When Ontario Premier Kathleen Wynne and Michigan Governor Rick Snyder promised this month to work together to reverse the flow of auto-industry investments to warmer climes, there was little doubt about which leader of a former industrial powerhouse had more economic good news to brag to about.
Since the last recession, Ontario and Michigan have experienced a reversal of fortunes. The Rust Belt state has overtaken Ontario in auto production amid a manufacturing renaissance that has bypassed its northern neighbour despite a decline of nearly 25 per cent in the loonie's value.
There is no overstating how low Michigan went during the first decade of this century. The state lost more than 200,000 manufacturing jobs from 2006 to 2010, wiping out 31 per cent of all factory employment. The Michigan economy contracted by 15 per cent during the same period and the unemployment rate surged above 14 per cent during the Great Recession. Ontario got whacked too, but not nearly as hard. The province lost about a quarter of its manufacturing jobs from 2006 to 2010, with factory employment falling to 762,000 from almost one million. The provincial unemployment rate peaked at 9.6 per cent in 2009.
By June, however, Michigan had regained all but 50,000 of those lost factory jobs, while manufacturing employment in Ontario remained stuck below its 2010 level at about 750,000. Michigan's unemployment rate has declined, spectacularly, to 4.6 per cent. Ontario's stands at 6.4 per cent.
The two jurisdictions have also moved in different political directions. While Liberal-led Ontario has embraced bigger government and antagonized business with evermore regulation and expenses, Republican-led Michigan cut spending and adopted a pro-business policy agenda.
Is it any wonder their economies diverged too?
Two new studies, by admittedly right-leaning think tanks, place the responsibility for Ontario's relative economic decline at the doorstep of the politicians (and their union backers), who have made the province a less attractive place for businesses to invest. And when 40 per cent of total election spending during the 2014 provincial campaign was undertaken by third parties (either unions or union-backed lobby groups), you can't help but think they're right.
As researchers Mark Milke and Youri Chassin note in a new analysis for the Montreal Economic Institute, Ontario is on the road to becoming the new Quebec in terms of saddling future generations with a massive public debt. Ontario's per-capita net debt has doubled since 2003 while its program spending as a percentage of gross domestic product has climbed a full three percentage points.
Even if Ms. Wynne's government meets its deficit-reduction targets, Ontario's net debt per capita is set to rise to $22,947 by 2018, surpassing Quebec's $22,340. That alone is a powerful disincentive for businesses to invest because it suggests that tax increases are likely to follow.
A new Fraser Institute study, meanwhile, links Michigan's manufacturing renaissance to policies implemented by Mr. Snyder since his 2010 election. These include tough spending cuts – leading to a slight decline in the state's net debt as a percentage of GDP – and replacing a nightmarishly bureaucratic and arbitrary corporate tax system with a simpler and fairer one.
But it is Mr. Snyder's controversial move to turn Michigan into a right-to-work state – banning mandatory union membership and dues as a condition of employment – that gets much of the credit in the Fraser Institute study for turning around the state's fortunes.
It's a bit early to draw definitive conclusions about Michigan's three-year-old right-to-work experience. But organized labour's main fear – a decimation of union ranks – has not materialized. Supporters of the law argue that it makes unions more accountable and focused on shop-floor issues rather than spending dues on political activities to influence elections.
Of all of Michigan's reforms, right-to-work seems the least likely to make it to Ontario. Former Progressive Conservative leader Tim Hudak considered the idea, but backed down before the 2014 election. His retreat did nothing to endear him to the unions, which spent (directly and through advocacy groups) millions to defeat the Tories.
Still, between Ontario and Michigan, it's hard not to conclude that one government has made doing business harder while the other has made it easier. With skyrocketing debt and electricity rates, a long-threatened increase in payroll pension premiums, an irritatingly interventionist climate change plan and unions buying elections, why would any business invest in Ontario?
For all its problems – from the lead in Flint's water to the decay in Detroit – Michigan has at least moved to enhance its competitiveness. Which is why Mr. Snyder, not Ms. Wynne, has earned the economic bragging rights.
Konrad Yakabuski