By many accounts, Newfoundland and Labrador faces a set of interrelated crises that make the future look bleak.
Without a comprehensive plan—or even true recognition that our problems all feed into each other—our quality of life in objective terms will decline. Reversing that trend will take a cooperative and dedicated society-wide effort at every level and sector of society, and necessarily includes many, many ingredients.
One of those ingredients has to be local buying, part of a broader re-thinking of local economic development. With sufficient effort, we could all produce a society-wide change to make sure that the wealth of Newfoundlanders and Labradorians benefits our own communities.
Every year, money flows out of the province that could instead sustain local jobs and investment. Why not make our economy, smartly and gradually, more internally interdependent by reducing imports? Specialists in import replacing development point out that a small shift, even as little as ten percent, could have truly outsized effects on employment.
There are many first steps that could be taken right now.
A Leaky Boat
Michael H. Shuman, author of a report that examined the potential for import-replacing development in Atlantic Canada, told the Independent that hundreds of jobs could be created and saved through such a shift.
Without it, he explained, money will probably continue to leave the province at levels that are quite high.
“The headline numbers that are important to draw people’s attention to is that, number one: the province has a trade deficit of more than $3B per year,” Schuman, who is globally recognized in community economics, told the Independent. “If it continues to run that deficit, there’s going to be a steady impoverishment of the province.”
“Number two, the leakage rate is 38% provincially,” he continued. “38% leakage is a lot of money that’s leaving the economy and doing no good. Number three, with a 10% shift, you create 10,000-plus jobs, so that’s a third of your unemployment problem.”
To plug an economic “leak” means to stop the flow of money outside of a given area, for example through import replacement. “I rarely see that kind of number, [where] so much unemployment can be resolved through leak-plugging initiatives,” Shuman added.
But why hasn’t this approach been tried more often?
Part of the reason includes the legacy of less thoughtful attempts at import substitution industrialization in the past—Joe Smallwood’s (in)famous rubber boot factory comes to mind. There are also practical limits to what can be locally produced in Newfoundland and Labrador and supported primarily by domestic consumers. There is also limited capacity within the public service to experiment with related policy.
Shuman however did suggest that it tends to be more politically useful to show how jobs can come from a single decision, like the tax breaks and subsidies to a single factory or firm.
These kinds of actions continue to be reflected the government’s outlook. Russell Williams, a political economist at Memorial University, notes for instance that the government’s million-dollar diversification report “recommends virtually nothing of value other than more financial incentives to large resource companies.”
It is also important to remember that the province’s business lobbies contain members who are anything but local and who could be ‘losers’ in more formalized efforts at shifting purchases. Instead of trying to lure big corporations or drive exports, import replacing development would rely on a larger number of small or focused changes in different sectors.
Costing the Long Game
One of the more blunt ways drive local buying is to do it directly through government procurement.
In Maine, for example, a law sponsored by State Senator Eloise Vitelli now sets a goal that 20% of food purchasing by state public bodies support in-state, local companies. Currently, Newfoundland and Labrador has a pilot project to provide locally-produced foods in health facilities. Food can be a natural fit for import replacement and increasing food capacity has other benefits, from making food more secure in emergencies to spinoffs in the province’s tourism industry.
But given NL’s financial woes won’t it be prohibitively expensive to expand projects that use government purchasing power?
“I do think that it might be false to assume that the costs are higher even in the short term,” Karen Foster, Canada Research Chair in Sustainable Rural Futures for Atlantic Canada, told the Independent.
“A [person] could make the case that more money is wasted down the line on dealing with everything from poor recovery times for people in hospital eating shitty frozen food and unemployment because of collapsing industries. More money gets spent on that kind of stuff in the long run than would be spent on getting high quality ingredients.”
(The Independent also spoke with Senator Vitelli, who emphasized that the law does not tie the hands of facilities and that the use of healthy local food in hospitals, nursing homes and prisons is a wise investment. It’s also worth remembering that subsidizing local produce could help address other policy challenges, such as food security and obesity. And adding value to the local food industry in certain ways might also improve tourism.)
Michael Shuman also identified the food sector, along with professional services, as a sector where it is more practical for the province to replace imports. He noted that these areas also happen to be relatively job-rich.
Buying In to Buying Local
Increasing local buying in a meaningful way would also require conscious collaboration and leadership from government, the business community and other sectors.
Terry Hussey, CEO of Vigilant Management, told the Independent that efforts to facilitate local buying would have to take into account the tough environment that businesses face.
“The challenge would be making sure that people were seeing value,” Hussey told the Independent in a phonecall. “The small business who is going to buy a product at a premium when perhaps they could get it cheaper elsewhere are taking a risk because they’re artificially inflating their own costs. They have to see some benefit from that.”
“Local companies can be more competitive and charge more because, I think, a local company can demonstrate that they care more about the success of a particular client than, let’s say, a vendor on the Internet,” he continued.
He also agreed that the government could take on a role that promotes local buying through social marketing.
“They can promote local vendors, promote the idea of why buying local is good for the economy,” Hussey concluded. “There’s a bit of an education piece that could absolutely benefit from government steering the ship in a different direction.”
Surveys by the Institute for Local Self-Reliance (ILSR) group have often been cited as evidence that independent businesses in cities with active “buy local” campaigns have greater revenue growth than those that do not.
Marie Donohue, a research associate with ILSR, told the Independent that Newfoundland and Labrador’s problems of declining extractive industry and changing demographics reminded her of the scene in Kentucky. Cities like Louisville in Kentucky, she explained, quite often take the lead in promoting local buying—for example through formula business ordinances.
The ordinances are laws which cap or restrict the number and sites of businesses with standardized services and design, or require them to open an outlet that is distinctive in some way. Donohue said that San Francisco is probably the most known example of a large city with this approach.
Could St. John’s do the same for its downtown?
A formula business restriction is something that Gail Decker, owner of Next Clothing Company on Water Street, is open to supporting.
“I think that that’s a really good idea. Otherwise, these conglomerates can come in and plop themselves anywhere,” Decker told the Independent, adding that perhaps new formula businesses could be required to provide services with a Newfoundland twist. The ILSR cites some examples of chains complying by opening unique outlets.
“It makes it all fit in better, it makes downtown a little more unique. I mean, we’re not a mall,” Decker continued. “In order to keep our integrity downtown, we have to keep our Newfoundland culture on the street.”
FIREd Up
Another area where a significant degree of money also leaves the province, Shuman’s analysis shows, is the FIRE (finance, insurance and real estate) sector. “Newfoundland [and Labrador] has a particularly big FIRE deficit”, he told the Independent.
On the investment side of finance, there are nearby examples of how to keep more wealth within the province. In Nova Scotia, the community economic development investment fund (“CEDIFs”) provide a way to keep more money circulating locally. The Nova Scotia Securities Commission calls the fund a “pool of capital which is raised from individuals within Nova Scotia to invest in for-profit entities within a defined community.”
Abel Lazarus, a director with the Commission, told the Independent that there are maybe “north of twenty-five” CEDIFs in different industries and that other provinces have analogous programs.
“That’s how the program here in Nova Scotia actually started: it was to keep money that was flowing out locally invested,” Lazarus explained. “Tied to that, the government had to attach tax credits that investors get based on how much money they put in.”
Lazarus said that he has not heard of any contact with Newfoundland and Labrador’s government on implementing CEDIFs.
Through all of these and other varied steps, the province has many potential pathways to shift its trajectory. More often than not, they require heavy lifting and long term planning.
As we move past the provincial election, it is regrettable that the economic diversification challenge itself—let alone a deeper change to the way we think about development or the Newfoundland and Labrador economy—seems to be completely absent from public conversation.
In the aftermath of an election about nothing, no party seems prepared to do the long, tough work needed to craft policy and energize the public. And no social movement, which seemed to coalesce around the 2016 anti-budget protests, appears to have persisted either.
We have to nurture faith that Newfoundlanders and Labradorians themselves can rise to the challenge. Local buying and investment has to be one part in meeting it. At a minimum, we have the asset of a traditional pride that could help more robust localism finally take root.
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