What’s driving (the lack of) growth in Ontario?

What’s driving (the lack of) growth in Ontario?

A region’s economic landscape and progress is directly related to the development or demise of its industries. As some industries rise and others fall, the composition of goods and services produced in a region changes, altering the living conditions, consumers’ decisions, and ultimately the fate of the economy.

These changes take time to occur, but are also longstanding once in place. Ontario does not escape this rule, and changes that began a decade ago will likely show their impacts today and in the years to come.

At the Institute for Competitiveness & Prosperity, we are concerned with the changes that affect prosperity and productivity. Shifts in industrial and commercial composition of the economy greatly affect those indicators. But, what changes has Ontario seen in the past decade? Using very detailed information on the number of business establishments from the Canadian Business Pattern, the Institute ranked the top and bottom 20 industries in Ontario based on their annualized growth rates.[1]

Of the top 20 industries in Ontario, four of them are in the real estate business. With the number of establishments increasing considerably for these industries, we can relate that to the expanding housing market, especially in the province’s largest CMA, the Greater Toronto Area. The residential development in particular has experienced a substantial boost in the past decade, and this is reflected in the number of business establishments in the residential buildings industry. The ambulatory health care services industry also has four representatives in the top 20 industries. All four are offices of different types of health practitioners. Perhaps attracted by increasing health care expenditures by the provincial government, the growth in the number of establishments for this industry might also stem from a measurable opportunity: changing demographics. Ontario’s aging population and the demographic forecasts might be attracting practitioners from all over the country, especially if the higher end-of-life care costs are factored in.

Looking at the bottom 20 industries, Ontario shows the usual suspects of any post-industrial region, but with a twist. Part of the agriculture sector, animal production contributes with three industry classifications. This is expected as the economy moves away from agricultural commodities and industrial production, and towards the so-called knowledge economy. In the bottom 20 industries, the Institute also found as expected low value added industries, such as miscellaneous store retailers. The twist in Ontario is that we find three industries that are part of the professional, scientific, and technical services sector. In a knowledge-based economy, these types of industries should be thriving. It is important to note that these industries are scattered across different types of businesses, such as administrative management or advertising, which means conclusive trends cannot be found.

If long-term prosperity is an objective of Ontario’s economy, we need to ask ourselves if the shifts in industrial composition in the past decade are in line with that objective. Certainly, real estate development and health care are important components of a modern economy. But, can these sectors realistically be the drivers of future prosperity? Incentives drive the actions in markets and the economy as a whole. Questioning the shifts in industrial composition is questioning the incentives at play in the economy. Whatever the incentives in Ontario are, they might be pushing the province’s economy towards industries that might not have enduring growth. 

 

[1] Because the data is extremely detailed (6-digit NAICS), the individual industries represent very low proportions of the overall number of establishments. To avoid adding to the ranking industries that are not impactful to the overall economy – for example, an industry that had 3 establishments in 2002, and 20 in 2012, would show an annualized growth rate of approximately 21 percent –, the ranking was done for the top 100 industries in terms of share of total establishment number. Combined these top 100 industries account for 65 percent of the total number of establishment in Ontario.

Photo Credit: AlonzoDesign, Getty Images

Category: Economic Progress, Industrial Policy, Employment, Productivity