29 July 2009

An unhealthy trend

In a province with a notoriously underdeveloped private sector,  the news of a manufacturing venture in Argentia should be bringing a lot more voices of concern than it likely will.

That’s because the metal fabrication facility will be a joint venture of JV Driver, D.F. Barnes Group and the provincial government

Out of a total estimated cost of $10 million, the provincial government is tossing in $4.0 million. And of that amount fully half is going to purchase specialized equipment for welding pressure vessels as well as training employees.

In other words, the provincial government is taking on the capital costs and the human resource costs for two private sector companies of the start-up venture. 

Now it’s not like these sorts of government-backed ventures have a spectacular history of success in Newfoundland and Labrador, and that history spans a half century and more.  Typically, the ventures that need such massive transfusions of public money are marginal at best or  - even worse - unthinkable without it. 

Places that have a market demand and industrial sectors where there is demand usually can attract sufficient private sector investment to make a go of things without government involvement to the tune of 40% of project cost and with government absorbing the cost of training and capital equipment purchases. 

If you look at the news release, there’s no sign this new venture has any contracts already aside from whatever demand might come from local offshore projects.  That might point to another issue, namely that this pressure vessel fabrication plant is competing with well-established players globally that are considerably closer to customer locations than Newfoundland and Labrador.   The existing companies would also have the competitive advantage of experience and a proven track-record for delivery.

Taken altogether, those points suggest it might be difficult to break into the pressure vessel market successfully without using government subsidy as a way of lowering costs.

This is not the first example of government subsidized industry in this province and, if the current administration’s policies are any clue, it won’t be the last.  What this project indicates is that government has decisively abandoned the 1992 Strategic Economic Plan. 

That plan, you may recall was built on the twin ideas of lower to non-existent government subsidy on the one hand and on the other a focus on industries where Newfoundland and Labrador offered an obvious competitive advantage.  The idea was to create businesses that were sustainable in the long-haul in a global economy without government financial support.

What is now appearing more obviously is that the provincial government’s industrial development policy is a throw-back to the rubber boot and eyeglass factories  of the Smallwood era and the 1980s vintage cucumber grow-ops. 

Plus ca change, it would seem, or perhaps res ipsa loquitur:

"In particular, My Government will create sources of capital to enable businesses to establish, grow, diversify, and prosper."

There are also white tips poking through the sand, portents of the bleached bones of Latvian dinosaurs from the days when another government brought back little more from its wanderings than the crushing weight of debt. It is not for government to create sources of private sector capital out of public money, Premier Williams. One shudders at what the winds of time will expose of that seemingly Smallwoodian tyrannosaur.

After years of looking at the Irish and Icelandic models, the province’s industrial policy has apparently reverted to its original Latvian root.