The Higher ED Blog: Real Economic Development Horror Stories
Michelle Madden / October 26, 2015
We all make mistakes at work. Often, those mistakes are small and relatively inconsequential; other times, they cost millions of dollars or result in an embarrassment of epic proportions (or both).
For outsiders watching the train wreck, these gaffes can simultaneously elicit sympathy or horror as we imagine what it would be like to be part of the team that overlooked a crucial detail, soldiered on despite the trail of red flags, or was subjected to unforeseen complications with dire consequences. The history of economic development has its fair share of such horror stories, often eliciting the questions: What were they thinking? What could possibly go wrong? We at the Higher ED Blog mean no offense by telling these tales. Instead, we hope you can laugh and cringe while internalizing the hard-learned lessons of those involved.
PEI’s Bulging Brochure
Every year, Prince Edward Island’s Department of Tourism and Culture produces an official visitor’s guide to show off its ample assets, including red sand beaches, Anne of Green Gables, and a relaxed pace of life. The cover of the 2015 guide captured many of these assets, featuring a young couple lounging beachside while she reads a book and he leans back luxuriously in his chair, basking in the sun. The Department printed 184,000 copies in English and French. The press release announcing the arrival of the new guide featured government officials posing amid stacks of boxes.
Shortly after the guide’s release, the media (including the National Post) and public noticed something…up (!) with the photo. Social media exploded with hilarious commentary (check out BuzzFeed’s collection of tweets, seriously) and the puns were as numerous and crude as you would expect in this situation.
The Department refused to comment on the matter, but quickly replaced the image with a less sensational one.
Newfoundland’s Sprung cucumbers
Any perceived pun in the title of this story, as related to the last story, is completely unintended. Rather, this is a story of how back in the 1980s, Newfoundland tried to grow vegetables in its harsh climate using high-tech hydroponic greenhouses, and spur economic development at the same time.
At face value, this sounds like a totally reasonable project on an island with almost no fertile soil that has to import produce. Plus, the provincial economy was struggling as its fishing industry teetered on the brink of collapse. A 1986 report supported this type of effort, recommending that the province take on small-scale agriculture aimed at local markets.
Later in 1986, the province partnered with Sprung Group, a Calgary-based company that produced high-tech greenhouses. Premier A. Brian Peckford spearheaded the project personally. The president of the company, Philip Sprung, claimed that his greenhouses would grow 6.7 million pounds of cucumbers and tomatoes in the first year and assured that his company could overcome Newfoundland’s cold temperatures and reduced sunlight through the winter. Advisors were skeptical (spoiler alert), but the province charged ahead, investing $11.4 million.
Problems started cropping up immediately. Construction took three months longer than expected, the equipment wasn’t working properly, light pollution angered residents, and the first cucumbers were ready just as hothouse produce from the rest of the world flooded the market driving prices down. The first batch of Sprung cucumbers cost $1.08 to produce but had to be sold for 63 cents. The province injected millions more to keep the facility afloat. Prices eventually improved, but yields and consumer sales never reached forecasted levels. In fact, the average Newfoundlander only ate about half a cucumber per year.
By 1988, things were really unravelling. The media revealed that surplus cucumbers were being used as cow feed or simply dumped. Then the entire crop died on the vine. Sprung alleged someone sabotaged the crop with a herbicide and offered a $10,000 reward. Scientists never confirmed his claims.
In the end, the government had spent $22 million on the initiative, in addition to Sprung’s investment of $4 million. Here’s the really horrifying part of this story: the average cost per cucumber produced was a stupefying $27.50. The facility was eventually dismantled and shipped out of province. Due partly to this fiasco, the government of the day was kicked out of office in the next election.
Blind River waste investment
Our final horror story involves a small municipality of 3,500 residents in northern Ontario.
In 2010, Blind River had a small hydro dam and wind turbine, and decided to expand into solar with the help of a $49.5 million low-interest loan from the Canada Mortgage and Housing Corporation (CMHC). The new solar farm would create jobs and provide low cost clean energy to local residents. What could go wrong?
The first hiccup came when the town discovered that a large scale solar farm would require expensive infrastructure improvements to access the provincial grid. Not to be deterred, the town created a municipally-owned utility called the North Shore Power Group that would manage many smaller solar initiatives. They invested half the CMHC money and created 70 mini projects.
Unfortunately, the projects did not yield as much revenue as expected. Showing a spirit of problem solving, North Shore decided to invest the remaining money in another green energy initiative and use the interest earnings (7%) to make payments on the low interest (4%) CMHC loan. The initiative was a fascinating undertaking that would turn the City of Ottawa’s garbage into energy, via a process called plasma gasification. The company, Plasco Energy Group, would take the garbage, turn it into energy, sell it, and pay a royalty to the city. Everyone believed this was the future of waste management and energy and lots of investors bought in, including former Senators owner Rod Bryden. It was a brilliant plan all round, thoroughly reviewed by experts, and the CMHC approved.
Then, there were delays, and the plant didn’t run as expected. Millions were invested, but the company needed more. Rod Bryden pulled out in 2014, and Ottawa joined suit in early 2015 when Plasco filed for creditor protection. Blind River was one of those creditors, and at the time was owed nearly $18 million. The news rocked the town and divided residents. Yet, the town avoided defaulting on loan by persuading CMHC to restructure it: Blind River would pay $1.1 million annually for the next 23 years.
The outlook is bleak, but Blind River isn’t through with Plasco. Last month, North Shore Power Group announced that it and another secured creditor acquired Plasco, including its global Intellectual Property, and sold it to Rod Bryden-owned RMB Advisory Services for $1. RMB will repay North Shore and the other creditor (plus 4% interest) whenever the firm is in a position to do so.
Hopefully, this sale signals that Blind River has survived its horror story, beaten but not broken. There are probably many lessons to be taken away from these (and other) economic development horror stories: Review and edit carefully, listen to what your critics have to say, choose your partners wisely, and know that even the best laid plans can go sideways as some things are outside of your control. However, there is another lesson offered by all three of the above stories: Governments are resilient bodies that can survive anything short of a zombie apocalypse. Though the politicians involved may not be so lucky.
About the author
Michelle Madden is the editor of Higher ED. She is also the Outreach Manager for the Economic Development Program and a graduate of the LED master’s program. She has authored a number of the articles in this series on behalf of the students, and has published several of her own blogs on economicdevelopment.org as well. Follow her on Twitter@michelle_mad.
About the series
Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.
Established in 1988, the Local Economic Development program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.
The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.