Wednesday, April 7, 2004
The Chronicle Herald

Political programming

Think-tank head decries federal funding agencies

By CLARE MELLOR / Business Reporter

Bureaucrats should get out of the business of deciding which companies get capital and which don’t, says one of ACOA’s biggest critics.

“The decision-making gets captured by politics,” argues Brian Lee Crowley of the Atlantic Institute for Market Studies.

“It is pretty easy to demonstrate that (ACOA) money is spent more for short-term political gain for the party that happens to be in power rather than the money being spent on genuine sustainable economic activity,” says Crowley, president of the Halifax think-tank.

ACOA is the federal government’s lead agency for co-ordinating and supporting economic development activity in Atlantic Canada.

It has a $400-million budget for 2004-05.

The agency recently changed its policy for business development programs and now offers repayable loans, at favourable terms, as opposed to grants.

But Mr. Crowley says that is a moot point. People act very differently when spending money that isn’t their own, he says.

“My criticism has never been grants versus loans,” he says. “My criticism is that any program that depends on civil servants to decide which businesses should succeed and which businesses should fail is a program that is mistaken in principle.”

And a recent study done by the C.D. Howe Institute, a Montreal think-tank, suggests that politics and ACOA go hand in hand. That group found that much of the decision-making – involving the spending of millions of dollars – is politically motivated.

Spending is disproportionate in ridings government members hold and in “swing ridings,” those won with a narrow plurality.

The study concluded that since 1994, a year after the Chretien Liberals took office, spending in ridings held by members of the governing party was on average 40 per cent higher than in opposition ridings.

The concept of bureaucrats picking winning and losing businesses also doesn’t sit well with the Canadian Federation of Independent Business, which represents small and medium-size businesses in the region.

“How do you ensure there isn’t political interference?” says Leanne Hachey, the CFIB’s director of provincial affairs.

“What kind of accountability measures are there to ensure that they are doing what they have been set up to do?”

Besides assisting businesses, ACOA carries out federal government business in the Atlantic region.

It provides non-repayable funding to educational institutions, non-profit organizations and community infrastructure.

In December 2001, Canada’s auditor general found that ACOA had improved its management of funds given to commercial projects since the previous audit in 1995. But Auditor General Sheila Fraser highlighted weaknesses in the agency’s management of money going to non-commercial projects. The agency’s website says those deficiencies have been addressed.

Fraser also found questionable ACOA’s estimates on the number of jobs it had created.

“It does not take account of the important role played by other economic development organizations in creating and maintaining the same jobs,” her report said.

Crowley says the federal government has an important role in the Atlantic region, such as in funding university research. But he argues that this role shouldn’t be played out through ACOA. Many people within government consider ACOA an organization that has little clout in Ottawa, and the dead end of the civil service, Crowley says.

“One of the big drawbacks of ACOA is that we get ghettoized within the federal government,” he argues.

“Instead of the federal spending being carried out by the normal department and . . . on a normal comparable accountable basis, we get (pushed) off into this department, which has no pull in Ottawa and whose decisions are highly politicized.”

Crowley does not buy the argument that access to capital is one of the region’s chief problems.

It is the very existence of ACOA “and easily available government money” that crowds out private-sector investment, he says.

“My view would be that genuine business opportunities do find capital.

“There are a lot of people out there who believe that if somebody would give them a million dollars, they would create a successful business. It doesn’t mean it is true.”

Peter Stoffer has mixed feelings about ACOA.

“I’ve seen them do some good things and I’ve seen them do some very bonehead things with taxpayers’ money,” says the NDP critic for ACOA.

Stoffer says the definition of ACOA needs to be narrowed and spelled out to the public. He would like to see the agency concentrate on infrastructure and development.

Agencies across the country that are similar to ACOA, such as the Western Diversification Fund, should merge into one and be overseen by a single minister, Stoffer says.

“You could have a parliamentary secretary for each one to advise the minister on specific regional concerns, but it should come under one minister,” he says.

Hachey says CFIB polls have shown that small and medium-size business owners have mixed feelings about ACOA.

“It’s like anything, if you are a beneficiary of their services, you have one perspective,” she says. “If you don’t know who they are, you have another. If you have been denied service grants or loans, you have another.”

Hachey concedes that many aren’t sure what ACOA’s job is.

“If you were to go out and poll 50 small business owners: ‘What does ACOA do?’ I bet you might get 50 different answers.”

Some of ACOA’s programs, such as innovative funding that offers a minimum of $500,000 in loans, don’t work for most small to medium-size businesses, which could never borrow such a large amount, Hachey says.

“Seven out of 10 businesses in Nova Scotia employ fewer than five people, 90 per cent employ fewer than 50 people,” she says. “Most businesses in this province are the small guys.

“You would think that any government agency or department, federal, provincial or otherwise, would really be focusing 90 per cent of their resources on the (small-business) sector.”

Crowley favours tax cuts for businesses instead of an agency such as ACOA.

A tax system automatically eliminates political interference because it benefits only companies that actually make money, he says.

“We are not picking winners,” Crowley says.

“We are not deciding that it is going to be biotech versus forestry companies, or it is going to be job information technology versus mining.”


Selected Projects

Company Location Project Contribution

Atlantic Abalone Lunenburg develop red abalone aquaculture $106,651i

Bebbington Industries Dartmouth dev. market for cleaning product $167,775

Canso Causeway Society Port Hawkesbury celebrate anniversary of causeway $325,000

Design on Polymers Inc. Halifax develop bait-mate product $33,135

Fox Hill Cheese House Port Williams form specialty cheese firm $85,000

Gillis Music Inc. Halifax develop musical instrument $44,500

Heritage Wooden Shingles Annapolis County decorative shingle manufacturing $50,000

John Walsh Bagpipes Ltd. Antigonish buy lathe to make bagpipes $34,417

Keywood Recovery Inc. Truromake densified fuel logs $75,000

Marwood Ltd./Ashmore Ltd. Bedford develop new painting system $135,000

Michael Stephen New Glasgowpatent for non-toxic pest control $11,250

Nova Crystals Ltd. Halifax testing of ballistic tiles for armour $68,245,

Nova Scotia Business Inc. Halifax market analysis of call centres $25,000

Port Hood Development Assoc. Port Hood upgrade main street $45,000

Discovery Centre Halifax study for new location $75,675

Universal Turf Technologies Halifax dev. ecologically based clover mix $67,316

Cape Breton Organics Birch Cove process and sell peat moss $58,200

Cape Breton Regional Municipality Sydney revitalize downtown Glace Bay $410,000

Cape Breton Regional Municipality Sydney host Little League championship $50,700

Louisbourg Playhouse Society Louisbourg 10th-anniversary celebrations $200,000

Ruby’s Nice hands Sydney manufacture cuticle remover $11,700

A full list of all ACOA projects funded since 1995 is available on the agency website: