Ontario economy needs new strategy for growth
Toronto Star
By David Crane
NIAGARA-ON-THE-LAKE—If Canadians are to narrow the wealth gap with the United States, they cannot do this unless Ontario has a successful economy, given Ontario’s dominant position in the Canadian economy.
This message, from TD Economics in a special report on Ontario, sets the stage for the Ontario Chamber of Commerce’s economic summit, taking place this week in this centre of wine and tourism. The purpose of the summit is to draft a set of ideas on how to improve Ontario’s economic performance in a world of increasing global competition and rapid technological change.
To narrow this gap, and generate the wealth for a high quality of life, the Ontario economy would have to grow faster than the U.S. economy, by at least 1 percentage point each year on average, TD Economics says. But “with Ontario’s economy on track to grow at a slower rate than its U.S. counterpart through 2006, the gap is more likely to widen than narrow over the near term,” it warns.
Moreover, the TD Economics report says, Ontario ranked eighth in Canada in growth in per capita GDP in the decade since 1992, calling this performance “mediocre.” At the same time, over the past decade “most low-income families continued to fall further behind in Ontario,” with widening inequality. Ontario has a poverty problem.
A key issue is productivity. Sustained improvements in wealth creation and living standards deepened on sustained gains in productivity. And productivity is based on capacity for innovation — in finding new ways to do things or producing new or improved goods and services with high value added.
This is the real Ontario challenge, and indeed the Canadian challenge. In a recent report, Exploring Canada’s Innovation Character, the Conference Board of Canada finds that Canada is simply not generating a high level of new knowledge, as measured by what it calls the triadic patent family.
A patent family is measured by the set of patents filed simultaneously in the European Patent Office, the Japanese Patent Office and the United States Patent and Trademark Office. On this measure Canada generates 16.5 triadic patent families per 1 million population, compared with 51.9 for the United States, 73 for Germany, 89.5 for Japan and 102.4 for Sweden.
One reason is that Canada underspends on research and development. Canada’s R&D spending is about 1.9 per cent of GDP, compared with about 2.8 per cent for the United States and more than 4.25 per cent for Sweden. This gap is clear at the corporate level. Canadian business spending on R&D is just over 1 per cent of GDP, compared to just over 2 per cent in the United States and over 3.5 per cent in Sweden.
A key factor here is the quality of business leadership. Too few CEOs have the vision, determination and skills to develop Canadian-based firms with the scale and scope to operate at the frontiers of innovation. There are some companies that do this well, such as Research in Motion Inc. or CAE Inc., but they are too few.
A top priority for Ontario, and Canada, is to develop more strong Canadian- headquartered companies with the scale and scope for high-value participation in the global economy. We want innovative companies that can pay high wages, develop goods or services the rest of the world wants and make a profit.
Another factor explaining weaker Canadian productivity is underinvestment in new machinery and equipment. Since the early 1990s, Ontario companies have invested less in machinery and equipment than U.S. companies as a share of GDP. Innovative companies tend to be companies that are at the leading edge of manufacturing and service systems.
In an update this week on its cross-Canada review of the future of manufacturing, the Canadian Manufacturers and Exporters association argues that “tax policies should aim at strengthening investment in innovation” through incentives that reward investment, such as faster depreciation for new technologies and an investment tax credit. As TD Economics points out, there are many other factors in building a successful economy, including the quality of education, infrastructure and opportunities to upgrade skills.
But without greater vision and leadership in Canadian companies, with a sharp focus on innovation leading to higher-value products and services rather than a preoccupation with simplistic cost cutting, all of the other things will be insufficient. This is the biggest challenge for the Ontario Chamber of Commerce.
