Sunday, August 05, 2007

Ontario in decline! (Maybe.)

ontario-could-lose-20070803 According to this article in the National Post, some think-tank economist has decided Ontario's position is threatened.
In his analysis, Mr. Orr said that in the mid-1980s, Ontario's standard of living was 15% above the Canadian average, and for a time was briefly tied for first with Alberta in 1986 and 1987. But that has dropped, to roughly 9% above the national average in 2002 and only 7% last year. And it is set to fall farther, according to Global Insight's forecast, to 5.5% above average this year and only 4% by 2010.
The problem with this kind of argument is that Ontario is so large within the Canadian picture that it more or less defines the average.

As is often the case, the hard-working editors at wikipedia have done much of the leg-work which can be seen here. Ontario, as you'll see, makes up 41.5% of Canada's GDP. With 38.9% of its population (12.68 million of Canada's 32.63 million inhabitants.)

If Ontario really had a standard of living 15% above the Canadian average in the mid-eighties, it was surely because of a sagging economy elsewhere in the country, not any great dynamism in Ontario. That those economies have made some recovery now is to celebrated, not decried.

In any case, it's worth noting how selective Dr. Orr in his numbers. Is the problem Ontario's GDP growth? Not really, since that has been fine. Per capita GDP? No, that is fine, too. Rather, he is looking at how much Ontario's per capita GDP is above the Canadian average, which in itself isn't a very helpful number.

Why? The reason comes further down in the article.
The year 2002 is key because the Canadian dollar was trading at about US62, meaning it was easier for Ontario's manufacturing sector to sell goods abroad. Since then, Mr. Orr said, the appreciating Canadian dollar and higher energy prices have limited Ontario's growth. Moreover, "relatively high business taxes have contributed to relatively weak investment climate," Mr. Orr said.

This is in contrast to Alberta. Economic growth in that province has outpaced the Canadian economy "by a wide margin" in every year since 2003, and as a result Alberta's standard of living is 24% above the national average.

But higher energy prices are not the only contributing factors to Alberta's economic strength.

"Alberta has also offered an 'open for business,' low-tax environment," his analysis said. "The oilsands and this 'open for business' investment climate are expected to provide Alberta with a stronger pace of economic growth over the 2007 to 2012 period than any other province."
And here, I suggest, is the point: to manufacture a reason to lower Ontario's business taxes. There are presumably arguments for and against such a measure and these should be judged on their own merits. But this is not one of them.