ProsPectsar 10        for oNtArIo’s        ProsPerIty        A look back and a look ahead        Task Force on compeTiTive...
Chairman                              task force on competitiveness,roger L. martin                       Productivity and...
ProsPects forontario’s ProsPerityA look back and a look aheadTenth Annual ReportNovember 2011
exhibitsmain ExhibitsExhibit 1       Ontario ranks among the leading international peers                             8Exhi...
contentsForEword & acknowlEdgEmEnts                                                            4prospEcts For ontario’s pr...
foreword & acknowledgements                       on bEhAlF oF ontArio’s tAsk ForcE on compEtitivEnEss, productivity      ...
While we lead most other regionsaround the world in competitivenessand prosperity, we do so largelyby working more, not by...
ProsPects forontario’sProsPerity01 116  CHAPTER
in this tEnth AnnuAl rEport to thE pEoplE oF ontArio, the Task Force onCompetitiveness, Productivity and Economic Progress...
Our economy is standing still                                                              while other jurisdictions stay ...
Even with all the economic uncertainty in the air, our message to Ontariansremains the same as it has been over the decade...
We continue to believe that Ontario’s true benchmarks are other large,developed provinces, states, and regions around the ...
• In our First Annual Report, we concluded that Ontario was not investing  adequately in post secondary education. In that...
On the other hand, more imports put pressure on our businesses, forcing them  to expand their capabilities to meet new com...
We continue to propose actionsthat will help Ontario realize our2020 Prosperity Agenda.Exhibit 5 The Task Force has set ou...
ourProsPeritygaP isa ProductivitygaP14  CHAPTER
in cArrying out its mAndAtE to           along the way add value at every step.   and services will increase the GDP ofmea...
four factors measure                                        • Productivity. For each hour worked                          ...
Exhibit 7 Higher productivity is needed to close Ontario’s prosperity gap                                             Sour...
Over the last decade, laggingproductivity has accounted for thegreatest share of Ontario’s prosperitygap with our peers, a...
number of hours worked per worker,        the presence of clustered industries      relative employment strength incontinu...
As we discuss in our review of            Relatively low urbanization is a          productivity would be higher by $1,200...
our manufacturers need to increasethe scale of their operationsOntario manufacturers need to increase the size of their op...
invested in machinery, equipment,         It is difficult to project what will         Our current challenge is to recover...
a ten-yearretrosPectiveand outlookfor the future
As wE dElivEr our tEnth AnnuAl rEport to the public of Ontario, weconsider progress and accomplishments in several areas. ...
what haPPenedin ontario in thePast decade?  Work effort and   productivity   Human capital                                ...
Internationally Educated  Engineers QualificationBridging Program launched                             Nortel bankruptcy  ...
work effort andProductivityOntario’s prosperity growth needs to comefrom productivity growthtwo FActors drivE ontArio’s pr...
ontario’s demographics are an advantage  Exhibit 9 Ontario has a demographic advantage over our peers                     ...
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress
Upcoming SlideShare
Loading in...5
×

Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress

412

Published on

Simple stated there is more work to be done to achieve the 2020 Productivity Challenge. Since 2001 the Institute for Competitiveness, Productivity and Economic Progress mandate has been to measure and monitor Ontario’s competitiveness, productivity, and economic progress compared to other provinces and US states, and to report to the public on a regular basis. A independent not-for-profit organization is supported through the Ministry of Economic Development and Innovation.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
412
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
3
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Prospects For Ontario 2011 Task Force On Competitiveness, Productivity And Economic Progress

  1. 1. ProsPectsar 10 for oNtArIo’s ProsPerIty A look back and a look ahead Task Force on compeTiTiveness, producTiviTy and economic progress tenth Annual report November 2011
  2. 2. Chairman task force on competitiveness,roger L. martin Productivity and economic ProgressJoseph l. rotman school ofManagement The Task Force on Competitiveness, Productivity and Economic Progress was announced in the April 2001 Speech from the Throne. Its mandate is to measure and monitor Ontario’s competitiveness, productivity, and economicmembers progress compared to other provinces and US states. In the 2004 Budget,John armstrong the Government asked the Task Force to incorporate innovation and commer-the capital Markets company (capco) cialization issues in its mandate. The Task Force reports directly to the public.James L. Balsillie It is the aspiration of the Task Force to have a significant influence in increas-research in Motion ing Ontario’s competitiveness, productivity, and capacity for innovation. This, we believe, will help ensure continued success in the creation of good jobs,Timothy d. dattels increased prosperity, and a high quality of life for all Ontarians.tPG capital The Institute for Competitiveness & Prosperity is an independent not-for-Lisa de Wilde profit organization established in 2001 to serve as the research arm of thetVontario Task Force. Working Papers published by the Institute are primarily intended to inform the work of the Task Force. In addition, they are designed to deependavid Folk public understanding of macro and microeconomic factors behind Ontario’sJefferson Partners economic progress and stimulate debate on a range of issues related to com- petitiveness and prosperity.suzanne FortierNatural sciences and engineering Comments on this Tenth Annual Report are encouraged and should beresearch council of canada directed to the Institute for Competitiveness & Prosperity. The Task Force and the Institute are funded by the Government of Ontario through the Ministrygordon J. Homer of Economic Development and Innovation.Gordon J. homer advisory servicesp. Thomas Jenkins Copyright © November 2011opentext The Institute for Competitiveness & Prosperity ISBN: 978-1-927065-01-3david keddieNational compressed airL. Jacques ménard, o.c.bMo Nesbitt burnsmark mullinsVeras inc.Timothy H. pennerdaniel TreflerUniversity of toronto
  3. 3. ProsPects forontario’s ProsPerityA look back and a look aheadTenth Annual ReportNovember 2011
  4. 4. exhibitsmain ExhibitsExhibit 1 Ontario ranks among the leading international peers 8Exhibit 2 Ontario trails its North American peers 8Exhibit 3 Ontario’s prosperity gap widened slightly in 2010 9Exhibit 4 Ontario’s GDP performance compared to other Canadian provinces has been lackluster 10Exhibit 5 The Task Force has set out a 2020 Prosperity Agenda to narrow our prosperity gap 13Exhibit 6 The Task Force measures four components of prosperity 16Exhibit 7 Higher productivity is needed to close Ontario’s prosperity gap 17Exhibit 8 Lagging productivity accounts for most of our prosperity gap 17Exhibit 9 Ontario has a demographic advantage over our peers 29Exhibit 10 Ontario has a higher participation rate than peers 30Exhibit 11 Ontario’s unemployment rate fell and then rose again in the recession 31Exhibit 12 Ontario leads its peers in utilization of its working age population 32Exhibit 13 Ontario workers are on the job less than North American peers, but more than their international peers 33Exhibit 14 Ontario has a persistent and significant productivity gap 34Exhibit 15 Ontario has made good progress in awarding bachelor’s degrees, but still trails at the master’s level 37Exhibit 16 Ontario continues to trail in awarding business degrees 37Exhibit 17 Fewer Ontarians lack a high school diploma 38Exhibit 18 Unemployment rates are higher for those with less education 39Exhibit 19 Ontario’s managerial education gap has closed slightly 41Exhibit 20 The incidence of Ontarians living in poverty has not changed much 42Exhibit 21 In Ontario, public investment in education trails health care spending significantly 45Exhibit 22 Our businesses lag their US counterparts in productivity enhancing investments 46Exhibit 23 Ontario’s businesses trail in R&D investments 48Exhibit 24 Ontario businesses lag in patent creation 49Exhibit 25 Ontario is now a low tax jurisdiction for business investments 50Exhibit 26 Support and pressure drive innovation 52Exhibit 27 Ontario has a higher share of its workers in clustered industries 53Exhibit 28 Ontario’s lower percentage of population in metropolitan areas reduces its productivity 54Exhibit 29 Venture capital investment in Ontario trails US leaders’ quantity and quality 55Exhibit 30 Canada has negotiated or is in the process of negotiating several trade deals 56Exhibit 31 Ontario has gained Global Leaders since 1985, but has lost ten since 2003 57sidEbar ExhibitsExhibit A Larger food processing facilities are more productive 21Exhibit b Older workers are most severely affected by layoffs 402
  5. 5. contentsForEword & acknowlEdgEmEnts 4prospEcts For ontario’s prospErity 6our prospErity gap is a productivity gap 14 Four FActors mEAsurE ontArio’s prospErity gAp 16 Ontario has good work effort performance 16 Higher productivity is needed to close Ontario’s prosperity gap 19 productivity dEFicit is worsEning 22a tEn-yEar rEtrospEctivE and outlook For thE FuturE 24 work EFFort And productivity 28 Ontario’s prosperity growth needs to come from productivity growth humAn cApitAl 36 Our innovation performance depends heavily on our people and their capabilities invEstmEnt 44 Investments are the lifeblood of innovation and prosperity; Ontario businesses and governments need to invest more support And prEssurE 52 Public policy needs to drive both support and pressure to enhance our innovation performanceactions For innovation and prospErity 58prEvious publications 64  3
  6. 6. foreword & acknowledgements on bEhAlF oF ontArio’s tAsk ForcE on compEtitivEnEss, productivity And Economic progrEss, I am pleased to present our Tenth Annual Report to the Ontario public, Prospects for Ontario’s prosperity: A look back and a look ahead. Because of this special anniversary and the beginning of a new government in Ontario, we look back over the decade since 2001 and ahead to 2020 in this year’s Report. Our challenge has been, and continues to be, to achieve our full economic potential through higher productivity and more robust innovation performance. A recurring theme over the past ten years has been a recognition that Ontario is one of the most competitive and prosperous regions in the world. We have much to be thankful for – a rich endowment of natural resources, a tradition of building great physical assets and infrastructure to support prosperity, and a talented and diverse workforce that can get the job done. But despite these great strengths and solid economic results, we could do so much better. We have a wide prosperity gap with other large North American jurisdictions. The source of this gap is our inability to be as innovative as we could be in our economic life. While we lead most other regions around the world in competitiveness and prosperity, we do so largely by working more, not by being more innovative and productive – or working smarter. In taking stock of the past decade, we have some significant accomplish- ments to celebrate. Frankly, these accomplishments are more in the public policy arena than in the business sector. The provincial government has helped turn around our flagging investment in post secondary education. Along with the federal government, it has moved our tax system for business investment from being one of the world’s worst to one that is better than most. The province has worked closely with the federal government to expand international trade and has avoided the worrisome trend toward protectionism that we have seen elsewhere, particularly in the United States. Going forward, the provincial government should continue its international trade initiatives, keep investing in post secondary education, and explore new approaches to its Innovation Agenda. We urge the federal and provincial governments to build on our tax policy accomplishments by exploring funda- mental tax reform that is surely coming in other parts of the world.4 
  7. 7. While we lead most other regionsaround the world in competitivenessand prosperity, we do so largelyby working more, not by beingmore innovative and productive –or working smarter. The positive developments in public policy will not turn our innovationperformance around overnight. Education investments take up to a genera-tion to deliver a return, negotiations for trade deals are slow processes, andtax policy changes are just barely implemented. But they are a solid platformto support more innovation by our businesses. Our business leaders and people understand the need for innovation, butthey still need to turn these positive attitudes into action. They cannot becomplacent; instead, they must relentlessly pursue improved products,services, and processes. Our businesses have to step up investments ininnovation – from R&D and patenting to adapting existing technology to theirbusiness; from investments in physical capital to investments in human assets. As in past Reports over the decade, we offer a set of recommendations for anoverall Prosperity Agenda for 2020. And, as in the past, none is a quick fix, butthey put Ontario on the right track to build a more competitive and prosperouseconomy. Ontario has many of the building blocks to achieve its full prosperity,productivity, and innovation potential. Ontarians need to put them togetherfor the benefit of ourselves and our future generations. We gratefully acknowledge the research support from the Institute forCompetitiveness & Prosperity and the funding support from the Ministryof Economic Development and Innovation. We look forward to sharing anddiscussing our work and findings with all Ontarians. We welcome yourcomments and suggestions.Roger L. Martin, ChairmanTask Force on Competitiveness, Productivity and Economic ProgressDean, Joseph L. Rotman School of Management, University of Toronto 5
  8. 8. ProsPects forontario’sProsPerity01 116  CHAPTER
  9. 9. in this tEnth AnnuAl rEport to thE pEoplE oF ontArio, the Task Force onCompetitiveness, Productivity and Economic Progress looks back on the lastdecade of economic progress in the province and looks ahead with recommen-dations for stakeholders in our future prosperity. This historical and futureperspective is the essence of this year’s Annual Report, and is especially timelyas a new government begins its mandate. But even on this occasion for a long-term perspective, it is hard to avoid areview of the recent tumultuous past. Ontario, the rest of Canada, and count-ries around the globe have been on an economic roller coaster. And it’s notover yet. Over much of the decade since our establishment in 2001, Ontarioexperienced moderate growth in Gross Domestic Product (GDP). But it wastoo moderate for our economy to achieve its full economic potential. Andsince the beginning of the downturn in 2007, GDP growth has been anemic.The net effect is that between 2001 and 2010, Ontario’s GDP per capita hasbarely budged. Our stock market has been whipsawed. Between 2002 and 2008, the TSXindex more than doubled. It has swung dramatically in the past three years. The Canadian dollar has strengthened since 2002, when it was at 62 cents,reaching $1.08 in November 2007. Recently, it has fallen back from that highand stood near parity in October 2011. The dollar’s rise has certainly boosted pride among Ontarians, but it hadsevere consequences for our export industries, particularly manufacturing.Between 2002 and 2009, Ontario’s manufacturers shed 300,000 jobs. Whilethe hemorrhaging has stopped, there is no evidence that these jobs will becoming back soon. Despite the recent loses in manufacturing jobs, for most of the past decade,we have experienced low and declining unemployment rates. At the outset ofour work, Ontario’s unemployment rate stood at 7.0 per cent and then declinedto a low of 5.9 percent in May 2006. But, with the onset of the recession begin-ning in December 2007, the rate turned up to 9.4 percent, adding 261,000workers to the unemployment rolls. In last year’s Annual Report, we venturedthe hope that the recession was over, but the August 2011 unemploymentreport and other recent economic reports here in Canada and in the UnitedStates hint that we may be headed toward a double dip recession. The seeds for this decline and instability were not sown in Ontario.All developed economies are undergoing this turmoil. Ontario and Canadahave experienced less economic volatility than many other countries, andwe do not face the same level of challenges most do. Many have trulydaunting government deficits and debt loads, high average lengths ofunemployment, and financial systems that are still not back to full health.But we cannot be complacent, especially as economic indicators around theworld become more discouraging.  7
  10. 10. Our economy is standing still while other jurisdictions stay ahead of, or gain, on us. Exhibit 1 Ontario ranks among the leading international peers 2009 GDP per capita (C$ 2010) Ontario and international peers Hessen (GER) $52,600 Bayern (GER) Lombardia (ITL) Baden-Württemberg (GER) New South Wales (AUS) Ontario $45,600 Kanto (JP) $45,000 Median Cataluña (SPA) Vlaams Gewest (BEL) Nordrhein-Westfalen (GER) Rhône-Alpes (FRA) Kinki (JP) South East (UK) $39,800 Note: Because of limited GDP data on Kanto & Kinki, Japans national GDP growth rate from 2008 to 2009 is used to estimate Kanto & Kinkis GDP in 2009. All currencies converted to Canadian dollars using PPP. Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; Australian Bureau of Statistics; Ontario Ministry of Finance; Statistische Ämter Des Bundes Und Der Länder; Regional Statistical Yearbook Lombardia; National Bank of Belgium; Institut national de la statistique et des études économiques (INSEE); SNA Statistics National Accounts of Japan; Japan Statistics Bureau & Statistics Center; UK Office of National Statistics; Instituto Nacional de Estadística; Eurostat; OECD and IMF. Exhibit 2 Ontario trails its North American peers 2010 GDP per capita (C$ 2010) Ontario and North American peers New York $71,200 Massachusetts New Jersey Virginia California Illinois Texas Pennsylvania Median $54,200 North Carolina Indiana Ohio Georgia Florida Michigan Ontario $46,500 Québec Note: US GDP numbers converted to Canadian dollars using 2010 PPP. Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; Ontario Ministry of Finance; Banque de données des statistiques officielles sur le Québec; US Department of Commerce, Bureau of Economic Analysis and US Census Bureau.8  PROSPECTS FOR ONTARIO’S PROSPERITy
  11. 11. Even with all the economic uncertainty in the air, our message to Ontariansremains the same as it has been over the decade: we have great strengths as aprovince and yet we seem not to be able to achieve our full prosperity poten-tial. We offer no silver bullets or quick fixes to propel us out of this inertia.Instead, we recommend an ongoing Prosperity Agenda that takes us in theright direction and will pay off in the long term. We have seen some good progress on some aspects of our Agenda in recentyears. But, in many ways, our economy is standing still while other jurisdic-tions stay ahead of or gain on us. Among large advanced economies, we are one of the most prosperous, outpacing most regional economies in Europe, Japan, and Australia in GDP percapita (Exhibit 1). Our businesses, workers, and governments generate morevalue from our endowment of resources than most large diverse economiesaround the world. But, closer to home, in populous states and provinces in North America,Ontario ranks a dismal fifteenth out of sixteen. In 2010, Ontario trailed themedian of these North American peers by $7,700 per capita or 14.2 percent(Exhibit 2). (In all our analyses, unless otherwise stated we use constant 2010dollars converted at the Canada/US purchasing power exchange rateof 1.203.) This has changed little since 2002, when the gap was $6,300. Back in 1981,Ontario stood above the median. But through the recession of the early 1990s,we fell behind these large US states and have not been able to rank better thanfourteenth in the last decade (Exhibit 3). Exhibit 3 Ontario’s prosperity gap widened slightly in 2010 000 GDP per capita (C$ 2010) 1981–2010 $80 Peer leader 60 Peer median Ontario 40 20 0 ‘81 ‘85 ‘90 ‘95 ‘00 ‘05 ‘09 ‘10 Ontario Rank 8th 10th 13th 15th 15th 15th 14th 15th Prosperity lead/(gap) $400 ($600) ($1,800) ($5,700) ($7,500) ($6,500) ($7,100) ($7,700) Note: 1997 shows the break in the US method of calculating state-level GDP from SIC-based to NAICS-based. US state GDP numbers are converted to Canadian dollars using 2010 PPP. Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; Ontario Ministry of Finance; US Department of Commerce, Bureau of Economics Analysis and US Census Bureau.  9
  12. 12. We continue to believe that Ontario’s true benchmarks are other large,developed provinces, states, and regions around the world. But, to make more OntariO gdpconcrete this sense of economic drift in Ontario, it is also worth examining ourstanding inside Canada. per capita (c$ 2010) Our economic performance is falling behind that in other Canadian provinces.Against the three provinces where resource development accounts for morethan 30 percent of their GDP – Alberta, Saskatchewan, and Newfoundland &Labrador – Ontario fares poorly (Exhibit 4). This comparison is not particu-larly apt, as it is hard to credit these provinces with great economic policy 2001 $45,600when they benefit significantly from the increase in world prices of oil andother commodities. However, against the other non-resource provinces,Ontario’s performance has not shone either. No doubt, this is partly becauseour manufacturing industry has been severely hurt by the dollar and thecurrent global downturn. But we cannot expect a turnaround in this area. Sowe have to build a more innovative economy – the key to thriving in theincreasingly competitive global environment. In taking stock of the past decade, we have some significant accomplish- 2010 $46,500ments to point to. They are more public policy accomplishments that buildOntario’s capabilities, rather than private sector achievements. None willfix things quickly, but they put Ontario on the right track to build a morecompetitive and prosperous economy. Exhibit 4 Ontario’s GDP performance compared to other Canadian provinces has been lackluster 000 GDP per capita (C$ 2009) Canadian provinces, 2001–2009 $70 65 Resource-based economies (Alberta, Saskatchewan and Newfoundland and Labrador*) 60 $18,900 55 $15,400 50 45 Ontario $4,300 $7,700 40 Non resource-based economies (British Columbia, Manitoba, Québec, 35 New Brunswick, Nova Scotia, and Prince Edward Island ) 30 25 2001 2004 2007 2009 * The resource-based provinces with more than 30% of GDP from natural resources. Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada.10  PROSPECTS FOR ONTARIO’S PROSPERITy
  13. 13. • In our First Annual Report, we concluded that Ontario was not investing adequately in post secondary education. In that Report and in our subsequent work, we recommended that Ontario residents and its governments invest more in developing our human capital. In 2005, the provincial government introduced Reaching Higher, a $6.2 billion increase in funding for post secondary education. These investments in our colleges and universities created more spaces for our students at undergraduate and gradu­ ate levels. We have seen a steady increase in admissions to our colleges and universities. This fall, enrollments in our universities reached an all­time high with 90,000 new students. In colleges, most recent data for the years 2009 and 2010 also indicate a record high registration. Given the importance of post secondary education in strengthening the skills of Ontarians and on local economic development, these investments will pay off.• Through much of our work, we have been vociferous critics of our tax system. Our focus has been on the punishingly high marginal effective tax rates on new business investment. In our Seventh Annual Report, we observed that Ontario had the highest rates of taxation on new business investment among developed economies. Our corporate income tax rates were higher than those of many of our trade partners; we had an antiquated sales tax that piled tax on top of tax as businesses invested; and we had a capital tax to punish previous business investments. But our governments have been working at improving our tax system. In 2007, the federal government announced a stepped reduction in federal corporate income taxes – with rates falling from 22 percent in 2007 to 15 percent in 2012. Federal and provincial governments have eliminated capital taxes in Ontario. And, best of all, the provincial government converted our retail sales tax to a value added tax in 2010 and reduced corporate income taxes here in Ontario. The net effect is that Ontario’s tax regime has moved from worst among developed economies to being better than average. Again, we shouldn’t expect investment to increase dramatically overnight – and the improvements are not yet fully implemented – but we can now point to our tax system as a competitive advantage.• The Task Force has been urging the federal and provincial governments to expand international trade, an important element for improving our innovation capabilities. On the one hand, expanded trade means more export opportunities for Ontario businesses to reach larger markets to supplement our own, and to help support businesses as they grow and afford the investments in the innovation necessary to be competitive. Our businesses also benefit from the pressure exerted by more sophisticated customers from around the world.  11
  14. 14. On the other hand, more imports put pressure on our businesses, forcing them to expand their capabilities to meet new competitive threats. Some of our busi­ nesses are stretched too far by this competition and exit, as was the experi­ ence observed in Canada after the Canada­US Free Trade Agreement of 1987. In the past decade, Canada has negotiated several new bilateral trade deals. Currently, with the urging of Ontario and Québec, Canada is negotiating a freer trade deal with the European Union. And we are at the early stages of nego­ tiations with India and Brazil. While the US government sends mixed signals on its desire to expand trade, Canada is openly seeking new trade relations, and Ontario has been a significant partner with the federal government in this enlightened stance.• The Task Force has some accomplishments in ending bad public policy. In particular, we have been consistent proponents of ending special tax treat­ ment for particular kinds of venture capital, namely Labour Sponsored Investment Funds (LSIFs). Based on the mistaken premise that Ontario’s innovative startup firms need access to greater quantity of capital, regardless of its quality, the Funds offered generous tax benefits to individual “retail” investors. These investors generated a return through RRSP tax breaks. They were less interested in, and capable of, supporting specific startups with experience and specialized knowledge – as important to startups as capital. Because LSIFs did not attract sophisticated investors and suffered from other design flaws, they did not help raise the quality of venture capital – at great cost to the taxpayer. In August 2005, the provincial government announced the end of the special tax benefits for LSIFs by 2012. We encourage the incoming government to keep their demise on schedule. These accomplishments are important steps in the right direction. But ifour economy is to reach its full potential for the future prosperity of today’sOntarians and our children, we have to step up our innovative capabilities.More of our businesses have to compete globally on the basis of uniqueproducts, services, and processes. Our prosperity gap is a productivity gap, and our productivity gap is aninnovation gap. When economists observe that productivity in Canada andOntario is lagging, they are seeing the results of a sub-standard innovationrecord among our businesses. Improving innovation has to be our priority forthe coming decade.We urge the new Ontario government to embrace our 2020 ProsperityAgenda and thus achieve our innovation and prosperity potential.When the 2021 Annual Report is written, we hope that all Ontarianswill look back on a decade of real accomplishment.12  PROSPECTS FOR ONTARIO’S PROSPERITy
  15. 15. We continue to propose actionsthat will help Ontario realize our2020 Prosperity Agenda.Exhibit 5 The Task Force has set out a 2020 Prosperity Agenda to narrow our prosperity gap Goal: Raise innovation, Looking back Looking forward productivity, and prosperity 2001–2011 2011–2020 Prosperity gap Fell to 20th among 28 international Rank as 10th most prosperous and North American peers among North American and international peers Work effort and productivity Worked more but not smarter – Become a global leader in innovation Ontario is a productivity laggard and productivity Human capital Increased our investment in education Attain more master’s degrees in our universities Improved performance in attainment of post secondary degrees Strengthen managerial capacity Progressed little in managerial capacity Investment Lagged peers’ business investment in Rise to the challenge of globalization innovative technologies or R&D by businesses investing to raise their capabilities Improved tax policy to support business investment Introduce real innovations in federal and provincial tax policy Shifted balance away from education to health care Ensure deficits are not fought through severe cuts in education Support and pressure Completed several small trade deals Focus on large-scale trade deals Announced end to special tax Pursue policies to enhance venture treatment for Labour Sponsored capital quality and identify innovation Investment Funds financing models  13
  16. 16. ourProsPeritygaP isa ProductivitygaP14  CHAPTER
  17. 17. in cArrying out its mAndAtE to along the way add value at every step. and services will increase the GDP ofmeasure and monitor Ontario’s A sandwich bought in a restaurant a region – and usually earn highercompetitiveness and prosperity, the begins with a farmer sowing and wages and profits for themselves.Task Force has focused on Gross harvesting grain. Between the farmerDomestic Product (GDP) per capita as and the consumer are many inte- Innovation is a key to higher valuethe summary measure of success. grated steps, where value is added by added. This is true whether it is theOver the decade, we have concluded intermediaries – both by manufactur- driver in creating better products orthat our performance has lagged that ers, like a bakery, and by service services without increasing costsof our peers in the United States and providers, like a restaurant. Value faster than prices, or in makingabroad, giving rise to a large and added at each stage is shared production processes leaner withoutwidening prosperity gap. between the worker and the business lowering quality. owner – higher value added meansGDP is highly correlated with higher wages and profits – and The advent of globalization has seenaggregate personal income and this continues until a good or the movement of low value addedwages in an economy. Wage earners service is produced and provided processes to lower wage countriesin Ontario receive about 55 percent of to a final consumer. The total value like China and India. Advancedtotal GDP, and wages increase along added throughout the production economies like Ontario will notwith GDP. GDP is also the key driver chain is the sum of each of the thrive by attempting to hang on toin government revenues, so that individual processes. low value added activities. Rather,public services can be afforded when they must innovate relentlesslyGDP grows. As we have discussed in Understanding value added is an to deliver higher value addedpast reports, our lagging GDP has real important step in addressing innova- products, services, or processes –negative consequences for average tion and productivity issues. and higher GDP.Ontarians. Wages, living standards, Companies with higher value addedand public investments are lower processes are likely to produce more 1 Centre for the Study of Living Standards, Does Money Matter? Determining the Happiness ofthan they would be if economic innovative and more complex Canadians, November 2010, updated February 2011, available online: http://www.csls.ca/performance were comparable to that products – and have higher produc- reports/csls2010-09.pdfof our peers. tivity. Their products and processes 2 Institute for Competitiveness & Prosperity, Working Paper 14, Trade, innovation, and are also more defensible in the global prosperity, September 2010, pp. 39­43.GDP also correlates with personal market place, making the homehappiness as measured across country more competitive. Thecountries by organizations industries that were most immune tolike Gallup. Our own work in the overall turndown in manufactur-collaboration with the Centre for ing between 2002 and 2008 pro-the Study of Living Standards has duced products with higher valueshown that in Canada personal added and drew on more creativeincome is positively correlated with skills in their operations.2reported happiness.1 Value added also matters to a countryGDP represents the “value added” or region. Essentially a country’s orto our endowed base of human, region’s GDP is the sum of all thephysical, and natural resources. value added in the economy. PeopleAs products and services are created, and companies that innovate anddifferent people and organizations produce higher value added products  15
  18. 18. four factors measure • Productivity. For each hour worked Profile remains an advantageontario’s prosperity gap in a jurisdiction, how much economic for Ontario. The percentage of the output is created by a jurisdiction’s population that is of working age –Ontario has a significant prosperity workers? aged 15 to 64 – is the demographicgap, as measured by GDP per capita. basis for prosperity. With moreOut of sixteen North American The first three factors – profile, people in that age range, a higherpeer jurisdictions, Ontario stands utilization, and intensity – add up to percentage of the population canfifteenth, and the gap versus the our work effort, or the hours worked work and create economic value.median has been widening. To under- per capita to create economic value. In Ontario, this ratio has been stablestand the reasons for this prosperity The fourth factor – productivity – over the short run and has had nogap, we draw on the same framework measures how effectively we add appreciable impact on changes inwe have used in our previous reports value to resources, thereby creating our prosperity gap versus our peerto disaggregate GDP per capita into economic value and prosperity. states. Nevertheless, it creates anfour measurable elements (Exhibit 6): ongoing starting advantage in In 2001, Ontario lagged its North Ontario’s prosperity.• Profile. Out of all the people in a American peers in both work effort jurisdiction, what percentage are and productivity. A decade later, In 2010, 69.4 percent of Ontarians of working age and therefore able Ontario matches peer states in work were aged 15 to 64. Among the to contribute to the creation of effort but lags more in productivity peer jurisdictions, Ontario and products and services that add (Exhibit 7). That means our pros- Québec have a higher percentage of economic value and prosperity? perity gap is now a productivity gap. working age population than the And, as we’ll see, our productivity fourteen peer states. Relative to the• Utilization. For all those of working gap is an innovation gap. 67.3 percent median of the sixteen age, what percentage is actually peer jurisdictions, Ontario has a working to add to economic value ontario has good work effort 3.0 percent potential profile and prosperity? performance advantage.3 Holding all other factors Ontario continues to have a demo- constant, we calculate this advantage• Intensity. For all those who are graphic profile advantage versus the to be worth $1,800 in per capita GDP. employed, how many hours do they peer states and Québec, an advan- spend on the job in a year? tage in utilization, but a significant 3 Calculated as 1 minus [67.3 (Peers)/ 69.4 (Ontario)] = 3.0 percent. intensity gap (Exhibit 8). Exhibit 6 The Task Force measures four components of prosperity Prosperity Profile Utilization Intensity Productivity Potential labour force Employed persons Hours worked GDP GDP per capita Population Potential labour force Employed persons Hours worked • Participation • Industry mix • Employment • Cluster mix • Cluster effectiveness • Urbanization • Education • Capital investment • Productivity residual Source: Adapted from J. Baldwin, J.P. Maynard and S. Wells, “Productivity Growth in Canada and the United States,” Isuma Vol. 1 No. 1, Spring 2000, Ottawa Policy Research Institute..16 PROSPECTS FOR ONTARIO’S PROSPERITy
  19. 19. Exhibit 7 Higher productivity is needed to close Ontario’s prosperity gap Source of Ontarios prosperity gap with North American peers (C$ 2010) Work effort (Hours worked per capita)1,000 North American peer median 900 Prosperity gap (GDP per capita) Ontario $60,000 North American 800 peer median 50,000 700 Ontario 1981 1990 2000 2010 40,000 Productivity (GDP per hour worked) $70 North American peer median 30,000 60 20,000 50 Ontario 1981 1990 2000 2010 40 30 1981 1990 2000 2010Note: Currency converted at PPP = 1.203. In 1997 state GDP calculation method changed from SIC-based to NAICS-based.Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; US Bureau of Economic Analysis; US Bureau of Labor Statistics;US Census Bureau.Exhibit 8 Lagging productivity accounts for most of our prosperity gap Elements of GDP per capita (C$ 2010) $1,300 $1,200 $1,500 $1,800 $2,000 $54,200 $4,100 $46,500 $6,000 $1,500 $1,200 $1,000 $1,700 Prosperity Gap $7,700 or 14.2% of median GDP per capita Work effort advantage Productivity gap $200 $7,900 Median GDP Profile Participation Employment Intensity Industry Cluster Cluster Urbanization Education Capital Productivity Ontarios per capita mix mix effectiveness investment residual current GDP per capita (85.8% of median) Profile Utilization Intensity ProductivitySource: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; Ontario Ministry of Finance; Banque de données desstatistiques officielles sur le Québec; US Department of Commerce, Bureau of Economic Analysis; Bureau of Labor Statistics; US Census Bureau. OUR PROSPERITy GAP IS A PRODUCTIVITy GAP 17
  20. 20. Over the last decade, laggingproductivity has accounted for thegreatest share of Ontario’s prosperitygap with our peers, and in 2010 thisproductivity gap widened further.Demographic projections indicate In the other component of utilization, worked 1,670 hours, while at thethat, as in Québec, the proportion of employment, Ontario has an advan- median of the peer states, the averageOntarians of working age will decline tage over our US peers – even though employee worked 1,830 hours. Thisover the coming decades as baby our own performance has been poor. gap of 160 hours, or 4.3 weeksboomers retire and are not replaced In 2010, our annual unemployment annually, widened slightly fromby equal numbers in subsequent rate decreased to 7.9 percent, down 2009, when Ontario trailed the peergenerations. Still, the projections from 8.3 percent in 2009.8 This is median by 150 hours weekly or 4.1indicate that Ontario will maintain lower than the median rate across weeks. In 2010, our intensity gapits advantage versus its peers.4 peer jurisdictions of 9.8 percent. In equated to $4,100 in GDP per capita. other words, on average throughNevertheless, Ontario will have 2010, 92.1 percent of those Ontarians Ontarians’ propensity to take morefewer workers to create prosperity in participating in the work force had weeks of vacation and to have athe coming years. We estimate that full-time or part-time work, which higher percentage of part-time workby 2025 the smaller percentage of was higher than the median perfor- is the key driver of the intensity gap.9working age Ontarians will reduce mance of the peer jurisdictions, 90.2. Another factor behind the intensityGDP per capita potential by $2,300.5 This 1.9 percentage point advantage gap is the inability of part-timeWe will need creative retirement lifted our relative GDP per capita per- employees to find full-time work.solutions to address this decline in formance by $1,200 in 2010. This gap is felt most by severalour prosperity potential.6 disadvantaged groups, such as high In summary, in 2010, Ontario school dropouts and lone parents.Ontario has higher utilization employed 60.1 percent of its workingthan the peer states. Over the age population (the combined effect As we have seen, in the three workpast decade, Ontario has been more of a 65.2 percent participation rate effort factors, Ontario has a profilesuccessful than our peer states in and a 7.9 percent unemployment advantage, the percentage of ourcreating jobs. We perform well in the rate), ranking third among the sixteen population of working age, and atwo factors that make up utilization peer jurisdictions and above the peer utilization advantage, the percentage– relatively high labour force partici- median of 58.1 percent. This superior of Ontario adults who are working.pation rates and relatively low performance translates into a $2,500 Still, the intensity gap, our lowerunemployment rates. utilization advantage (the combined effect of a $1,300 participation 4 Task Force on Competitiveness, Productivity and Economic Progress, Fourth Annual Report,We rank fifth among the peer juris- advantage and a $1,200 employment Rebalancing priorities for Ontario’s prosperity,dictions in workforce participation. In advantage) in GDP per capita. November 2005, p. 29. 5 This comparison is between Ontario’s GDP per2010, 65.2 percent of Ontarians fifteen capita in 2005 and its potential in 2025; not the difference between Ontario and its peer group.years of age and older worked or sought Ontario employees work fewer 6 Institute for Competitiveness & Prosperity,work.7 The median participation rate hours than their US counter- Working Paper 9, Time on the job, September 2006, p. 21.was 63.7 percent. The US recession hurt parts – and this intensity gap 7 Statistics Canada reports Ontario’s participationparticipation rates, as many workers just remains a significant part of rate to be 67.1 percent; US definitions for who qualifies for inclusion in the labour force, andgave up looking for employment – and our prosperity gap. While therefore is included in the participation rate,were not counted in the participation Ontario has better demographics and differ from Canada’s definitions. We use US definitions for our calculations of differencesrate. Ontario’s participation rates have creates more jobs, we have a signifi- between Ontario and its US peers.also fallen during the recession. But we cant intensity gap – our workers are 8 These unemployment rates are based on US definitions; official Canadian unemployment ratescontinue to out perform our peers. In on the job fewer hours in a year than were 8.7 percent in 2010, down from 9 percent2010, Ontario’s advantage translated their counterparts in the peer states. in 2009. 9 Working Paper 9, Time on the job, pp. 22­24.into $1,300 in GDP per capita. In 2010, the average Ontario worker18  PROSPECTS FOR ONTARIO’S PROSPERITy
  21. 21. number of hours worked per worker, the presence of clustered industries relative employment strength incontinues to be a major factor in our in a region has a positive spillover financial services, automotive, metalprosperity gap. effect, in that they typically generate manufacturing, publishing and print- opportunities for increased success of ing, and other industries has created anThe net effect of these factors is a the local economy. attractive mix of clustered industries.$200 advantage versus the median of Ontario’s cluster mix yields a $1,500our peer jurisdictions. This relative The other major industry type per capita advantage over our peers.strength in work effort is overwhelmed, includes dispersed industries, or localhowever, by our poor productivity. industries. These industries, such as Cluster under performance is retailers and restaurants, tend only to a significant part of Ontario’shigher productivity is serve their local markets and so do productivity gap. While Ontarioneeded to close ontario’s not realize economies of scale and are has an excellent industry and clusterprosperity gap less challenged to be innovative. As a mix, cluster effectiveness, as mea-Over the last decade, lagging consequence, they have lower rates of sured by wages, is much lower thanproductivity has accounted for the productivity, innovation, and wages. that in the peer states. In the samegreatest share of Ontario’s prosperity clusters, wages in Ontario firms aregap with our peers, and in 2010 this A third industry type, natural lower than those of their counter-productivity gap widened further. Six endowment industries, is located parts across the peer states.elements of productivity determine where the natural resources arethe impact of this key driver of our found. These include forestry, Across all clustered industries, theprosperity gap: mining, and agriculture. These are average wage in Ontario is 14.7 very small industries for both our percent lower than the average in the• Mix of industries overall peers and Ontario – accounting for median peer state. This lower wage• Mix of clustered industries less than 1 percent of employment in reflects lower productivity and• Productivity effectiveness of our Ontario in 2010. innovation in our clustered indus- clustered industries tries, which in turn reduces economic• Degree of urbanization Fully 34.1 percent of employment in performance across all industries.• Educational attainment Ontario is in the 41 clustered indus-• Capital investment tries versus the median of 27.7 10 See http://data.isc.hbs.edu/isc/cmp_overview.jsp for a description of the three types of industries. percent in the peer jurisdictions. We Note: we refer to Porter’s “traded industries” as “clustered industries” and his “local industries” asIndustry mix contributes estimate the potential productivity “dispersed industries.”positively to our productivity. benefit from this higher percentage of 11 Institute for Competitiveness & Prosperity, Working Paper 1, A View of Ontario: Ontario’sOntario benefits from a mix of indus- clustered industries in our industry Clusters of Innovation, April 2002, and Workingtries that is more heavily weighted mix contributes $2,000 per capita. Paper 5, Strengthening structures: Upgrading specialized support and competitive pressure,toward clustered industries,10 and This benefit is derived from a higher July 2004.within these clustered industries, we output than should be achieved from 12 It is important to note that our measure focuses on the mix of industries only. It calculates thehave a mix that is more favourable for a better industry mix.12 productivity performance we could expect inproductivity and prosperity than that Canada if each cluster were as productive as its US counterpart. It does not measure thein the peer states.11 The geographic Within clustered industries, effectiveness of our industries in Canada.clustering of firms in the same and Ontario has a beneficial mix.related industries increases productiv- Some of the 41 clustered industriesity and innovation. These clustered contribute more to productivity andindustries typically sell to markets innovation than others – so the mix ofbeyond their local region. In addition, clustered industries matters. Ontario’s OUR PROSPERITy GAP IS A PRODUCTIVITy GAP 19
  22. 22. As we discuss in our review of Relatively low urbanization is a productivity would be higher by $1,200Ontario’s innovation results, Michael significant contributor to our per capita. As we shall see, Ontario hasPorter has observed that specialized productivity and prosperity narrowed this educational attainmentsupport from excellent factor condi- gap. Urban centres lead to higher gap over the last decade; when updatedtions, capable suppliers, and related productivity as a result of the educational attainment and wageindustries pushes innovation higher increased social and economic information is available from thein traded clusters. At the same time, interaction of people in firms in latest census, we expect this disad-more competitive pressure from metropolitan areas, the cost advan- vantage in GDP per capita to shrink.sophisticated customers and vigorous tages of larger scale markets, and arivals drives innovation. As we have more diversified pool of skilled Lower capital investmentdiscussed in the past,13 our structures labour. The interplay of these factors reduces productivity. Ontarioof specialized support and competi- promotes innovation and growth in businesses have under invested intive pressure are inadequate relative an economy. machinery, equipment, and softwareto the experience in clusters of traded relative to their counterparts in theindustries in the peer states. In other Since fewer people live in metro- United States, so that the capital baseresearch, we have found that Ontario’s politan areas in Ontario than in the that supports workers in Ontario isclustered industries draw less on peer states, our relative productivity not as modern as that of theirworkers in creativity-oriented and prosperity potential are lower. counterparts in the peer states.18 As aoccupations than their counterparts Our analysis this year indicates that result, Ontario workers are not asin the peer states.14 Another source of we have a $1,500 per capita dis- productive. This under investment inclustered industries’ under perform- advantage against the peer median capital equipment lowers Ontario’sance is the smaller scale of operations that is related to our lower level of productivity by $1,000 per capita,in our manufacturing facilities. (See urbanization. based on our simulation of Ontario’sOur manufacturers need to increase GDP if our economy had matched thethe scale of their operations.) Lower educational attainment rate at which the US private sector weakens our productivity.If Ontario clusters were as effective Economists agree that a better 13 Task Force on Competitiveness, Productivity and Economic Progress, Third Annual Report,as US clusters, wages would be educated workforce will be more Realizing our prosperity potential, November 2004, pp. 40­48.$14,000 per worker higher. As productive. Education increases 14 Idem. Eighth Annual Report, Navigating throughclustered industries account for 34.1 workers’ base level of knowledge and the recovery, November 2009, pp. 27­29.percent of Ontario employment and increases the flexibility necessary for 15 We have netted out the effects of Ontario’s lower urbanization, our under investment in capital, and ourgiven the relationship between wages improved job performance and lower educational attainment in this calculation.and productivity, our overall produc- ongoing skills gains. Many studies 16 For example, see Ana W. Ferrer and W. Craig Riddell, “The Role of Credentials in the Canadiantivity would rise by 14.3 percent.15 show that increased wages accrue to Labour Market,” Canadian Journal of Economics, 2002, Vol. 35, No. 4; Statistics Canada,From this, we estimate the productivity more highly educated individuals.16 “Education and earnings,” Perspectives on Labourloss from the lower effectiveness of And higher wages are the result of and Income, 2006, Vol. 38, No. 3; and Anil Verma, “Low Wage Service Workers” A Profile,” Workingour clusters to be $6,000 per capita. higher productivity.17 Ontario’s Paper Series: Ontario in the Creative Age, Martin Prosperity Institute, March 2009. population has, on average, a lower 17 Task Force on Competitiveness, Productivity andAdding together the effects of level of educational attainment than Economic Progress, Sixth Annual Report, Path to the 2020 Prosperity Agenda, November 2007,industry mix (+$2,000), cluster mix those living in the United States, p. 30.(+$1,500), and effectiveness Adjusting the mix of educational 18 Capital investment results are not available at the sate level. Our analysis uses US results to(-$6,000) Ontario’s clustered indus- attainment in Ontario to match the estimate peer state investments and comparestries provide a net loss of $2,500 in US mix and holding wages constant these to Ontario.GDP per capita versus the peer states. at each attainment level, Ontario’s20  PROSPECTS FOR ONTARIO’S PROSPERITy
  23. 23. our manufacturers need to increasethe scale of their operationsOntario manufacturers need to increase the size of their operations,because larger facilities have more investment in technology, aremore likely to support R&D investments, and are more productive.Research by the George Morris Centre and the Institute for food industry, our processors tend to be much smaller. FromCompetitiveness & Prosperity shows that our food process­ a public policy perspective, infrastructure investments, suching industry could increase its productivity with bigger facil­ as those in border crossings are required. And, despiteities. Food processors whose size, as defined by sales per Canada­US free trade, the border still matters. Foodestablishment, puts them in the top quartile create twice as processors looking to expand production in sectors like dairymuch value added per employee as the average sized facility and poultry are challenged to secure access to producers(Exhibit A). with adequate quota volumes. So we also need to take a To improve the productivity and innovation in manufactur­ hard look at our supply management policies in agriculture,ing in general – and food processing in particular – our and the unintended effects these policies may have onbusinesses need to explore consolidation opportunities and manufacturing industries.strategies for serving larger markets. Compared with the US Exhibit A Larger food processing facilities are more productive Value added per employee 2004–2008 $000/ employee $120 Largest facilities (top quartile by employment) 90 60 Mid-sized facilities (2nd and 3rd quartiles) 30 Smallest facilities (bottom quartile)  0 2004 2005 2006 2007 2008 Source: Institute for Competitiveness & Prosperity and George Morris Centre analysis based on Statistics Canada special tabulation of data from Annual Survey of Manufactures. OUR PROSPERITy GAP IS A PRODUCTIVITy GAP 21
  24. 24. invested in machinery, equipment, It is difficult to project what will Our current challenge is to recoverand software. An important part of happen in this unusual downturn – from the recession and to buildthis capital investment gap is in it is quite likely that official data will our full prosperity potential for thepurchases of information and be revised. But our productivity benefit of all Ontarians. But forcommunications technology (ICT). weakness is real and getting worse the long term, higher productivity (see Exhibit 3), widening our is critical to our success. AndThe residual is related to prosperity gap. Sluggish productivity improving our productivityproductivity. We have been able to growth is a critical reason we are means improving our innovationaccount for the impact of profile, not realizing our prosperity performance.utilization, and intensity on prosper- potential. And, as we broaden ourity. We have also accounted for the perspective beyond North America, 19 Task Force on Competitiveness, Productivity and Economic Progress, Ninth Annual Report, Today’seffects of several elements of pro- we see that Ontario’s productivity innovation tomorrow’s prosperity, Novemberductivity. The $1,700 per capita gap lags globally as well. 2010, pp. 27­28.that remains is related to productivityon the basis of like-to-like industry Ontarians have built one of the mostmix and strength, urbanization, globally competitive jurisdictions.education, and capital intensity. Ontario’s prosperity compares favourably with that in thirteenProductivity deficit international peer regions – selectedis worsening using similar criteria for identifying North American peers.19 OntarioThrough most of the 1980s, Ontario’s stood sixth in GDP per capita in 2010prosperity was close to the median of (see Exhibit 1). However, just as wethe peer states. During that period, have found in comparisons withwe had a productivity and intensity North American peers, we trail thedisadvantage versus our peers – but median of our international peers inour utilization advantage compen- productivity (see Exhibit 14). Wesated for this. Our prosperity gap work more than those outside Northbegan to develop at the outset of the America, but we are less successful at1990–92 recession, driven mostly by adding economic value in the hoursour worsening participation and we work. These international com-unemployment rates. parisons again indicate that lagging productivity remains Ontario’sThis utilization problem began to problem to solve.dissipate around 1997, and by 2001 itwas an advantage again. However,our productivity disadvantage beganto grow in 1995, and by 2005 it hadmore than doubled. In the currenteconomic downturn, work effort hasfallen off much more in the peerstates than in Ontario, while produc-tivity has grown faster than Ontario’s.22 PROSPECTS FOR ONTARIO’S PROSPERITy
  25. 25. a ten-yearretrosPectiveand outlookfor the future
  26. 26. As wE dElivEr our tEnth AnnuAl rEport to the public of Ontario, weconsider progress and accomplishments in several areas. Overall, we have tobe disappointed in the lack of progress of our competitiveness and prosper-ity. As we have shown, Ontario trails our North American peers significantlyin GDP per capita and this gap has widened through the decade. Against ourinternational peers, we continue to out perform, but our lead is shrinking. Tounderstand what has happened and offer an outlook for the future, we look atfour major factors in our prosperity performance.• We begin by detailing our progress in the two key drivers of prosperity – work effort and productivity. In both North American and international comparisons, Ontario performs very well in work effort – we excel at creating jobs for our people. But we trail both sets of counterparts in productivity. Productivity measures our ability to develop innovative processes and to create and market new products and services. We are laggards among our peers, and the gap is widening. As we look back and look ahead, we focus on the various elements thataffect our innovation and productivity:• We examine progress in building the capabilities of our human capital, assessing them overall and among managers. We also review our progress in reducing poverty• We assess the extent to which we have made investments in our people and businesses to achieve greater productivity and innovation• We review important parts of the support and pressure in our economy that lead to more innovation.As we review progress on our 2020 Prosperity Agenda, it is clear thatthere is no one magic solution hiding in the following pages – no silverbullet that will single handedly close our prosperity gap. Rather, we havework to do in many areas – from investing in our people, to developinginnovative business strategies, to tax reform, and to expandedinternational trade. So long as our political and business leaders andall Ontarians have a determination to achieve our full prosperitypotential and to work together on many fronts, we are confident inour outlook for Ontario.  25
  27. 27. what haPPenedin ontario in thePast decade? Work effort and productivity Human capital Federal GST reduced from 7% to 6% investment Minimum wage pressure and increases begin support Ontario: A Leader in Learning (Rae Report) released Provincial Capital Tax for manufactur- ing and resource Post secondary activities ends tuition freeze Reaching Higher launched 2002 2003 2004 2005 2006 2007 Recession ends New rules on over- time and work week Federal Working TSX low Highest Post secondary Income Tax 5,695 participation rate 68.7% tuition freeze ends Benefit (WITB) introduced New Canada Health Transfer and Canada Social Transfer Block Grants announced Lowest School atten- unemployment rate dance to age 18 5.9% made mandatory Mandatory retirement ends26  PROSPECTS FOR ONTARIO’S PROSPERITy
  28. 28. Internationally Educated Engineers QualificationBridging Program launched Nortel bankruptcy Ontario Cabinet Committee on Poverty Green Energy Act passed Reduction established Canada-EU trade Staged federal negotiations begin corporate tax reductions begin from 22% to 15% in 2012 Ontario manufacturing employment low 770,000 Putting Students First announced US recession Lowest begins participation rate 66.7% 2008 2009 2010 2011 2012 Federal GST reduced from 6% Student to 5% financial aid improvements announced TSX high Provincial Capital R&D review 15,073 Tax completely panel report released eliminated HST begins Compete to Win (Wilson Panel) released Highest unemployment rate 9.4% Canadian dollar high $1.08 Staged provincial corporate tax reductions begin from 14% to 10% in 2013  27
  29. 29. work effort andProductivityOntario’s prosperity growth needs to comefrom productivity growthtwo FActors drivE ontArio’s prospErity:• Work effort, how much work Ontarians are doing, expressed in hours worked per capita, and• Productivity, how much value we create when working, expressed as GDP per hour worked. Ontarians excel in the first factor – generating work hours per capita.We start with an excellent demographic base, as the percentage of ourpopulation that is of working age is the highest among our peers. We arevery successful in creating jobs for our working age population, and eachworker works more hours than our counterparts outside of North America,although we trail US workers. The net effect is that Ontarians are amongworld leaders in work effort. Our prosperity challenge is driven by the second factor, our trailingproductivity. It is the major factor behind our prosperity gap. Productivitygrowth comes from finding smarter ways to compete – through new operatingefficiencies and new products and services. That means that innovation andproductivity performance are nearly synonymous – and are the keys to ourfuture prosperity Productivity growth has no limits. Our work effort may become constrainedover time by our demographics. But our ability to become more productiveand prosperous will depend on translating our imagination and ingenuity intoeconomic competitiveness and success in the global economy.28  PROSPECTS FOR ONTARIO’S PROSPERITy
  30. 30. ontario’s demographics are an advantage Exhibit 9 Ontario has a demographic advantage over our peers prOfile: a lOOK aHead Percent of population aged 15 to 64 2001–2010 2010 2020 70% Ontario 69.4 OntariO North American 68 peer median 67.3 66 International 65.9 69.4 % 66.1 % peer median nOrtH american peer median 64 62 67.3 % 64.4 % 2001 2004 2007 2010 internatiOnal peer median Note: Projections are based on medium growth assumptions. Due to limited data, national profile projections are used for Kinki and Kanto (Japan), and Rhône-Alpes (France). 65.9 % 64.3 % Source: Institute for Competitiveness & Prosperity analysis based on data from Statistics Canada; US Census Bureau; Australian Bureau of Statistics; Statistics Belgium; Institut national de la statistique et des études économiques; LIstituto Nazionale di Statistica; Instituto Nacional de Estadística; UK Office for National Statistics; Statistisches Bundesamt Deutschland; Japan National Institute of Population and Social Security Research.why profile matters how ontario performs The projections also point to theProfile is the starting point in Ontario has a very advantageous importance of enabling our olderdetermining our prosperity potential. demographic profile (Exhibit 9). We workers to stay in the labour forceDemographic “profile” refers to the have a higher percentage of our popu­ longer – if they wish. We will benefitpercentage of the population that is of lation between the ages of 15 and 64 from more workers, and we are atworking age. Currently defined as than all our North American and inter­ the point where older workers arebetween ages 15 and 64, it is clear national peers. more active and healthier than inthat the upper age limit will likely rise the past. We need their experienceas life expectancy increases and outlook for 2020 and judgment.options for later retirement expand. On this factor, we can predict with To the extent that a society has more much more safety how the next fewworking age people, it also has more decades will turn out, as the key“human capital” able to contribute to variables – current age distribution,prosperity through work and support mortality rates, and fertility rates –activities. Here in North America, we are either set or change very slowly.take this factor for granted, as we have Based on projections done bybenefited from the baby boomers being Statistics Canada, we show thatof working age. However, countries Ontario’s demographic profile willlike Japan and those in continental worsen as the percentage of ourEurope are feeling the effects of an population that is of working age turnsaging population – with fewer young down. On the positive side, we will notpeople available to work and more be disadvantaged as a result of this,elderly people requiring social and because other jurisdictions will farehealth care assistance. worse than us. Immigration has and will continue to benefit our demographic profile. But we need to make sure that we do a better job of integrating new arrivals into our economic mainstream. WORk EFFORT AND PRODUCTIVITy 29

×