Dylan Jones is President & CEO of the Canada West Foundation, a western-based public policy think tank.
Saskatchewan Premier Brad Wall is right when he says that Ontario’s protectionist rules favouring local firms in government contracts are unfair to industries in other provinces. He could have easily added that Ontario is also hurting itself with these policies.
There is a simple appeal to the idea that when Ontario spends money to buy things, it should buy them locally to create jobs close to home. After all, Ontario’s unemployment is stuck at 7.5 per cent.
Yet, if Ontario companies can’t compete on quality and price in their own province, then they also cannot compete effectively elsewhere in Canada or abroad. These policies encourage companies to live off the taxpayer dime as opposed to innovating, becoming more productive, and becoming long-term job creators.
Some people may think it is impertinent for the president of the Canada West Foundation to take shots at Ontario’s management of its economy. After all, much of the West’s success is the good luck of having resources that are in high global demand.
Fair enough, but it is also true that the West has one of the most open markets in the world. This helps us tremendously because if we are able to buy goods and services inexpensively from, for example, Ontario, then this lowers the cost of our exports and helps grow our global market share. Oil, wheat, potash and lumber are all products where cost matters a great deal. Our open policies have helped us create jobs not only in the West, but also in Ontario. This win-win approach abandons short-term gain for a few in favour of long-term economic benefits for everyone.
Another consideration is the cost of public goods. We don’t just build roads and schools and ice rinks because they create jobs. We build them because they improve people’s lives and contribute to prosperity. Paying a premium to contract locally means either fewer things get built or public debt inflates, reducing the ability to build in the future.
I agree entirely with David Dodge, former governor of the Bank of Canada, that with low interest rates and some slack in the economy, it is a great time for governments to invest in infrastructure. That does not mean, however, that it is a good time to pay extra for such work. Nor is it helpful to Ontario companies to enable them to build at uncompetitive prices, because this simply makes them less competitive.
The path to plentiful, well-paid jobs is innovating to produce things people want at prices they can afford. It is not the slow death of protecting unproductive firms. It is also not currency devaluation, which is just a stealthy way of giving all Canadians a pay cut.
Ontario’s experience with building wind turbines is an illustrative example. The province chose to encourage the development of Ontario’s wind turbine production industry through strong protectionist elements, not sourcing quality inexpensive components made in other parts of Canada.
As a result, the cost of purchasing, erecting, financing and connecting a turbine runs about $2,500 per kilowatt of capacity, according to the Canadian Wind Energy Association. That means a two kilowatt turbine costs $4- to $5-million to install. In Europe, the cost is $2,000 - $2,250 per kilowatt, and in China and India the cost is $1,400 - $1,570, according to the International Renewal Energy Association.
By not producing devices that can compete internationally, such industries as Ontario’s are fated to die shortly after the big government spend ends.
Another example is the cheese industry. Supply management drives up the cost of milk in Canada. As a result, companies like Montreal-based Saputo Inc., Canada’s largest cheese-maker, has closed five plants in North America in the past two years, and is developing instead in Brazil, Australia and New Zealand. We have lost an opportunity to grow a high-value industry – cheese – in favour of one with essentially no growth potential – milk.
The most recent Ontario election showed that Ontario voters like Premier Kathleen Wynne’s willingness to listen and to keep an open mind. Yet, Ontarians are also concerned about the long-term economic strategy for the province. We can only hope that the premier will be open to abandoning long-standing policies that are crippling the export potential of what remains the most important economy in Canada.
Mr. Wall is taking the courageous step of standing up for the interests of Saskatchewan citizens and businesses. A change in approach by Ontario would be even more courageous and of even greater service to the citizens and businesses of Ontario. And in both cases, such courage serves the national interest.