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How to fix southwestern Ontario’s economy

No silver bullet, but a salvo of ideas


 
What’s keeping Windsor awake at night?

Windsor, Ont. (Brent Foster)

While the national unemployment rate currently stands at 7.2 per cent, some regions are suffering more than others. Southwestern Ontario is one such place, with Windsor and London showing 9.2 and 8.6 per cent joblessness, respectively. And so, as a business school economist in London, Ont., it isn’t surprising that the question I’m most frequently asked by non-economists is some variant of “How can we grow southwestern Ontario’s economy?”

My first response is to point to some recommended reading on the topic, including several research papers by the Mowat Institute (see here, here and here). I’m also looking forward to coming recommendations from the Ivey School of Business’ Lawrence Centre which is working on a number of regional research projects. (On the other hand, if I’m at a cocktail party and feeling glib, my response is similar to that which I gave in this middle-class roundtable.)

But there is no silver bullet—it will take a suite of smart policies and a willingness to experiment. That’s the short answer.

The longer answer is not policy prescriptions per se, but rather things we should be mindful of when developing and promoting policy ideas:

Support at the industry level should be general and based on real comparative advantages. Identifying the region’s well-positioned industries is an easier task than identifying companies, particularly when examined from the point of view of comparative advantage. Among other features, southwestern Ontario is geographically close to a number of major U.S. markets, has an excellent higher education system, a strong financial sector, strong manufacturing cluster and some of the best farmland in the world. There are ways to support industries backed by these comparative advantages without resorting to direct subsidies. Regulatory harmonization and ensuring open borders with the U.S. must be of vital importance. And ensuring pork farmers, for example, have access to European and Asian markets should be a goal of international trade negotiations.

When discussing industries, we must be wary of arguments such as “green energy is the future, so it makes sense for the government to invest there.” But what form is this government investment taking? What are the costs? Does the region have useful comparative advantages that would ensure industry survival? I find the Public Policy Keltner List useful for answering these questions.

Governments are awful at picking winning companies. Let the market figure out which companies will succeed. Providing corporate welfare to rich business people simply worsens the region’s inequality problem. We need to look elsewhere for answers.

Strong, but smart regulation can improve export opportunities. There is a common belief that there is always a trade-off between regulatory strength and economic growth. This doesn’t have to be the case. Strong regulation can sometimes be a comparative advantage when exporting products. The best example of this is consumer safety regulation in agriculture. Food safety is a top-of-mind concern among the middle-class in large, emerging markets such as China and India. (One only need consider the 2008 Chinese milk scandal for evidence). By ensuring that Ontario has the safest food in the world, we can use this as a unique selling proposition to overseas markets. This is a real opportunity to fill with Ontario’s agricultural products the shipping containers that return to China empty.

Where will the region get the money for infrastructure projects? A common suggestion for strengthening the regional economy involves the federal and provincial governments spending billions on infrastructure projects such as high-speed rail. There is no question this would help the area; spending billions on a Tim Raines statue for the baseball museum in St. Thomas St. Mary’s would grow the economy if it were done with some other region’s money (of course we wouldn’t build a billion dollar statute, $100 million should cover it). Similarly, this isn’t to suggest high speed rail or expanding the highway from London to Sarnia wouldn’t be useful, but rather to point out that claims of their economic benefits to the region will necessarily turn out favourably. However, that money ultimately has to come from provincial and federal governments trying to balance their budgets, so we should temper our expectations.

Look to manufacturing to create more wealth than jobs. This is best illustrated with a story. A few years ago I was giving a regulatory talk in Georgia to a group of managers and executives in the consumer aerosol products industry. One of my clients was there and asked if I would like a tour of his newest facility. I was absolutely blown away by what I saw. The factory must have been the size of several of football fields; it was large enough that golf carts were available to take you from one end to the other if you wanted. The thing I noticed most, however, was the lack of people on the floor. I saw perhaps all of two people milling around, clipboards in hand. Everything was automated, the whole process reminding me of the old board game Mouse Trap. This is the face of modern manufacturing, and it’s borne out by the manufacturing revenue per production employee data. If there is job growth in manufacturing it will be in areas such as sales, purchasing, research and development, and regulatory compliance.

Southwestern Ontarians are a resourceful lot, so I’m confident the region will fully recover from the recession and experience sustained long-run growth. Smart policies from all three levels of government can certainly help.


 

How to fix southwestern Ontario’s economy

  1. tim Hudak told me that if we all just work for 10 cents an hour Alberta will line up to build oil refineries all over Ontario!

    He’d make a fanstastic premier of Alberta.

  2. I don’t think it’d be appropriate to post my initial reaction (which would be a graphic solely depicting an oustretched, median digit) so I merely counter -what’s wrong with 9.6? Why does southwestern Ontario, arguably the densest populated and infrastructured part of Canada need more job assistance?

    I’d say Atlantic Canada needs a plan to combat these issues more than Southwestern Ontario because frankly, “Work in Alberta” is running out of steam.

    • As a resident of SW Ontario, I can attest to the fact that things are far from perfect here. I did not think that continuous improvement was a controversial goal. And SW Ontario improving does not impede Atlantic Canada from doing likewise. Let’s all try to do better. Let’s do things that work and stop trying stupid things that don’t.

    • I’m sorry, Atlantic Canada has been getting plenty of attention for a very long time, along with plenty of money and plenty of concern. For people like you to whine because you’re not the center of attention for a moment, well, that makes me want to show you an outstretched median digit, ya crybaby.

  3. Middle class yesterday. SW Ontario today.

    Btw, Robert Mugabe just won re-election. You free Friday?

    • Sorry … next he takes … Berlin !

  4. Why do economists write this generic stuff and economics 101 nostrums.
    Why don’t we look at when all of Canada, and especially SW Ontario was doing well.
    With modern globalization and the whole world having to compete with 25 cent an hour SE Asian labour, the only way formerly prosperous western economies can retain some levels of prosperity and not listen to right wing ideological bromides.
    It is no coincidence that Canada, and especially SW Ontario, does its best when the Canadian dollar is undervalued. The change in trade flow from the C$ moving from a 65 cent dollar to parity is 100 to 140 billion dollars that can be attributed to the rising price of the Canadian currency. Since the third world Canadian economy of commodities has been at record prices this has cushioned Canada.
    However the loss of 100 to 140 billion dollars of sales of first world goods, which are mostly built in the corridor that stretches from SW Ontario to Montreal, has destroyed hundred and thousands. Add in the ripple effects and all of Ontario’s current problems can be laid to a high dollar.

    • Heck, why don’t they make the dollar worthless, let’s say a nickel to the American dollar. By your logic everyone would be rich. So rich they’d be able to buy nothing at all.

  5. This picture is of Zug Island across the Detroit River from Windsor. It is a beautiful example of how Windsorites have to tolerate pollution from the states while governments want to expand the tar sands to profit the already super rich businesses.

  6. Correction – the baseball museum is in St. Marys, not St. Thomas.

    • Okay, that’s embarrassing given much of my family *lives* in St. Mary’s and I’m there 5-10 times a year. (I’m descended from one of the three founding families of the town). I have no idea how I could have made that mistake. Thanks!

      • And I misspelled St. Marys. That’s it, I’m going back to bed.

  7. Robot workers should have to pay taxes.

  8. What this article overlooks is the structural failures of SW Ontario government, specifically government employees and their collective attitude that, because they have a well-paying govt job, they can do whatever they like with the factories in their jurisdiction. A number of years ago I set up a plant there; by local govt administrative failures, first the water (apparently metered) was never read and billed. Some years later I was confronted with a huge bill, that was unpayable, with the threat that if not immediately paid the water would be turned off. I immediately closed the plant and moved it over the Regional border, next town down the road. Then, that Town decided to go from Ontario Hydro to a town electrical system. The new (Town) manager decided I needed a special heavy transformer – that I would have to pay for – and pay him a huge power deposit, or he would turn off the power. I told him “no,” and he actually came into the plant and pulled the power lines out! I moved the entire plant to the States.

    Canadians can be really ridiculous. Canadian govt bureaucrats cannot be reasoned with, and are impossible. Part of this phenomenon is “envy” – you do well, so they are envious of your success. Part of it is mendacity, that comes from having a guaranteed paycheck. And part of it is arrogance, part of being a Canadian. When all is said and done, who needs it? Not me.

  9. I say set up a medical marijuana manufacturing plant there – this is a real growth industry and people would be happy to have jobs at it there.

  10. I also think there should be an area in downtown Windsor set up as a legal “Red Light” district – this will attract many more American visitors

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