulating because the fishery is such an opportunity?
The world beating a path to our products, or are we out selling a commodity?
We not asked too much of the fishery, for too long, and now we reap what we have sown: a social programme that has said $8000 or $10000 each is enough – and now our young people are gone, and soon, an entirely new demographic will follow: people of my parents generation, who want to see the grandchildren grow up… but have to go to Alberta and other places to do it.
My contention is the fishery of today is the fruit of 30 years of social engineering, of policy intent, with unfortunate consequences. And we lost one fishery that way already.
Alberta’s boom ‘today’ is one factor in people leaving the fishery, but so is 30 years of “this” is what the fishery will be, and not “this.”
We’re not living on the entrepreneurial merits of the fishery. We’re living off the natural abundance and wealth of our location, groundfish in its day, pelagics, and shellfish today.
Despite ourselves, almost, we have made something of it.
We open the fishery, squeeze in all the product like we’re drinking through a fire hose, and pray to the heavens the market can choke it down just as fast so we don’t have to finance it over extended periods and the currency doesn’t move against us while we are waiting.
The economist Michael Gardner addressed a recent gathering of industry at the coldwater shrimp conference in St. John’s, which brought together industry players from across Canada, the US, Europe and elsewhere, to address challenges in our shrimp industry.
And he said something very stark, very true. “We are structured to underperform.”
We have a billion dollar fishery, in terms of the production value of our fishery again last year. It was never more than half that in the past, but has hit the number or surpassed it several times in recent years.
We have a wealthy industry, or rather, an industry with potential for great wealth.
But as Gardner said, we are “structured to underperform.”
We have too much processing capacity.
We have too much harvesting capacity.
All designed and encouraged by different governments and organizations and vested interests to ensure the money was spread around.
This is not a business model that can endure. We can struggle. We’ll make a go of it. If anyone can, it’s a Newfoundlander …
The earlier example of airplane safety and child restraints illustrates the stark reality of every public policy choice we face. Every public policy is a trade off. There are consequences to every action.
And the intended consequences don’t count for much.
Someone once said "Some people embrace change, some choose to fight it. The ones who embrace and adapt, win." – Unknown
Or perhaps Henry Ford captured it bet when he said if you had asked the people what they wanted, they would have said a faster horse.
We in Newfoundland and Labrador must change our approach to the fishery, fundamentally, philosophically, from 30,000 feet.
Otherwise, we risk another reality, captured by the following words:
"If you dislike change, you're going to dislike irrelevance even more." Eric Shinseki
We need change, and it needs to start with the full acknowledgement that the fishery is a business, for the sake of harvesters in it, who are losing crew now to better opportunities in Alberta and elsewhere, plant workers for whom 10 or 15 weeks work is not enough.
We have built the industry on a deck of cards. We have marginalized incomes, tried to save fish plant after fish plant, increased harvesting capacity, and what do we have at the end of the day? Mediocrity as an industry. And every intervention leads to the Hayekian conundrum: once a government does intervene, the logic of intervention forces them to keep at it, to fix the last intervention. Can any government resist that (and after what damage is done?) so that instead we might make the industry a more sustainable economic engine and contributor to Newfoundland & Labrador?
Industry – harvesters and processors – both know that we must adapt to face the new realities of a more competitive China, higher fuel prices and the stronger dollar – and the latter two have turned around of late, but only as symptoms of a bigger problem we have not yet fully appreciated.
Instead, we have gone about things as of old, and expected a different result. That's, as the saying goes, the definition of insanity.
That challenge includes requiring a fresh look at the price setting mechanisms in the industry, unique in the world (Joey Smallwood's last piece of legislation in 1972). We have a collective bargaining structure for what is essentially a business to business relationship.
Are there bright spots out there?
Yes, some new policy to address new plant licences. Light on the harvesting side, with rationalization, combining.
And the resource remains strong, more good news.
And the industry is tackling new challenges like eco-labelling with the Marine Stewardship Council certification for our northern shrimp, showing our coldwater shrimp comes from a sustainable, well-managed fishery. We are Canada’s first fishery - and the world’s largest shrimp fishery - so certified, and consumers have the right to that assurance. It will be a proud legacy of my time in the industry.
But the same can't be said for the economic viability of the industry itself, in either harvesting or processing. It may be that the challenges of industry renewal are truly intractable political problems. Fair enough, but if it's confession time, no one is on their knees - except in terms of the economics.
Remember that baby in the airplane crash. You can save that one, but in exchange for how many more, and at what cost? And is that the goal of public policy? To save one part of the business, and sacrifice so many others parts.
I have to think, we can do better. I hope you do too.
Thank you for listening.
-srbp-
