Strengthening structures: Upgrading specialized support and competitive pressure

Released July 2004

In its fifth Working Paper, the Institute has assessed the impact of market structures on Ontario’s competitiveness to help understand the causes of Ontario’s $4,118 per capita prosperity gap versus a peer group of US states. The gap refers to how much Ontario’s Gross Domestic Product per person trails the median performance of a peer group comprising the largest US states and Quebec. The paper finds Ontario workers’ wages are 23 percent lower than their counterparts’ wages in US peer states in the industries that are the most important to Ontario’s prosperity.

For the first time the Institute has been able to measure the effectiveness of Ontario’s clusters of traded industries. “Our early research at the Institute showed that we have a good mix of industry clusters,” said Roger Martin, Chairman of the Institute and Dean of the Rotman School of Management at the University of Toronto. “Now we know that they are not as effective as the same clusters in the peer states. This results in the 23 percent lower average wages in clusters we identified. But the even more remarkable finding is that this gap is highest in the clusters where wage levels are highest.” The Working Paper finds that in lower wage clusters, such as furniture and textiles, Ontario’s wages match or are close to results in peer states. But in higher wage clusters, such as financial services and information technology, Ontario’s wages lag considerably - trailing peer states by 37 percent and 54 percent, respectively. 

The Working Paper shows that Ontario’s market structures provide inadequate specialized support and competitive pressure to firms and individuals. Drawing on research conducted by the World Economic Forum and its own research, the Institute concludes that Ontario provides an adequate level of general support – in infrastructure and basic education to the economy. “But we find that our clusters and our economy are not benefiting from specialized support, such as university/industry collaboration and specialized research and training. It’s this specialization that creates world-class advantage for companies and workers,” said Martin. “Nor do we have the structures that create conditions of intense competitive pressure from firm rivalry and sophisticated customers. Without this pressure to succeed our firms and industries will not be challenged to develop world beating strategies.” 

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Topics: Government investment and innovation