It got most of its attention for its warning of a $30-billion deficit, and its 362 cost-cutting recommendations to help avoid that fate.
But the scariest number in Don Drummond’s landmark report to the government of Ontario is a much smaller one: two, as in 2 per cent.
That’s the level of annual economic growth that Mr. Drummond, a former economist at Toronto-Dominion Bank, thinks the country’s largest province will have in the years to come. And while long-term projections are notoriously unreliable, that pessimism is grounded in the reality of a manufacturing-reliant province that coasted by on built-in advantages – a low dollar, low energy prices, a reliable U.S. market in close proximity – that have now evaporated.
For all that there is to fear in Mr. Drummond’s projection, and for all the consternation that his doom-and-gloom projection is causing, there is also cause for hope. Something is happening in the boardrooms of the private sector and the backrooms of government: The grim outlook is kicking off an overdue debate about how to reinvent a province that is still the economic heart of Canada.
For a government based in Toronto, which has been largely sheltered from the storm, it has been too easy to tinker around the edge of economic policy, to flirt with pet causes and hope for the best. Premier Dalton McGuinty has tried to pull a few levers – investing heavily in education; ushering in a more business-friendly tax regime; heavily subsidizing what he thinks is an emerging green-energy industry, along with older sectors like auto production.
But even his own officials concede that it doesn’t add up to a comprehensive strategy. And the province is handicapped by something else. Its corporate leaders have maintained an aversion to risk that one provincial Liberal lightly ascribed to Ontario’s Scottish Presbyterian roots.
That caution famously insulated Toronto’s financial sector from the worst of the 2008 global meltdown. But it has also led to a well-documented lack of innovation, fewer startups and fewer entrepreneurs, with little sign that the government’s efforts to create a more favourable corporate tax regime are sparking the investment it expected.
Now, the jolt from Mr. Drummond – coupled with a flurry of other bad news, and the bitter symbolism of a recent closing in London, Ont., of a locomotive factory owned by Caterpillar Inc. – has challenged the assumptions that both business and government leaders have relied on. And most notable among those is the idea that the province that has long enjoyed the benefits of a diverse economy can continue to be all things to all people, which has driven the government’s willingness to prop up flagging industries with various forms of subsidies.
“What are we good at and how do we grow it?” asks Janet Ecker, a former provincial finance minister who now heads the Toronto Financial Services Alliance.
It’s a sentiment that was frequently echoed in interviews with economists, executives, public policy experts and government officials. For a province as big as Ontario, developing a more specialized economy isn’t as easy as picking one or two industries and going with it.
Financial services tends to be flagged as the area with the most room for growth, not least because of the opportunities afforded by the resource boom in Alberta and other provinces. (As CIBC vice-president and former federal minister Jim Prentice puts it, “These are pan-Canadian opportunities we should be taking advantage of – not simply regional projects.”) But while that should help Toronto to continue to be an engine of growth, it won’t do much to create needed jobs in the north or in the southwest.
For that reason, the idea of “clusters” – a buzzword a couple of years ago that was eventually dismissed as faddish – is creeping back into vocabularies both inside and outside government.
Kitchener-Waterloo, the province’s gold standard on that front, won’t be easy to replicate; there are only so many tech capitals to go around. But the more optimistic members of both the public and private sectors suggest that, with time, other capitals could emerge as well – building the industries where the province has already shown some potential.
Despite the province’s mixed experience with green energy, the distance it’s already gone down that path could help a city such as Windsor emerge as a clean-tech hub. Northern cities, such as Thunder Bay or Sudbury, could become national leaders in the resource sector, particularly if the province gets serious about developing the so-called mineral “Ring of Fire.” A Hamilton or a London could build around health sciences – a growth industry if ever there was one.