Dean Elkholy was all set to enter the Dentistry program at Western University when he changed his mind and joined with two others to create GoViral, which provides content for social media. GoViral spawned Diply –Sixteen trifle recipes that will fly off your table! This girl has the best comeback ever! – which in mid-December was the 65th most popular website on Earth, six behind Pornhub.
“I can see this company growing to 1,000 people one day,” Mr. Elkholy, who is 26, predicts from his highrise office in downtown London. “With the proper support, we could have a tremendous tech hub here.”
Green shoots take root.
Southwestern Ontario used to be Canada’s economic heartland, built on auto manufacturing and food processing, the goose that laid generation after generation of golden eggs. Then globalization arrived, the loonie surged toward parity with the greenback, and the economic crisis of 2009 shattered the region’s complacency.
Three hundred and fifteen thousand lost manufacturing jobs. A raft of plant closings. An unemployment rate well above the national average. Manufacturing has plunged from 21 per cent of Ontario’s output in 2003 to 12 per cent today.
When the Globe’s Adam Radwanski surveyed the situation in May, 2014, he reported: “the aging rust-belt towns that fill this region … are living an economic nightmare.”
But with the oil patch struggling and commodity prices generally depressed, and with the dollar trading at a highly competitive 73 cents (U.S.), attention once again turns to Canada’s industrial heartland. Is there a future for Southwestern Ontario, a new engine to help power the Canadian economy?
The answer lies here, in London, the de facto capital of the region, where the next generation of Canadian entrepreneurs is parlaying Southwestern Ontario’s unique competitive advantage into a new era of jobs and wealth.
But absolutely nothing is guaranteed. And the largest intangible is whether federal and provincial government interventions are doing more harm than good.
Traditionally, the Southwestern Ontario economy has depended on auto manufacturing and food processing. Both have been hammered. You may remember the headlines: Navistar (formerly International Harvester) closes in Chatham: 2,000 jobs; Ford and Daimler both close in St. Thomas: 2,500 jobs. Heinz shuts down in Leamington: 750 jobs.
In London, Caterpillar locked out its workers and closed its plant: 450 jobs. After a century of making cereal in the city, Kellogg’s closed its London operations last year at a cost of more than 500 jobs.
Economists have studied the entrails and the consensus is this: The 1988 free-trade agreement with the United States stripped the region of its (Canada) Inc. branch plants, undermining a century of tariff-protected prosperity. Increases in auto-sector manufacturing in the nineties more than made up the difference, but those jobs depended on a low Canadian dollar. When that advantage disappeared in the last decade, operations shifted to lower-wage states in the U.S. and to Mexico. Southwestern Ontario began to rust. The corrosion worsened with the shock of the last recession and the desultory recovery that followed.
Yet at midpoint in this decade, there are fresh signs of hope. And just as London, pop. 381,000, took some of the biggest hits, so too is it now leading the rebound.
“We were exceptionally hard hit during the downturn,” Matt Brown, London’s young – he is 42 – high-energy new mayor, acknowledges in an interview. “It was the biggest downturn since the Great Depression.” Thirty per cent of the city’s manufacturing base simply disappeared. In 2009, London’s unemployment rate was at 10 per cent; nationally it was 8 per cent. But today, unemployment has fallen to 5.8 per cent, well below the national average of 7.1 per cent.
Mr. Brown’s optimism is cautious. “We are seeing real signs of recovery,” he acknowledges. “But we’re not there yet.”
If London is at least headed in the right direction, Andrew Sharpe is part of the reason why. Like Mr. Elkholy of GoViral, Mr. Sharpe is a London boy who studied at Western and then decided to start out on his own. IO Industries makes ultra-high-definition cameras found in satellites, football pitches and everywhere in between where the sharpest, frame-by-frame precision is needed. Ninety-five per cent of IO’s products are exported, with the American military the biggest customer, and others in China and Europe.
The company has just moved from a rented space into its own building, and expansion plans are already underway to double the size of the new building, and then start to work on a second.
“Perhaps we are an example of where the next generation of business is headed,” Mr. Sharpe predicts.
With its workforce expected to double next year from 20 to 40, IO is hardly in a position to replace the 500 jobs lost when Kellogg’s left town. But there are now 10,000 high-technology workers in London, both in precision manufacturing and what the city calls “digital creative” industries, such as the gaming.
The future of manufacturing jobs in Southwestern Ontario now rests on many smaller, but growing, companies, rather than a few large ones. Even a major new factory, were one to arrive, would have to be wall-to-wall robots in order to compete with lower-wage jurisdictions.
“I think we have to realize that the days of the 3,000-person automotive plant are over,” Western University economist Mike Moffatt said in an interview, “that even if someone opens a new plant somewhere, it’s going to hire a couple hundred people and be very automated.”
But smaller, more nimble companies staffed with highly-skilled workers could have an edge over foreign competition, Mr. Sharpe believes, thanks to Ontario’s secret weapon: a high-quality, universally accessible education system. Yes, the United States has some of the finest schools and universities in the developed world. But it also has some of the worst: dysfunctional inner-city schools and less-than-mediocre colleges. And the cost of accessing the better-performing parts of the American education system can be prohibitive.
Ontario, in contrast, has a system of public elementary and secondary schools that consistently rank among the top in the world. Its colleges and universities offer a high-quality education that anyone can afford. Mr. Sharpe is confident that, as his business grows, Western University and Fanshawe College in London will provide him with the workers he needs to compete with the best.
Synergies between the education sector and the private sector lie at the very heart of Southwestern Ontario’s future. By incubating, encouraging and then feeding workers into London’s emerging high-technology sector, Western and Fanshawe are doing for their city what the University of Waterloo has long been doing for Kitchener-Waterloo’s computer-based industries and the University of Guelph is doing for bio-technology in Guelph.
“In the variety of sectors and the quality of the workforce, this is a centre of excellence in manufacturing that can compete with anywhere in the world,” maintains Jayson Myers, President of Canadian Manufacturers and Exporters. He points in particular to Ontario’s collective expertise in developing new and composite materials.
One example: Hudson Boat Works in London builds Olympic-class rowing shells that dominated this year’s Pan Am games. Since 1984, more than 80 Olympic and World Championship medals have been won using Hudson boats. The company is developing its latest project, a boat test stand, in collaboration with Fanshawe College.
And there is still life in the traditional manufacturing base. Export Development Canada predicts manufacturing exports to increase 11 per cent in 2015 and another 6 per cent in 2016, powered mainly by increased automotive exports. Yes, London has lost almost a third of its manufacturing jobs, but 70 per cent remain.
An emerging future for Southwestern Ontario centres on these hub cities, where universities and the private sector cross-fertilize each other. Surrounding towns that once had their own economic base will increasingly become bedroom communities for these new hubs. Other cities and towns outside these hubs might also have a future, if they can establish their own niche economies. After that, bush.
IAN WILLMS/FOR THE GLOBE AND MAIL
One key factor is the heartland’s future is the role of government in helping or hurting recovery. Wise investments by previous Ontario and federal governments created the education infrastructure that is helping retool the Southwestern Ontario economy today.
But not all such action is benign. The provincial Liberal government’s decision in the last decade to convert from cheap-but-dirty coal to cleaner-but-more-expensive alternatives such as natural gas, nuclear and renewables has hampered industrial recovery. Over the past decade, energy costs have increased from just under 6 cents per kilowatt to just under 10 cents, with further increases to come. Ontario has gone from one of the cheapest jurisdictions for energy costs in North America to one of the most expensive.
“Ontario’s low electricity prices used to be an advantage for businesses,” said Brady Yauch, Executive Director of the Consumer Policy Institute, a division of the energy watchdog Energy Probe. “Now they’ve become a hindrance, to the point businesses are relocating.”
As well, both Prime Minister Justin Trudeau and Premier Kathleen Wynne are committed to enhancing public pensions, which will mean higher payroll taxes for employers. And both governments are determined to fight global warming, with the Ontario government preparing to join a cap-and-trade system to lower emissions. That too will raise the costs of doing business.
Not to mention the endlessly expanding skein of the province’s regulatory regime.
“All of these mandatory overheads … are costs that come right out of the bottom line,” Mr. Myers observes. “And for manufacturing, it’s the bottom line that counts.”
On the other side of the coin, the region is desperately in need of improved transportation infrastructure, to deal with a new phenomenon that could be called “reverse bedroom community syndrome.” High tech and other companies in Kitchener-Waterloo and London chronically complain that they can’t attract workers because many of the geeks and hipsters who populate their businesses don’t want to leave Toronto. Right now, there are a thousand jobs in the advanced manufacturing and digital creative sectors in London going begging. Even if potential workers are willing to move, their spouses and partners often don’t want to give up their jobs or can’t find an equivalent job outside Toronto.
One solution is to make the hub cities more attractive to millennials. Mr. Brown points to condominium cranes in the city’s downtown, plans to revitalize the Thames River shoreline, other plans for a new rapid-transit system.
“Our downtown is our calling card to the world,” Mr. Brown said in an interview. “Our downtown is our economic engine.”
The region also badly needs a high-speed rail line linking Windsor, London, Kitchener-Waterloo and Guelph to Toronto, to better integrate the regional economy and make it easier for tech workers to connect with–perhaps even live in–Toronto while working in London or elsewhere.
Balancing the infrastructure needs of Ontario’s struggling-to-renew industrial heartland with environmental and other commitments will challenge both the Wynne and Trudeau governments, individually and in tandem.
Back at GoViral, Mr. Elkholy leads a tour of his business, past the rows of young men and women inputting social-media content, past the empty desks of the developers – they are at a cottage retreat – to the construction zone that will ultimately house the latest expansion.
London and Southwestern Ontario, he proudly believes, are “a goldmine that no one knows about. And we have the most brilliant minds coming out of Western and Fanshawe.”
Standing beside him, it’s almost enough to convince you that the heartland still has more future than past.