Rime of the Ancient Submariner

How is it appropriate for a tiny, boutique consulting firm like NetGain to spout off about economics and politics the way we do?  The simple answer is that our non-profit clients’ enterprises are more sensitive to changes in politics and economy than their commercial counterparts.

Not only must they be responsive to changes in the market, where their self generated revenue comes from, but they also must be on high alert to changes in government programs and policies, where the rest of their revenue comes from.  For 20 years, the business media has been talking about foreshortened horizons for innovation, product development, and financial results. However, the non-profit sector’s operating environment is far more volatile and changes much more quickly.

In discretionary spending areas, like culture, governments can turn on a dime.  It may take a year or two for a change in direction to work its way through the system, since it takes that long for money to flow from a budget in the legislature through to the relevant agencies, finally to be awarded after lengthy application and review processes.  Moreover, a downturn in the economy will be reflected in the budget sooner or later, and the consequences will impact subsidized service providers in areas deemed nonessential to government.

Here’s why non-profits suffer the triple whammy of political and economic change:  Not only does the economy influence government funding priorities, but it also affects consumer and philanthropic behavior.  The combination of a downturn or upturn in earned, contributed, and government funding, resulting from a pronounced economic shift, creates moments that are critical to the expansion or contraction of non-profit enterprises, especially those in areas that earn a lot of their income, as in the arts.

Quick example?  A decade ago, NetGain was asked for a sober second opinion on a plan for the City of Sudbury to invest in a $50-$75 million performing arts centre.   Naturally, some consultants had assured the local blue ribbon panel that this would put Sudbury on the cultural map, drawing main stage productions from Toronto and audiences from among the vacationers traveling through from southern Ontario and Michigan.  Of course, the numbers didn’t hold up, leading us to warn the municipality about the effects on existing cultural organizations.  Our predication was that the outsized PAC organization would quickly discover how hard it is to attract large scale productions to a location so far from the established touring circuit connecting New York and Toronto through southwestern Ontario and how hard it would be to persuade tourists to the Algoma region to add musical theater and dance performances to their hiking, snowmobiling, sailing, canoeing,  hunting, and fishing itineraries.  Try to picture 1,000 red velvet seats filled with people in camo gear.  You can’t.

We went on to assure the Mayor and his panel that it was their prerogative to build this thing, knowing that it would suck up all the audiences, donations, and attention  required to keep existing cultural groups alive.  However, even then it would require hefty subsidies, which would become politically unsupportable over time.  We had the temerity to remind the PAC proponents that their project only seemed feasible because base metal prices were high and the regional economy, which depended on mining, was momentarily robust.  But, we cautioned that the mining industry is cyclical and that the inevitable downturn would expose the truth about this folly. We concluded that it was a mayoral legacy project based on bad cultural policy and myopic economic assumptions.

When we delivered our verdict in late spring of that year, we were thanked by beleaguered bureaucrats, who knew we were right, and dismissed by the Mayor’s hand picked panel of PAC advocates.  By fall, the bottom had fallen out of nickel prices, with the usual consequences for local employment, social service costs, and tax revenue.  Sure enough, the Mayor’s folk saw the writing on the wall and mothballed the project.

In this single example, a toxic mix of political self-aggrandizement and economic fantasy nearly crippled a thriving local arts scene and burdened the taxpayer with such onerous subsidy requirements for a white elephant auditorium that all future cultural initiatives would be regarded with deadly skepticism.  It wasn't consultants who initiated the project, it was politics.  Nor was it consultants who killed the project, it was economics.  And all the local cultural groups could do was watch from the sidelines and hold their breaths.  Or noses, as the case may be.

So that’s why it’s impossible to talk about cultural development as a feature of urban development without also talking about economic development policy as a central function of government.  Furthermore, as is argued elsewhere in this blog, government is so deeply infected with politics in this city, it’s meaningless to talk about one without the other.

There you have it.  Politics driving government, affecting and affected by economics in ways that non-profits can only watch in amazement and sometimes horror.  And, in the midst of this chaos, we consultants, lowly servants to the most vulnerable players in this drama, try to navigate the future in ways that capitalize on opportunities and mitigate risks.

It may be a mugs game, but we have an obligation to understand the landscape, predicting and dodging the sudden eruptions and cratering arising from the tremors underfoot and sometimes pouncing on the gold nuggets that get churned to the surface.  The better we are at this, the stronger our counsel, and the healthier our clients will be.  To ignore this strategic context would be fatal both for our clients and for ourselves.  We could knock out glossy, but narrowly focussed reports, for exorbitant fees, but we would eventually run out of clients.

Here in Toronto, a City that regularly produces economic development plans based on the triumph of the creative class, it’s an especially intriguing balance of opportunity and danger.  Our blog is rife with stories of paths paved with good intentions, going straight to hell because of bad politics and economics.  And there are successes, when the stars of planning, policy, and management align across the three sectors to allow one of our clients to deliver to the City the kind of success it says it wants.

This is why we seem obsessed about simple, cost effective means of delivering cheap commercial and institutional space to non-profits, especially creatives and business incubators.  It’s why we focus on speculation in housing that drives wages and prices up, and makes Toronto’s economy less competitive overall.  It’s why we despair when politics perverts transit planning and beggars the municipality for the benefit of the Mayor and a few Scarborough politicians.  And it's why we comment on flawed analysis or strategy formulation in public institutions, or lazy statistical analysis, or flawed project management.  These are all factors in our clients success, and so are a natural focus of our practice.

In the end, who better than us to comment on these topics?  Like tourists, high and dry in a glass bottomed boat, the “legitimate” political and economic pundits (also, see here, here, and here, to name just a few) have a top down perspective, never getting their feet wet in the consequences of policies and programs they advocate.  NetGain, in contrast, spends much of its time holding its breath in the briny deep, looking up through the bottom of the boat, trying to help our clients reach the surface and stay afloat.

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