Part three of a three-part series
By Dallas Gislason, Director of Economic Development, SIPP
In many ways Greater Victoria is a world-class region: we attract talented people from around the world, we have a surging number of best-in-class companies who do business globally, we boast numerous high-calibre institutions (UVic, RRU, Camosun College, etc.) and organizations (South Island Prosperity Partnership, Ocean Networks Canada, VIATEC, Songhees Innovation Centre, etc.), not to mention our supreme weather and pristine environment. In many ways we are the envy of Canada.
But we need to do even better. Our regional economy is still not dynamic enough. New graduates still mostly move away to start their careers. When they try to move back, the sticker shock of buying (or even renting) into the housing market scares them back to Toronto or Vancouver. You might think: but it’s way more expensive there! That’s true. But this proves my point: those economies are more DYNAMIC. They offer better career trajectories, more opportunities to jump between companies, and importantly, they offer more options for spouses. A barrier that is often cited by companies who are trying to recruit talent to our region is “Where will my spouse work?”. After all, it now takes two incomes to truly thrive here.
This leads me to the third part of this blog series. We need to become a globally fluent region. To do so, we need to first understand where our wealth comes from. Next, we need to rally behind ways to become more competitive at the international scale so we can create clean, household-sustaining jobs.
Let’s start by exploring wealth and why it matters. I’m not talking about wealth in the sense of the people who own the houses along Beach Drive or Land’s End Road (though they do pay taxes, presumably give to charity and all that good stuff!). What I mean by wealth is where do the revenues that sustain our regional economy itself come from?
In economic development we refer to these new revenues as “first dollars” (the first dollar enters the economy and then gets circulated within the economy). The majority of regional commerce—probably 80% or higher—is local consumption (groceries, retail and household goods, the majority of housing market transactions, and services like accountants, lawyers, massages, etc.). These are not where wealth comes from—though they are important.
Wealth—or “first dollars”—only come from three sources.
The first source is a bit tricky: government transfers. For example, when a grant from the Gas Tax goes towards building a piece of infrastructure, or when someone on social assistance receives a cheque, this creates wealth in the economy. The reason why this is tricky is two-fold. As a provincial capital, a lot of the wealth in the region actually comes from government services that are delivered to the entire province in exchange for taxes (but the jobs are located here and thus support households here).
Also, since most people in our workforce pay taxes, there’s no guarantee that the amount of revenues coming back to our region is greater than the amount we send away, although with major government assets like CFB Esquimalt, we certainly get a decent amount back to the region.
The second source is less tricky: retirement incomes. Our region’s population will approach 400,000 in 2020, but our workforce is only approximately 200,000. This means there are a lot of households being supported by transferring money out of RRSPs and back into income streams. The caveat here is that in actuality the money that was used to purchase these retirement and savings products over a person’s career is considered a “leakage” from the economy at the time that it occurs, since the money doesn’t go into the local economy. It then comes back after retirement, but hopefully after having increased in value over time.
The third source, and by far the biggest opportunity for our future, is exports. As companies sell products or services to clients outside of Canada (or to anywhere outside the region) new money enters the economy as these companies pay their employees, their suppliers, and their local taxes or leases. Since most businesses in the region are only serving local customers, this ‘first dollar’ stream is incredibly important because of its ‘ripple effect’ across the economy.
A side note about exports and the environment:
A few months ago, I was speaking with someone about some of SIPP’s projects and the topic of “exports” came up. This person immediately cut me off to ask, “But in responding to climate change, shouldn’t we be worried about the carbon footprint of these exports?”
As you may already know, the global transport industry is carbon intensive. However, my reply explores this more holistically. I do truly believe that local businesses are essential to our region being able to achieve our carbon reduction targets—all while sustaining our high quality of life.
My argument goes as follows:
Importing is way more carbon intensive than exporting.
The carbon footprint of importing actually far outweighs that of exporting. Consider that all (or most) of our clothing, food, fuel, transportation (cars, bikes, buses, etc.), household items (soap, dishes, furniture, appliances, carpets), building materials, etc. come from somewhere else. In other words, if you want to knock a local business for selling something overseas, then you’d better be prepared to take a deep look at your lifestyle and the role that (carbon intensive) importing plays in your quality of life. I’m guessing it’s a lot.
But some things we just have to import.
Let’s use the smartphone in your pocket as an example. That tiny piece of technology costs several hundred dollars to purchase. Let’s call it $700. Sure, you might pay it off in monthly installments, but that doesn’t change the fact that you carved out some of your income to get it. The economics: if we were truly concerned about the carbon footprint, we would seek to build that phone (and other items) on the island and consume them locally. Why don’t we do that? Because of economies of scale. The only reason that Samsung or Apple or Huawei can sell that phone for a few hundred dollars (instead of several thousand) is because they build millions of them. Secondly, where does that $700 you spent on the phone come from in the first place?
The only way to keep importing is to create incomes.
The truth is, regional economies with high living standards like ours on the South Island are only made possible through wealth creation. We are “exporting” products and services in exchange for money that gets circulated within our local economy. Even when a tourist visits, every dollar they spend is considered an export (this is because the money they spend was earned somewhere else but is spent in our economy—thus maintaining the “first dollar” effect).
But how does exporting reduce carbon footprint?
It seems counterintuitive, but one aspect of the word “export” that often trips people up is thinking of it as a material good that is getting shipped. While we definitely do have companies like that (Viking Air builds de Havilland Twin Otters here and ships them worldwide, First Light Technologies builds industrial-grade solar-powered pathway lighting and sends them to clients worldwide, and even delicious Sea Cider beverages are available in Washington, Oregon and many other places), there are many more that are selling intangible services. Think of someone playing one of Kano’s video games and makes an in-app purchase, or when a new client hires MetaLab or Daitan to design a new piece of software. These are export dollars—and they are clean, high-paying jobs that are attractive to the next generation. The future of our regional economy depends on these service-oriented jobs powered by human ingenuity and creativity.
Our region and the future of exporting
What’s also interesting is that in addition to these jobs being clean, as companies diversify their customer-base and expand abroad they become more stable. A more stable economy is better for local businesses that rely on their patronage, and also better for our local governments that rely on new development to diversify their revenue streams. Imagine all of the increased costs of running a municipality coming off of your tax bill without the municipality growing? Export-oriented companies pay higher wages. This is something our region needs in order to attract young people and families that we will need as our current workforce continues to retire at rapid rates (and therefore will move to fixed incomes and less discretionary spending).
In order to pursue this clean, more prosperous future we need to do a few things:
- Get future ready. This means becoming a globally fluent region (see Parts I & II of this blog). Last year, SIPP launched the “Future of…” series to explore these major trends that will impact our region’s future. Our region has a lot more to do to get ready.
- Exploit our competitive advantage to create more household-sustaining jobs. One area that SIPP is exploring with partners is the Oceans/Marine Sector. Much of the world’s economic growth in the coming decades will be around the Asia-Pacific rim. Not only that, but the ocean represents an area of great challenge as the world attempts to decarbonize (cleaner shipping, dealing with overfishing and pollution, acidification, etc.). As an ocean city, we have many assets, companies and advantages already in place to become a world-leader. Learn more about them here.
- Unleash the Indigenous Economy. This region has 10 First Nations that have been held back from their sovereign rights to realize their economic potential. We need to work with them as allies to help them reclaim and increase their capacity for economic development. Let’s also help them leverage the tremendous progress they’ve made—despite the restraints of the Indian Act. Canada’s $30 billion Indigenous Economy should be worth $100 billion. Hopefully now that the BC Government adopted the UNDRIP, there can be faster progress. Learn more about Indigenomics and the leaders behind this movement.
- Continue to increase International Trade capacity. This is why we worked with partners to attract the renowned Trade Accelerator Program here in 2018 (we had our second cohort in summer 2019). TAP is a collaboration with the Victoria Chamber of Commerce, the World Trade Centre in Vancouver, BDC, EDC, RBC and other sponsors. Participants in previous years have increased their exports by an average of 23%.
- Track our progress. In 2017 SIPP launched the South Island Prosperity Index to do just that. It’s the region’s first-ever standardized set of indicators that measures holistic prosperity—things like percentage of our population that are foreign-born (hint: we need more!), our environmental indicators (hint: we need less dependency on cars!), and our wealth inequality (hint: we are less equal than other Canadian cities!). Watch for our 2020 version coming this April.
SIPP will begin to craft its next five-year strategic plan this spring for adoption by our members by fall 2020. We hope that you will join us and our many champions, leaders, and supporters as we all work towards a brighter, more globally aware and globally fluent, future for our region—the place we all love.