The recession and still-soft U.S. demand for Canadian products is casting a long shadow over Central Canada, one that risks sinking Ontario's prosperity unless the province boosts its innovation and productivity levels.
These are the findings of a report to be released Tuesday by Ontario's Task Force on Competitiveness, Productivity and Economic Progress, which outlines several recommendations on how the country's largest economy can improve its flagging record.
A year after Canada officially emerged from the downturn, "we are still not sure if Ontarians are out of the grips of the recession," said the ninth annual report from the task force, an independent body that measures and tracks the province's economic progress.
Once the nation's key economic engine and still its largest factory base, Ontario has fallen on tougher times in recent years. Employment and output remain below pre-recession levels. Last week, the provincial government predicted years of deficits, and cut its growth forecast for next year and 2012 because weak prospects for the U.S. are seen to curb Ontario exports.
Ontario businesses are investing less in research, and produce fewer patents than other jurisdictions, the report notes. Productivity levels trail U.S. peers, undermining the province's prosperity potential. Last year, Ontario's per-capita gross domestic product was $6,900 below the median of the 16 largest states and provinces in North America.
The $6,900 gap suggests the province is not realizing its full potential, for a variety of reasons - Ontario's population has less university education than its U.S. counterparts, it is less urbanized, and its businesses invest less in technology, the report said.
Workers are working harder than people elsewhere - but not smarter. "Ontarians are among the world leaders in work effort - that is, the hours of work per person. But we are laggards in creating economic value per hour worked," said task force chairman Roger Martin, dean of the Rotman School of Management at the University of Toronto. For various reasons, "we are not leading the world in creating innovative products, services, and processes."
So far, government innovation policies have been "inadequate," he said, focused more on "new-to-the-world inventions" than on stimulating "relevant-to-the-market innovations."
Eliminating Ontario's GDP per-capita gap with its peers would result in an increase of $10,100 in after-tax disposable income for the average household of 2.7 people, the report said. Closing this "prosperity gap" would generate $31-billion in tax revenues for all three levels of government in Ontario, it said.
The report notes that income inequality is widening in Ontario, with higher poverty rates concentrated in six groups: high-school dropouts, recent immigrants, lone parents, single people between the ages of 45 and 64, disabled people, and aboriginals. Education is key to alleviating poverty, it argues, as the Ontario economy shifts away from jobs based on physical skills and repetitive tasks, to jobs needing strong analytical skills.
The task force concludes that boosting Ontario's fortunes requires a series of measures: Governments should invest in education and attract more international students who bring a diverse perspective to the classroom. A carbon tax could help spur green industry. Businesses should invest more in machinery, equipment and software to help their workers become more productive. Retraining should be reconsidered in favour of more effective approaches, such as wage insurance. Trade ties should be bolstered with China.