Wednesday, December 14, 2016

Northern Economist: A Brief History

In the fall of 2010, I decided to start an economic blog dealing with the economies of Thunder Bay and northern Ontario as well as economic issues in general from a northern Ontario perspective.  The blog was a lot of work but it attracted a fair amount of interest given that it tackled many northern Ontario economic issues in an evidence based manner.  The blog was initially hosted on Shaw Webspace but it eventually ran out of space on the server - Shaw apparently allocated a rather tiny amount of space - and it migrated in February of 2012 to Blogspot as Northern Economist 2.0 (hence the reference to this first site as Northern Economist 1.0).  Northern Economist posts continued for the rest of 2012 and finished up in 2013.  Shaw recently announced that they were ending their webspace service as of March 6, 2017 so I decided to preserve as much as possible of the original set of posts on this site as an archive.  The look and feel of the original posts as well as many of the links are gone but the main content remains.  Enjoy the posts!  I am still blogging and post on Worthwhile Canadian Initiative and The Fraser Institute Blog.  Who knows, at some point I may start up again with economic posts on northern Ontario.  Only time will tell. (Actually, I think I will.  It is time.) Cheers. Livio Di Matteo.

Biography

Biography
Livio Di Matteo


Livio Di Matteo is an economist in Thunder Bay, Ontario specializing in public policy, health economics, public finance and economic history.  Livio Di Matteo is a graduate of the Fort William Collegiate Institute (1898-2005) whose school motto “Agimus Meliora” has served as a personal inspiration.  Livio Di Matteo holds a PhD from McMaster University, an MA from the University of Western Ontario and an Honours BA from Lakehead University.   He is Professor of Economics at Lakehead University where he has served since 1990.  His research has explored the sustainability of provincial government health spending, historical wealth and asset holding and economic performance and institutions in Northwestern Ontario and the central North American economic region.  His historical wealth research using census-linked probate records is funded by grants from the Social Sciences and Humanities Research Council of Canada.  He has constructed, assembled and analyzed nearly 12,000 estate files for Ontario over the period 1870 to 1930.  Livio Di Matteo writes and comments on public policy and his articles have appeared in the National Post, Toronto Star, the Winnipeg Free Press and Thunder Bay Chronicle-Journal.  He is also a contributor to Worthwhile Canadian Initiative, Canada's premier economics blog.  Livio Di Matteo has had an entry in Canadian Who's Who since 1995.
My E-Mail: livio.dimatteo AT lakeheadu.ca
Office Phone: 807-343-8545

February 2012 Posts

1 Post from February 2012

Well, it turns out that my home here on Shaw Webspace has reached the limits of its space.  It is hard to believe that you can run out of space on the internet in this day and age but apparently I'm out of room here and therefore my new posts will be migrating to Blogspot.com.  You can access my new Northern Economist 2.0 Blog at http://northerneconomist.blogspot.com and continue reading my posts there. 

January 2012 Posts

23 Posts from January 2012
City Council in Thunder Bay is wrestling with whether or not to sell one of its golf courses  - most likely, the Municipal golf course which at nine holes  is the smallest of its three golf courses (the others being Strathcona and Chapples).  The budget is tight and the city's three golf courses together cost 400,000 dollars to operate and closing one would apparently save about 100,000 dollars.  At the same time green fees do cover between 70 and 85 percent of the costs so on net these three golf courses cost the city about 120,000 to 60,000 dollars in net costs to operate. On a net operating budget of about 190 million dollars, saving this expenditure will not of itself restore fiscal balance.
Given the City's rising expenditures and revenue needs and the desire to embark on new capital spending, what councilors and administration are really contemplating is the asset value of Municipal Golf Course.  With its rolling landscape and rural location, it will likely be purchased by a property developer for premium estate sized lot housing.  It has been estimated in the past that Municipal Golf course could fetch about 1.2 million dollars which represents a nice little pot of money for the City.  One could imagine given the rising housing prices in Thunder Bay that this land is now worth considerably more.
There are two issues here.  The first is whether or not the City of Thunder Bay should be in the golf business.  On the one hand, golf is not an essential municipal service and the case can be made that the city should divest itself of the operations of a golf course.  On the other hand, Thunder Bay has a long history of municipal involvement in cultural and recreation facilities and subsidizing these activities for public use.  In the end, whether or not the City should run the golf courses is a social and political choice and what council decides here will depend on how the wind blows.  Do not expect consistency.  Selling one golf course but keeping two still means it is in the golf business.  On the other hand, consistency would also require a review of a whole lot of other things the City operates such as the Community Auditorium.  Political and social choices do not always follow any pattern of logical consistency.
The more interesting issue is how should the city proceed with selling Municipal.  Simply selling off the land and using the revenues generated to fund current operating spending for the coming year smacks of opportunism and desperation.  It is a short term response to the fiscal constraints and avoids dealing with a more comprehensive review of all Thunder Bay City spending and operations.  If Municipal golf course is sold, the money should go either into reserves or a separate fund to maintain and renew the two other city owned and run golf courses.  This would be more responsible fiscal planning.  Simply selling off the course and spending the money to meet current operating expenditures would mean open season on all city assets and would indicate that Thunder Bay's civic leadership is unwilling and unable to deal with its finances in a responsible way.  Oh, one more point.  Not all of this land needs to be sold for housing.  It would be forward looking if a few acres of it could be set aside as public space for future generations.

The Canadian Federation is an institutional arrangement whereby the constituent units are able to both cooperate and compete with jurisdictions that are both separate and coordinate. The debate over the respective roles of the federal and provincial governments has taken various forms over time with views that emphasize the centrality of the federal government along with others that emphasize the federation as a compact amongst equals with the federal government as more of a coordinator.   Given that political discourse and decision making out of Ottawa has recently been taking a more decentralized tone when it comes to federal-provincial matters, it might be instructive to take a look at the numbers to see what the balance is between the respective tiers of the Canadian federation.
I’ve gone to the Federal Fiscal Reference Tables to collect data for a basic set of centralization (or decentralization) measures for the period 1966 to 2009.  The first figure takes the ratio of a tier’s own-source revenue (that is, without intergovernmental transfers) to the total of federal, provincial-territorial and local own-source revenue.  The second figure, takes the ratio of a tier’s spending (net of transfers made to the lower tier) to the total of federal, provincial and local spending (with the spending of each tier net of intergovernmental transfers to the next tier).  The point of this is to take a look at the relative resource and expenditure shares across the tiers of the federation.  The results depict what most of us probably already know but which can now be visually demonstrated.  Canada has become more decentralized at the federal-provincial level but the results also suggest it has become more centralized at the provincial local level.




In 1966, the federal government accounted for 43 percent of spending, the provincial-territorial level 32 percent and local governments 25 percent.   By 2009, the federal share was down to 31 percent and the local share down to 20 percent while the provincial-territorial share was up to 49 percent.  Indeed, given that under the constitution municipalities are “creatures” of the provinces, there are really only two levels of government.  The Canadian Federation has decentralized to the point where more than two-thirds of spending is now at the provincial-local level.   Own-source revenues have not decentralized as dramatically.  In 1966, the federal government accounted for about 50 percent of own-source revenues, the provincial-territorial sector 34 percent and the local sector 16 percent.  By 2009, the shift was down to 40 percent for the federal level, up to about 46 percent for the provincial-territorial level and down to approximately 13 percent for local governments (numbers have been rounded).
A more decentralized Canadian federation is not a future possibility - it is already here.  Whether this is a return to the “classical” federalism referred to by Tom Flanagan in a recent Globe and Mail piece  is subject to debate.  If one goes back to the immediate post-Confederation period, spending and revenues were also concentrated at the federal level and they became more concentrated in the twentieth century as result of the world war years.  While the federal government practiced “executive federalism” in the second half of the twentieth century, Canada was nonetheless decentralizing as expenditures in provincial areas of jurisdiction –health, education and social welfare – grew.
The question is whether or not this is exactly the decentralization we want.  Even if we accept that the provinces should be a more dominant fiscal tier given their responsibilities for health, education and social welfare, do we now want to simply transfer more tax points to the provinces and eliminate federal-provincial grants all together so that revenue shares better reflect expenditure shares?  What about the cities?  Cities are increasingly where most Canadians live and their governments and services are the closest to the taxpayer and yet the balance has shifted away from them also.  Our focus has been so dominated by Ottawa’s relationship with the provinces that we have ignored the local sector’s relationship with their respective provinces.  While Ottawa and the provinces have engaged in a process of give and take over 140 years given a framework and powers set forth in the constitution, municipalities have only what the provinces let them have.  Based on these figures, it has been mainly the provinces taking and little giving to the municipalities or regional governments over the last few decades. 
With respect to northern Ontario, this type of long-term trend does not bode well for any prospect of decentralization of any type of decision making authority from Queen's Park to the North.  While in Northwestern Ontario, we are currently engaged in a process of regional economic planning, this will likely result in a set of consultative rather than action oriented institutions and processes that will retain control in the hands of Queen's Park.  The final draft report (January 2012) released by the Northwestern Ontario Joint Task Force titled  Regional Economic Development Planning Zones Pilot Project presents a model in many ways similar to the NWORDA concept of several years back and lays out a mandate for a Northwestern Regional Development Authority (REDA) with its own board.  Will the province provide it's CEO and Board with revenue raising capacity (say from resource rents) to create a development fund to make strategic investments?  Will it give it access to allocation of a share of the Northern Ontario Heritage fund for regional projects? Will it be allowed to make decisions on wood and fibre allocations?  Without these types of powers, REDA will be merely another talk forum piled upon layers of regional discussions that have been occurring for decades.


Building permits issued and their values are an important indicator of the pace and pattern of capital formation in an economy.  Northern Ontario’s resource based economy is often characterized by booms and busts in employment and output, and investment spending is no exception.  Figure 1 below takes the total value of building permits issued in Northeastern and Northwestern Ontario, adjusts for inflation by converting into 1997 dollars and combines them into a series for Northern Ontario as a whole.  The results are quite indicative of relatively longer-term boom and bust cycles not always directly tied to recessions (1981-82, 1991-92, 2009). 
The period from the mid 1970s to 1982 was a period of decline in the real value of new investment activity and investment spending was already low when the 1981-82 recession hit.  The period from 1982 to 1989 was definitely a boom period but a decline had set in even before the 1991 recession hit.  The entire period from 1989 to 1998 appears to have been a bust in the North.  However, since 1998, there has been a pretty steady upswing in the real value of building permits and even the 2009 recession period has not resulted in too steep a drop in activity.  However, the peak reached in 2008 is nowhere near the peak of 1989 in terms of real values.  If one fits a linear trend line to this data, one can see that the long-term trend is essentially flat.  There have been ups and downs but overall, this entire 35-year period – nearly half a lifetime – is a flat performance. Compare this to Ontario as a whole (Figure 2) which also exhibits a boom/bust cycle but an overall steep upward trend over the same period when a linear trend is fitted.  One similarity is the relative size of the peak in the 1980s for both Ontario as a whole as well as the North - it has yet to be surpassed by either suggesting the uniqueness and intensity of the 1980s investment boom.
However, there is more to this data than meets the eye.  Over the next few posts, I plan to break down this data into Northeastern and Northwestern Ontario, Thunder Bay and Greater Sudbury as well as the actual categories of residential, industrial, commercial and institutional permits.  The aggregate data and its broad trends does not do justice to the regional and investment sector stories that have also been occurring with respect to investment spending in Northern Ontario.






City council met last night and received the proposed budget for the 2012 tax year along with proposed tax and rate information.  According to the budget highlights fact sheet and reports in the local media, the budget as currently proposed will result in property taxes of $2,568 for the average residential property in 2012 representing an increase of $67 or 2.67 percent - up from $2,501 last year.  What is not immediately clear from all of this is whether this 2.67 percent increase includes the 1.5 percent rate increase for infrastructure under Renew Thunder Bay that was proposed and voted on in November or whether that increase will be voted on separately and result in a tax increase on top of the 2.67 percent.  In addition, it was also reported that there would be a 6 percent increase in the water rates resulting in an increase for the average user of 52 dollars.  Based on this amount, it would make the current average water bill for a city ratepayer about 866 dollars resulting in an increase to 918 dollars.  What is the total increase to City ratepayers in the money they will be sending to city Hall next year?  Well, for an average household- the total in terms of property taxes and water fees in 2011 can be estimated at $3,367 dollar.  For 2012, the estimate would be $3,486.  This represents a total increase of 119 dollars or 3.5 percent.  The only other question is if this includes the 1.5 percent increase for infrastructure under Renew Thunder Bay or if that amount is on top.

January 27th update!!!
It would appear that numbers are still being revised.  This morning's media report was that the water rate increase was going to be 7 percent and thatb this represents an increase for the average household of 50 dollars.  This also means that with the average water bill before the increase was 714 dollars which brings it up to 764 dollars for 2012.  As a result, the above estimate for total payments to the city for taxes and water can be revised.  Now, total payments for taxes and water for an average residence were $3,215 in 2011 and will go up $117 to $3,332 in 2012 representing a 3.6 percent increase in total payments to the city. Still no clarification on if the 1.5 percent Renew Thunder Bay increase is included in these increases or is on top.


Ontario is embarking on a strategy to bring its 16 billion dollar deficit under control.  As much as this process involves economic decision-making, in the end it will be largely driven by politics and the politics are complicated because of the minority provincial government situation.  The spring budget needs the support of one of the opposition parties or a defector in order to pass.  Otherwise, the government will fall and there will be another election.
The provincial government has enlisted the services of Don Drummond to draw up a list of recommendations and suggestions.  The advance barrage of leaks and releases in the media, which suggest complete restructuring of the government and cuts of up to 30 percent, are designed to soften up the public for bad news as well as gauge their reaction in terms of what the art of the possible will be.  The provincial government already knows what the main thrust and details of the Drummond Report are and is now crafting its political strategy and scenarios.  As long as it is able to set the agenda, the provincial government is in the driver’s seat on this one and often in a win-win situation given the possible reactions of the two opposition parties.
What are some possible scenarios?  Scenario I.  If the provincial government unveils massive expenditure cuts and embraces them, it could try to enlist the support of the Progressive Conservatives while at the same time spinning the cuts as having to be done because of Conservative pressure.  Should the Conservatives support the government, the Liberals will argue their hands are tied because of the minority government and invoke the ghost of Mike Harris as the real driver behind the austerity.  Should the Conservatives balk at the reckless nature of the cuts, they will be painted as fiscally irresponsible and not worthy of forming a government because they cannot make tough decisions.  Of course, the Conservatives linking up and supporting the Liberals in a program of cuts ultimately may weaken both of them and put the NDP in a better position to gain more seats once the government falls. 
Scenario II.  The provincial government distances itself from the economic bogeyman of massive cuts and argues the responsible thing to do is a more restrained set of cuts and restructuring and possibly even consider revenue augmentation by delaying the planned corporate tax reduction. The Conservative will likely react to this as fiscally irresponsible and not conducive to economic growth paving the way for NDP support.  This scenario strengthens the hand of the opposition Conservatives particularly should the NDP supported liberal plan turn out to not do very much to reduce the deficit.  The Liberal gamble here is that they might draw soft NDP supporters into their fold once the inevitable election occurs thus ensuring a majority.
Scenario III.  The Liberals are planning an election to obtain a majority government.  They will present a tough spring budget putting forth most of the the Drummond recommendations and argue that tough fiscal times are times for sharing fiscal pain and also delay the corporate tax reductions and maybe even throw in an income tax deficit fighting surcharge.  The object would be to have both the NDP and the Conservatives vote against the budget upon which they will both be branded as fiscally irresponsible and the Liberals will campaign in a spring election on a claim as the most responsible stewards of Ontario’s public finances. The aim here would be to draw away both soft Conservative and NDP supporters with their claim of a "balanced" deficit reduction strategy.
All of these scenarios are of course hypothetical and all kinds of unanticipated events may occur over the next few months.  A key one is a defection from one of the parties to the Liberals which would provide them with a majority and therefore give them greater independence in decision-making.  All of the above hypothetical scenarios, however, involve the opposition reacting to what the government does.  What would a good strategy for the opposition parties be?  The opposition parties need to be ready to take the initiative.  The two opposition parties should have their own credible deficit reduction plans in hand to immediately counter what the Liberals are going to propose.  After that, there will either be some political trades that in a minority situation will actually generate a set of compromise fiscal strategies everyone can live with.  Or, the government will fall and there will be an election with distinct deficit fighting strategies outlined by the three parties.   The common problem facing all three parties in this case as they approach the electorate is answering the following question:  If Ontario truly is in an urgent fiscal crisis that requires a team approach and everyone sharing the pain, then why are we having another election?

  • Jan 21, 2012 Posted By: Livio Di Matteo Tags: none
The January 19th, 2012 issue of CIBC’s Metro Monitor again assesses the relative performance of Canada’s major urban centers using a weighted index that then ranks the performance from highest to lowest for the 3rd quarter of 2011.  Of the 25 urban centers ranked, Toronto ranks first, followed by Edmonton and Kitchener.  Thunder Bay ranks last, behind Saguenay and Windsor.  The publication is quick to note that the ranking figure represents an index reading and not the actual rate of economic growth, which I suppose is reassuring given that Thunder Bay and Saguenay get negative index numbers.
Thunder Bay scores poorly in the areas of population growth, employment growth, business bankruptcies, the growth rate of multiple listing unit sales and non-residential building permits.  It is in the middle of the pack for the unemployment rate, the full time share of total employment and consumer bankruptcy rate.  There is some good news despite all this poor performance – Thunder Bay leads the 25 metropolitan centers in the percentage growth of the MLS average price and in the percentage growth in new housing starts. 
What explains this?  Well, here are a few suggestions. Perhaps those people in Thunder Bay who have been able to hold onto a job or have benefited from the growth of the knowledge sector and public sector employment could be driving up the prices.  Or perhaps, there are a lot of former residents from Thunder Bay who are retiring here and buying up properties.  Or, Thunder Bay’s housing market is being fueled by external money with Thunder Bay’s relatively cheap housing being snapped by non-residents looking for an investment.  Or, Thunder Bay’s economy is doing a lot better than the official indicators suggest because there has been growth in self-employment and small businesses.  Or, despite the weak employment growth, there is a large underground economy generating cash.  Or, despite the weak employment growth, there is a lot of money floating around because displaced workers are all working in Alberta and Saskatchewan and sending the money home.  Or maybe, there is just a shortage of listings. The demand for houses is small but the supply is even smaller.  Take your pick.



The Far North of Ontario and in particular, the Far North Act, has generated a contentious set of policy issues for Ontario's government.  For the uninformed, the Far North Act is a process for community-based land use planning and development, that is also setting aside from development an interconnected area of conservation lands of at least 225,000 square kilometres — an area that is about 20 per cent of the landmass of Ontario. To put it into context, it is an area about twice the size of southern Ontario — which represents only about 10 per cent of Ontario’s land mass.  There is concern about its impact on the long-term development prospects of Northern Ontario and the First Nations in the Region.  A response of the provincial government is that the Act has been misunderstood and needs to be better explained.
Well, as part of its special initiatives section, the Ontario Ministry of Natural Resources has a section on Ontario’s Far North that includes a 14 page downloadable colouring book titled “The Far North of Ontario Activity Colouring Book” targeted at ages 4-9.  My assumption is that as part of its approach at better explaining the Far North Act, the government is targeting young children in an educational initiative rather than its perception of the average intellectual level of Northern Ontario residents.  There are code breaker puzzles with messages like “The Far North is important in the fight against global ….? “, a spot the difference puzzle,  word scrambles, mazes, and of course some pages for colouring.  I suppose rather than the Eco-Regions Maze which allows you to find your way through four eco-regions, I would have preferred a Northern Development Planning Maze which navigates you through a decades long succession of northern development planning initiatives but in a circular pattern that returns you to where you started.


However, this colouring book is imaginative and no doubt a pilot project for the next special initiative – the Ontario Deficit Fighting Colouring and Activity Book – Suitable for All Ages.  On the red and black cover, a cheerful smiling drawing of austerity czar  and fitness buff (see Linda Diebel’s story in the Toronto Star article) Don Drummond with barber shears in one hand and an axe in the other.  On the inside, an encrypted code-breaker puzzle which when solved will provide you with a list of which government ministries get a 30 percent cut, which get a 20 percent and which ministries get a share of the budget savings to augment their priority spending agendas.  How about a fiscal projection number search where you try and find estimates of GDP, tax revenue and expenditures for the next decade?  Perhaps a spot the difference picture of the three Ontario political party leaders alongside their projected plans for deficit reduction just prior to the last election?  Make as many words as you can out of the letters in the phrase “Fiscal Austerity”?  How about the “Health Care Maze” where you help take your aging parents through various levels of health care using an imaginary crayon.
What more can I say? Ontario, Yours to Discover!


Media reports on the visit yesterday by Quebec based consultants who worked on Quebec's Plan Nord appear to have emphasized their prescription for more planning and discussion.  The Plan Nord is the Quebec government's parallel to our own Northern Growth Plan and their plan to develop their own north with anticipated investments of 80 billion dollars and the creation of as many as 20,000 jobs.  The Mayor of Greenstone was quoted as saying the time for talk had passed and some direct action was needed by the province in getting things going.  On the other hand, according to a report on TBNewswatch:

A pair of Quebec-based consultants, however, have suggested what’s needed is more talk.  It’s worked in Quebec, said Yvan Loubier, a senior consultant for National Public Relations in Quebec City, who has worked with both governments and communities in Northern Quebec to help facilitate a 25-year plan for economic salvation in an area hard hit by many of the same concerns afflicting Northern Ontario, particularly First Nations communities. It didn’t come easily, at least not at first.

“More than 450 people discussed together for more than one year, with 60 meetings. At the beginning it was very hard. Some people put it on the table that they had their rights and they had their vision and ‘this is not mine,’” Loubier said.

“But after one year of discussion we reached a very interesting consensus. And this consensus proved to build the measure for the next 25 years.”

Joint Task Force Chairman Iain Angus was quoted as saying that  Northern Ontario is still in the planning process, and has not turned to Queen’s Park or the private sector with a cost just yet. 
So, do we need more consultation, more discussion and more planning?  If the discussion is with respect to further negotiations with First Nations to bring them onside with respect to northern resource development and negotiate mutually beneficial development and access agreements to get development underway, well certainly.  Yet we are still talking about what the plan is supposed to be and what the province is supposed to be doing.  Why is the province not devising comprehensive agreements for resource access and revenue sharing with First Nations?
What seems to be lost here despite the comments made by either Iain Angus or the Quebec consultants is that we have been planning and talking about planning for almost a decade now and all we are doing is still planning. Quebec in a much shorter time span - apparently one year - has developed a plan and set out the costing.  They seem to be much more efficient at planning and consultation than we are.  No wonder Iain Angus is worried that:

“Is Plan Nord going to attract investment that otherwise might come here, or are there things we could learn around what they’ve done and apply them to our pilot projects,” Angus said. “That’s the crucial part of this session today.”

By the time we are finished planning with the province, Quebec will likely have finished its twenty-five year Plan Nord.  As we all know but seemingly forget, here in the Northwest, in particular since 2003, we have done planning based on the Regional Recovery Initiative, the consultations and information gathering of the Common Voice Initiative, the consultation and recommendations involving the Rosehart Report, followed by the consultations and planning of the Northern Growth Plan which in turn has spawned the Northwestern Regional Economic Zone Planning Initiative of the Joint Task Force.  After almost a decade, we are still planning and planning to plan and consulting on the next steps for our plan and yet are no closer to costing out and devising the infrastructure to access the Ring of Fire or the institutional mechanisms required to deal with the concerns of and make joint decisions with the First Nations.  Apparently, that will come in time.  It would appear that time is considered an abundant and unlimited resource here in Northwestern Ontario and affords us the luxury of planning to the ends of time. Why does this make me nervous?


Prime Minister Stephen Harper’s recent comment that he does not want the future of the Northern Gateway pipeline to be decided by “certain” people in the United States who would like Canada to be one giant national park was remarkable in its parallels to the economic development situation in Northern Ontario.  In the case of the Northern Gateway, along with opposition from environmental groups and some First Nations in Alberta and British Columbia, a number of U.S. based environmental groups accompanied by some Hollywood celebrities have voiced opposition to the plan.  In Northern Ontario, there have been complaints that the Far North Act and the Endangered Species Act will hinder northern development because of the wish of environmental groups in southern Ontario to turn the north into a vast provincial park.
The parallels are intriguing.  The relationship between Northern Ontario and the south is remarkably similar to that between Canada and the United Canada.  Relative to the United States, Canada is natural resource intensive and sparsely populated.  It is generally out of sight and out of mind for most of the U.S. public except when we send them a blast of cold Arctic air or make some strange noises in the media.  Relative to southern Ontario, Northern Ontario is also natural resource intensive with the south being capital intensive and more densely populated as well as more urban.  The North is also generally not on the radar of either the public or politicians in the south.  Canada seems to feel ignored by the United States while Northern Ontarians feel alienated from the south. 
Yet, there are also some important differences.  About 90 percent of Canada’s population lives within about 100 miles of the U.S. border  - the same cannot be said for the population of northern Ontario with respect to the province’s south.  As well, 80 percent of the north’s resource exports do not go to southern Ontario – they go to the rest of the world – and primarily the United States.  Finally, northern Ontario is politically part of Ontario while Canada is politically separate from the United States.  As a result, if Canada feels that the United States is trying to turn it into a big park, its status and powers as a sovereign nation allows it to make decisions to try and counter this – such as trying to find other customers for its natural resource products.  If Northern Ontario feels the south is trying to turn it into a giant park, well there is not much it can do because it has not the status, institutions or powers to influence its own economic and political direction. 
While Canada may be an economic dependency of the United States based on the fact that 80 percent of its exports go there, it can take political action to deal with its economic interests.   Northern Ontario’s resource economy is dependent on international markets but it cannot take any direct political action to deal with any of its economic concerns – it is dependent on Queen’s Park to address its needs and getting Queen’s Park’s attention is hard work.  We spend a great deal of our time lobbying politicians, civil servants and interest groups in Toronto and as a result our regional economic culture has evolved not into an entrepreneurial culture but a culture of planning, supplication and bureaucracy.  The impact of all this on Northern Ontario’s long-term economic future is incalculable.

In providing municipal services as in buying real estate, location is everything.  Nevertheless, I must admit I’m a little perplexed with the evolution of EMS facilities in Thunder Bay.  As we all know, there is an impressive new Superior North EMS headquarters being built along Junot Avenue at the cost of 11 million dollars.  Along with serving as an administrative headquarters, this facility will also house ambulances and paramedics for Thunder Bay and according to EMS Chief Norm Gale will help with response times for the north half of the city. 
On Monday evening, City Council approved a 7 million dollar request for the construction of two new fire halls and for funds that will also be used to renovate four existing fire halls to share fire and EMS services. This new plan would see the Neebing Avenue fire station rebuilt in its existing location and the Brown Street firehall in Westfort relocated to a location still to be confirmed but which many suspect will be the corner of Rosslyn Road and Neebing Avenue. The point here is to improve EMS response times on the City’s south half.  
This is a lot of new capital construction which will no doubt benefit local contractors.  What is curious is the sudden discovery that we can improve response times by decentralizing the ambulances and having them share accommodation with existing fire station facilities.  Of course, my recollection was at the time the new EMS headquarters was being debated, the idea of improving response times by sharing EMS facilities with existing fire stations did not appear to have had a lot of traction.  All of a sudden, once the new headquarters is near completion, we have a proposal for a new cost-effective decentralized delivery service that will improve response times.   
Perhaps, I am missing something here but would it not have made more sense to have shared fire and EMS facilities before building expensive new headquarters?  Indeed, such an innovation might have reduced the scale and cost of the project being built on Junot.  As well, the irony of having to build the new headquarters away from the fire station on Junot because of the protests of nearby residents about the noise from ambulances and now having those "noisy" ambulances near residential neighborhoods at fire stations across the city is probably lost on our municipal councilors. 
One more point.  Since we are so concerned with response times, has anyone worked out what happens to fire response time in Westfort once the Brown Street station is moved?  If I recall correctly, there are railway tracks north of Westfort and railway tracks south with only the James Street underpass providing an route that does not require a stop at a level crossing.  How will this affect response times in this area if all the nearest fire stations to the Westfort area are on the other side of a set of train tracks?  Has anyone worked out how much longer it would take to get to a Westfort fire if trains are winding their way through at the same time that there is a fire call? Unlikely to happen? Perhaps.  But it is something to think about.


Economics is really a form a story telling and this post is a job creation story with three pictures.  The first picture (Fig1) shows how Ontario's real per capita GDP growth was relatively robust between 1993 and 2000 and then slowed down dramatically over the period 2000 to 2010. Even with the recession of the early 1990s, real per capita GDP in Ontario between 1990 and 2000 rose by 19 percent.  However, the period from 2000 to 2010 saw only a two percent increase in real per capita GDP.  The second picture (Fig2) uses Statistics Canada employment data for Ontario and presents the private sector share of total employment from 1987 to 2011.  Over the period 1992 to 2000, the share rose from 78 to almost 84 percent but then after 2000 began to drop.  While the private sector share of employment can drop during a recession - as it did during the early 1990s in this graph - in Ontario, it dropped steadily from 2000 to 2010 - there is a little upward bump in 2011. The third picture (Fig3) plots the annual growth rate of Ontario's real per capita GDP against the private sector employment share and finds that there is a positive correlation between the two variables.  Indeed, fitting a straight line to the data points using a simple linear regression reveals that just over 20 percent of the variation in real per capita GDP can be ascribed to the private sector share of employment.  The moral of the story is that the size of the private sector's employment share is indeed an important factor in generating growth in the economy.  While it is of course not the only factor (there is another 80 percent that is unexplained - perhaps things like tax rates, interest rates, exchange rates, human capital, public infrastructure, etc...) it is nevertheless a factor and a society that loses sight of its role in economic growth and wealth creation will likely see poor economic performance.  The end.


 





 


Thunder Bay received a shot of good news last week as the Conference Board of Canada released its Metropolitan Outlook for Winter 2012 and forecast that for 2012, Thunder Bay’s real GDP was forecast to rise 1.7 percent this year, the most in 12 years.  According to the Conference Board Report:
Thunder Bay’s gross domestic product is estimated to have remained unchanged in 2011, following 0.9 per cent growth in 2010. These two years of not shrinking were nonetheless a small triumph for an economy that contracted in seven of the prior nine years, largely because of weakness in the forest industry.
The report painted a picture of a city that according to the Thunder Bay Chronicle-Journal:
…would appear to profile a city holding its own, growing in some areas, while in transition — which is pretty good considering the state of the economy as a whole.
While this is all excellent, news, the one caveat is that these are forecasts and forecasts are subject to revision.  Indeed, a brief glance at some of the Conference Board’s forecasts for Thunder Bay over the last few years suggest that the revisions are frequent and can be quite large.  This is to be expected given the small size of many of the urban economies the Conference Board is dealing with in these forecasts, which can make them more variable and sensitive to local shocks and conditions.
The accompanying table gives you some indication of what I mean.  I took a look at five Metropolitan Outlooks from the Conference Board starting with the Winter 2006 Report.  The bolded numbers in the table are the growth rate forecasts while the non-bolded are estimates of the actual growth rate for that year.  Winter 2008, for example, estimated positive real GDP growth rates for Thunder Bay the entire period stretching from 2008 to 2012 ranging from 0.7 percent in 2008 to 1.5 percent in 2011. 


Look at what eventually happened in some of these years.  Take the forecast for 2009 – albeit a bad year given the recession and world financial crisis.  From a projected growth rate of 1.3 percent in 2008, the forecast dropped to -3.1 percent in 2009 and the actual estimate –which is also subject to revision – ranges anywhere from -4.7 percent to -5.0 percent.  If you look at 2010, forecasts of 1.4 and 1.5 percent growth have become estimates of 0.6 to 0.9.  For 2011, the Conference Board was predicting rates as high as 1.9 percent in 2010 but the first estimate in Winter 2012 says at best the economy stayed put at 0 percent growth.
Despite the optimistic forecasts of real GDP growth year after year, Thunder Bay’s real output has declined if you use the Conference Board estimates.  In 2005, real GDP in 2002 dollars would have been 4.241 billion dollars while for 2011 it is estimated at 3.806 – a decline of about 10.3 percent.  So why is Thunder Bay doing as well as it is?  Well, income per capita is actually growing faster than real GDP.  Why? Per capita income includes government transfer income in the form of pensions and other type of income support.  The question is for how long can the economy rely on injections of public sector life support rather than increases in real output?


Two stories in the Toronto Star this week have left me wondering if there is a new grand strategy at work for transforming Ontario’s economy in the wake of its manufacturing decline.
First, there was a story on the latest rumor that Toronto is set to get a waterfront casino at Ontario Place.   For me this generated visions of children playing amongst the games and amusements, while their parents are trying to double their RESP money at the slot machines.  While the story is being downplayed by the government, according to the Toronto Star, a spokesman for the Finance Minister is quoted as saying: “The province does not plan on making a decision until it receives the land-based gaming review or report from the lottery corp. Without a specific proposal, this is all just speculation.”  Of course, this all leads me to wonder if there is a plan to get a proposal underway.
Second, there was a story that funding lawsuits is growing as an investment activity and a more formal practice is emerging whereby plaintiffs with strong cases but a lack of resources can approach investment firms to pay their legal bills in return for a share of the settlement.  They provide an example of the U.S. Burford Group, which invested 6 million dollars in legal fees in a case last year and then earned 10.5 million dollars as part of the payout.  However, there are risks to such a strategy and as Burford Group apparently says in a report on its website, “the very best trial lawyers will acknowledge that luck and circumstance play a role here.”  Of course if luck and circumstance play a role then even plaintiffs with weak cases have a fair shot.  This seems to me to be another form of legalized gambling.  Given the concentration of legal and investment firms in Ontario and particularly Toronto, this may also seem like another new economic growth frontier.
What is my point?  If these kinds of activities are what the sovereign consumer wants to pay for, then they are forms of economic activity and will create jobs.  We can go back to Mandeville’s Fable of the Bees for instruction on how vice and misery can become engines of economy.  At the same time, I find all this disquieting. The Ontario government has come to derive greater amounts of revenue from gambling and lotteries and it represents a form of voluntary taxation. More serious are the lessons that are being passed on to younger generations with the creation and propagation of a “gambling culture” that is sanctioned by the state.  The ethos of society seems to have changed from one where skills, hard work and entrepreneurship generate success to one where luck and chance are the road to wealth. 
While much of the hand we are dealt in life is luck, skills and hard work are also necessary to deal with opportunities as they come and those activities must be invested in also.  Reliance on chance alone is not a stable foundation to build the future.  With gambling, wealth and income are transferred from gambling losers to winners and once the tax revenues accrue to government and are spent, there is also some transfer from gamblers to non-gamblers. The question.  Does this type of activity actually increase the net wealth, income and welfare of a society or is it merely a transfer from winners to losers?  Is the gambling economy a zero-sum economy?

From the January 11th Winnipeg Free Press - PRINT EDITION
Health transfer reforms sound
by Livio Di Matteo
Just before Christmas, the federal government provided its solution to the 2014 expiration of the 2004 Health Transfer Accord.
Finance Minister Jim Flaherty announced to assembled provincial finance ministers not that they would begin discussing a new arrangement but that the federal government had decided to hold the annual increase in the transfer to six per cent until 2016-17, which is the current rate Ottawa gives the provinces.
Starting in 2017-18, however, federal health-transfer increases will be linked to the rate of the country's economic growth including inflation -- which is about four per cent but there will be a floor of three per cent.
There is much that can be criticized about this solution to the health-transfer issue. It appears to herald a departure of the federal government from any attempt at national health standards or fostering innovation as the money is to be transferred no strings attached.
Thus, there is no federal commitment to try to improve health-care delivery. Federal Health Minister Leona Aglukkaq has stated future federal-provincial discussions will now be more about performance measurement, accountability and sharing of best practices rather than money.
When it comes to health, critics might argue Canada now has the federation from Star Trek with the role of the federal government being simply to observe and report rather than involve itself in provincial affairs.
At the same time, one has to conclude that given that health is a provincial sphere of jurisdiction, the federal transfer solution is both clever and sound.
In terms of cleverness, announcing the new arrangement the week before Christmas when the public's attention was elsewhere was inspired.
And if they were paying any attention they would merely note Ottawa was giving money -- the Christmas gift that is always appreciated -- making complainers seem ungrateful.
Moreover, Ottawa is maintaining six per cent increases until 2017 -- the world should last so long. The fact is the provinces have stable federal funding to plan for the day when growth in federal transfers slows.
Federal health transfers are a key component of provincial health spending, accounting for about 20 per cent of their expenditures and are therefore an important driver of spending.
The federal government is creating the incentive for provinces to bend the health-care cost curve but gradually and without a one-size-fits-all policy.
One of the advantages of a federal form of government is that it can foster diversity and innovation in the production and delivery of public services. The provinces now have the opportunity to do just that to health care.
The money, however, is being transferred with no strings attached, no push for national standards. Those who might want to see future federal action on a national drug plan will be disappointed. Those who see the role of the federal government as an enforcer of regional equity in health-care services will also be disappointed.
Those provinces currently unhappy with the new transfer deal, however, would also cry lamentations of domineering federalism and unwarranted federal intrusion if the federal government became more interventionist in applying national heath standards.
The federal government has extricated itself from these types of political health funding operas and in future all the provinces will be more careful about what they wish for.
Finally, the amounts are reasonable. Six per cent until 2017 means five more years of federal transfer growth well in excess of GDP growth.
Of course, given population growth and inflation, it means a freeze in real per capita federal health transfers after 2017.
This is where the challenge lies. For provinces with booming economies and relatively young populations, a freeze in real per capita federal health transfers will allow innovation and experimentation. For provinces with rapidly aging populations and slower economic growth -- Eastern Canada -- the result will be a serious fiscal crunch.
Ontario and Quebec already have extremely challenging deficit and debt situations and they now see an express train rather than light heading towards them at the end of the fiscal tunnel. All this will be in keeping with the new vision for Canadian federalism -- one stable federal funding source with provincial freedom to experience diverse outcomes.

Livio Di Matteo is professor of economics at Lakehead University.
Republished from the Winnipeg Free Press print edition January 11, 2012 A11


The federal government and Canada’s largest province are both engaged in deficit reduction planning exercises for their spring 2012 budgets. The Federal government according to its June budget has expenditures of about 281 billion dollars and revenues of 249 billion for a deficit of about 32 billion dollars. Ontario, based on its last budget, has expenditures of about 124 billion and revenues of almost 109 billion for a deficit of about 16 billion dollars.   While Ottawa’s deficit is just under two percent of Canada’s GDP, Ontario’s is just over two percent of provincial GDP. 
The way to fight a deficit is to either raise revenues or reduce expenditures or some combination of the two.  The Federal and Ontario governments have both publicly opted to focus on expenditure reduction.  Ottawa is engaged in a review exercise that aims to cut 5-10 percent in spending across departments.  Indeed, the Federal Finance Minister on Tuesday hinted that the government might be compelled to be more aggressive and some of the cuts might be more than 10 percent. Ontario, has engaged the services of former bank economist Don Drummond to provide recommendations on government spending.  Preliminary reports in the media outline cuts as high as 30 percent for some Ontario ministries with health and education being priorities and somewhat spared.
In the case of the federal government, a 10 percent reduction of spending across the board would generate 28 billion dollars and would quickly balance the budget especially given that revenues were forecast to rise to 264 billion in 2012-13 and 281 billion by 2013-14.  While the economic growth outlook is now more uncertain, federal government revenues are not anticipated to decline.   As for Ontario, a 10 percent cut would also nearly balance its budget if spread across the board but Ontario has said that education and health are priorities. 
About 38 percent of Ontario’s spending or 47.6 billion dollars is health and 19 percent or 23.2 billion dollars is education.  Another 10.3 billion (8 percent) is interest on the debt.  Adding these components up brings you to 81 billion dollars, which leaves only another 43 billion dollars in spending. Cutting this remaining spending by 30 percent – post-secondary education and training, children and social services, justice, transportation and all other programs – would just about balance the budget. But it is unrealistic to expect such a dramatic reduction in these categories. 
Even a ten percent drop in government spending all at once is a significant and painful cut.  Yet, both governments have avoided talking about the revenue side of the deficit reduction equation to mitigate the effects of spending reduction.  What is instructive here is that if one examines the total government revenue to GDP ratio for the Federal government and Ontario, the ratio has been falling for Ottawa over the last decade but it has grown for Ontario.  Between 2000 and 2011, Ottawa’s revenue to GDP ratio declined from approximately 18 to below 15 percent while Ontario’s grew from about 15 to 17 percent.  However, Ontario’s revenue includes federal transfers, which now account for about twenty percent of its revenues.  Its own source revenue to GDP ratio is now actually similar to that of the Federal government but it rose over the first half decade of the 21st century and then declined during the recession.
Of the two jurisdictions, Ontario has the more serious deficit problem.  First, it is dependent for twenty percent of its revenues on the federal government.  While the federal government does not appear to have targeted transfer payments for expenditure reduction, it may become a concern. Second, Ontario has vowed to protect health and education, which leaves a much smaller base for expenditure reduction. The federal government has a broader base on which to apply its expenditure reduction though much of it is also transfer payments to individuals and it remains to be seen how it will deal with these.  Third, given its slow economic growth and lagging productivity, raising taxes would be viewed by Ontario’s business community as a poor economic move.  Given the decline in its revenue to GDP ratio, Ottawa is actually in better shape to raise taxes to fight the deficit but it is even more strongly committed to not raising taxes.  This leaves both Ottawa and Ontario with limited room to maneuver.  We await the outcome of the fiscal spring.



The Ontario government’s final approach to deficit reduction has begun with selected leaks of economist Don Drummond’s “first draft” of his review via media interviews designed to dramatically present deficit reduction.  A column by Martin Regg Cohn of the Toronto Star titled “Brace for a firestorm across Ontario” outlines cuts as high as 30 percent for some Ontario ministries with health and education being spared “somewhat”.  Yet, the same column has Don Drummond using the language of the Wall Street protestors by talking about how just one percent of the population accounts for half of hospital spending and one third of total health expenditures.   Martin Regg Cohn’s most recent column on Don Drummond’s prescriptions titled “The grim reaper punctures Ontario’s fiscal fantasies” points out how unrealistic balancing the budget by 2017-18 was and shares the blame on fiscal forecasting by mentioning that the opposition parties embraced the same timetable during the election.
What is going on here?  All of this advance work by the Ontario government reduces what should be a serious policy problem requiring a firm and measured approach to some kind of fiscal porn reality show.  What’s next? Blaming 80 year-old cancer patients as the top 1 percent of health care spenders with cabinet ministers leading a protest movement to occupy hospital wards?  The provincial government is being irresponsible by launching this media blitzkrieg in an effort to soften up the public for spending cuts that will be more modest than what Don Drummond is going to propose.  In a sense, the provincial government is trading a leadership role on the deficit for what can only be termed a panicked posturing scaremonger approach designed to make them look benevolent when the cuts are not as draconian as their special adviser wanted them.  At a time when sound policy is required, the provincial government should be ashamed for engaging in such a childish and irresponsible posturing in its approach to the public finances.
Ontario currently has expenditures  of about 124 billion and revenues of almost 109 billion for a deficit of about 16 billion dollars.  Of this spending, 38 percent or 47.6 billion dollars is health and 19 percent or 23.2 billion dollars is education.  Another 10.3 billion (8 percent) is interest on the debt.  Adding these components up brings you to 81 billion dollars, which leaves another 43 billion dollars in spending.  Cutting this remaining spending by 30 percent – post-secondary and training, children and social services, justice, transportation and all other programs – would just about balance the budget.  That is not going to happen.  Restoring fiscal balance will require a balanced approach that affects all sectors.  What should the government do?
Step one.  There needs to be an immediate two-year freeze in total nominal provincial government spending – with inflation and population growth – this is effectively a real cut of six percent over the two years.  If spending stays frozen at 124 billion and total revenue grows at 3 percent (it averaged 4.7 percent from 2001 to 2011 which includes the recession slowdown so we are indeed underestimating revenue growth here especially if the government does not raise taxes) in about two years the deficit would be down to about 6 billion dollars.  A freeze entails real reductions, but not the operatic drama being bandied about by the government.
Step Two. During the two years of the freeze, the recommendations of Mr. Drummond need to be examined and evaluated for where there may indeed be measures to reduce spending in all sectors of government.  Indeed, no sectors should be spared.  Are there savings in health?  Most models of health expenditure determinants I’ve looked at explain about 90 percent of provincial government health spending with income, federal transfers, aging, population growth and technology (as proxied by time trend).  The other 10 percent or the residual is “unexplained”.  Could it be inefficiency?  Possibly.  Is there 5 to 10 percent in inefficiency in most areas of provincial government spending?  Perhaps.  Do your homework and set an expenditure reduction target for the two years after the freeze that would take another 5 percent off of government spending via restructuring and reform of services by 2016-17.  This would bring total annual provincial spending down by about 6 billion dollars to about 118 billion dollars.  Assuming the revenue increases outlined above, this would effectively balance the budget by the target date and it would not be painless given inflation and population growth.
Step three.  Rein in political ambition to resume "exciting" new spending initiatives once the finances start to improve.  As dire as the province’s finances look, a freeze in spending combining with very modest revenue growth will start to improve the province’s finances more quickly than expected.  As revenues improve, maintain the spending restraint plan and dedicate some of the additional revenues to paying down the debt.  For each billion dollars of debt that is paid down, you will free up additional resources in terms of reduced debt servicing costs.  Use this fiscal dividend to further reduce the provincial debt rather than plow it back into spending. 
Ontario needs a solid and stable plan to address its fiscal situation and one that balances the need for government services with the necessity of providing them efficiently.  The plan requires the cooperation of all the political parties as well as the public and grand political opera designed to terrorize the public and the opposition is not the way to do it.   The province of Ontario needs to demonstrate to its citizens and to bond rating agencies that it has a serious plan to balance the budget, and not a strategy designed to yield partisan political benefits.  Exercise some leadership.


The 2012 budget for the City of Thunder Bay is shaping up to be a very interesting and watershed set of discussions.  Over the period 1999-2010, the average annual growth rate in residential tax property revenues has been 5.1 percent.  That for business property tax revenues has been 1.6% while user fee revenues (which include the water bill) has been 6.6 percent. 
Despite these revenue increases, the demands for more spending have been incessant.  For 2012, the City Police and the District Social Service Board are each asking for increases of more than one million dollars in their budgets while the Superior North EMS says it needs a new ambulance service, which will also cost one million dollars.  Thunder Bay Fire and Rescue wants to implement a plan for new fire stations, which is on top of several million dollars in new infrastructure spending.  To top it all off, while the decision to build the multiplex has yet to be made, money is being spent on planning for it and the plan is to “leverage funding” for it once it is built – which could ultimately mean borrowing more. 
City Council has been rather strategic in its behaviour towards raising taxes for 2012.  The fall saw a discussion over a property tax increase to deal with infrastructure under the rubric of Renew Thunder Bay and resulted in a planned 1.5 percent increase in property taxes to deal with infrastructure.  That out of the way, the debate is now over what additional increase is needed to deal with everything with at least one city councilor mentioning in a recent media story that while a zero percent increase in unrealistic, the hope was that the jump would be less than 1.5 percent. 
City councilors must no doubt be congratulating themselves on their cleverness.  After all, the debate has now been structured over whether the increase is going to be 1 or 1.5 or perhaps 2 percent which may not sound so bad except it is on top of the 1.5 percent increase that is already planned and probably does not include increases in fees for things like water.  This type of compartmentalization into separate revenue categories – each of which results in a small increase – must assume that the average municipal citizen is rather short sighted if not innumerate.  Once you add everything up, the average household will likely see increases in payments to the City of Thunder Bay ranging anywhere from 3 to 6 percent next year.  It is indeed an elaborate dance of a thousand tax increases that our municipal councilors have begun to dance as they debate bits and pieces and hope nobody notices the big picture.  Some of these component items have increased substantially.
Take the example of the water bill.  I decided to go back and look at my household water bills for the last decade – the period 2000-2011.  The bill is divided into three components – a consumption charge, a sewer charge and a fixed cost which it turns out has been anything but fixed lately.  Our consumption of water has been flat aside from the spike in 2002 (there was a leaky toilet that year which we then fixed).   We’ve averaged about 241 cubic meters per year over the period 2000 to 2011 with no discernible upward trend.
Figure 1 shows the component charges for my water bill.  They have all gone up over time.  Over the period 2000 to 2011, my consumption charge has increased 62 percent, my sewer charge 152 percent and my “fixed cost” by 337 percent.  Figure 2 adds all the charges up and between 2000 and 2011, my annual water bill has increased by 134 percent.  I suspect that this pattern is common to most households in the city.  Indeed, most households are probably afraid to consume less water and conserve because it would result in a revenue drop that would result in yet another rate increase, which our municipal overlords could creatively title the “Revenue Recovery Charge”. 


Now to be fair, it can be argued that we were underpaying for water in the past as Canada in general has had some of the cheapest water rates in the world.  But then, we do have a resource advantage in terms of the abundance of water.   Also, building a new water treatment facility and modernizing our water system are also factors. We are paying for new infrastructure.  Of course, that is why the call to renew yet more city infrastructure is so alarming given what has happened in the case of water.   When it comes to municipal revenue and taxation, city councilors have created a tango of many fees and funds each of which results in an incremental increase but there is ultimately only one taxpayer footing the bill for these many separate fees.  Who among our city councilors is looking out for the bigger picture when it comes to the impact on the average household?


Statistics Canada has released its labour market numbers for December 2011 and they show that for Canada, the level of employment rose slightly between November and December, up by 18,000. The unemployment rate also increased to 7.5% as more people participated in the labour market. Over the past 12 months, employment growth totaled 1.2% (+199,000), but with nearly all of the gains in the first half of the year - the second half of 2011 has witnessed a slowdown in job creation nationally.
In Ontario, employment was up by 16,000, bringing growth since December 2010 to 1.4% (+91,000) and the unemployment rate in the province was 7.7% in December, down 0.2 percentage points from a month earlier. For December 2011, the unemployment rate in Greater Sudbury was 5% - down from 5.2% in November.  Meanwhile, the unemployment rate in Thunder Bay was 6.1 percent - up from 5.9 percent in November based on 3-month moving average, not seasonally adjusted numbers. 
According to the recent numbers (Series v53525376 & v53525106), total employment in Greater Sudbury was actually down by 700 jobs between November and December 2011.  In Thunder Bay, it was actually up by 1000 jobs - from 62100 to 63100.  Relative to December 2010, Sudbury is up by 1000 jobs (from 82800 to 83800) while Thunder Bay is up 2100 jobs from 61000 to 63100).  The fact that the unemployment rate in Sudbury has gone down between November and December 2011 despite the employment decline while the reverse has happened in Thunder Bay is because of labour supply differences in the two markets relative to employment.  In Thunder Bay, the labour force has been growing faster than employment.  As well, if you take the Ontario number of 91,000 jobs created since December 2010, the Thunder Bay CMA appears to have created 2.3 percent of them, which is well above its population share of the province.
In terms of longer term trends, the accompanying figure shows that despite recent improvements, employment levels in Thunder Bay have nevertheless trended flat over the last fifteen years while those in Sudbury exhibit an overall upward trend.



The Conference Board of Canada recently released its December 2011 Metro Help Wanted Index.  According to the Conference Board, the Help Wanted Index suggests that employment prospects are about to improve in many Canadian metropolitan centers.  More specifically, near term prospects are up in 14 census metropolitan areas, stable in 6 and down in 6.  Among the ones that are down are Saguenay, Quebec City, Thunder Bay, Trois-Rivieres, Ottawa-Gatineau and London.  Prospects are up the most in western Canadian cities where rising resource prices are driving up employment.   The index of labour market tightness - a measure of the number of unemployed workers to the number of online job ads - is the lowest is western Canadian CMAs.


The above figure shows the Conference Board Help Wanted Index for Thunder Bay (black line) and the Index of Labour Market Tightness (green line) since November 2008.  A rising help wanted index means the number of job ads is increasing while a falling labour market tightness index means the probability of finding a job is rising.  For Thunder Bay, the period since 2009 has generally been marked by a rising help-wanted index and a tightening labour market despite the most recent reversal.  Given that total employment in Thunder Bay as reported by Statistics Canada has not returned to the levels of 2003 - before the onset of the forest sector crisis - this provides further evidence that the Thunder Bay labour market has adjusted to a lower employment level equilibrium. 
In case you are interested, the other major northern Ontario metropolis - Sudbury - saw an increase in its most recent help wanted index - but just barely.



Well, my recent January 2nd post on the apparent mix-up on the Canada Entertainment web site stating that there is a Delta Hotel in Thunder Bay has caught the attention of no other than Delta Hotels.  According to an e-mail received from Sandy Indig, the public relations manager at Delta hotels and Resorts, they wanted to let me know that:

"we have reached out to www.canadaentertainment.ca and have asked them to revise their Delta posting as they have clearly confused the cities of Victoria and Thunder Bay. Delta does not have a property in Thunder Bay...the site you have linked to in your blog is referencing our resort in Victoria, BC - the Delta Victoria Ocean Pointe Resort and Spa."

Sandy Indig proceeds to thank Northern Economist for bringing this to their attention and expects canadaentertainment.ca to revise their web site shortly. Northern Economist is of course pleased to once again be of service but is a bit disappointed that there will not be cherry blossoms and daffodils on the waterfront anytime soon. 


As 2012 dawns, Ontario’s Northwest begins another year of change and anticipation of change.  On the economic front, the slow process of stabilization and renewal will continue.  There is substantial construction activity underway in the region and particularly in Thunder Bay driven to a large extent by the public sector.  There is also continuing activity in mining and resources but a broad based employment recovery has yet to emerge.  The region appears to have settled into a lower employment equilibrium level of just over 100,000 jobs, which is down substantially from its peak of 117,000 in 2003. 
Using Ontario ministry of finance numbers, a comparison of Northwestern Ontario’s employment distribution with Ontario’s in 2003 and 2010 (See Figures 1 & 2) shows the Northwest has become even more dependent on employment in retail and health and social assistance as the share of employment in manufacturing dropped from 13 to 6 percent.  While total employment in Ontario has recovered from the recent recession and is about 6 percent above where it was in 2003, employment in the Northwest is still about 10 percent lower than 2003.  Much work remains to be done.


 



There are a number of things to watch for in 2012:

First, is Thunder Bay’s continued growth and evolution as a center for northwestern regional government.  While formal regional government status and political autonomy has been continually dismissed as an option by the provincial government, it would appear that regional government is coming about by stealth.  As a result of the Northern Growth Plan, there is now planning underway for a regional economic development zone pilot project.  The regional economic development area’s organizational structure and functional authority bears a lot of resemblance to the Northwestern Ontario Regional Development Authority Plan from 2007 which morphed into the Common Voice initiative as it became apparent the provincial government was not interested in more regional autonomy– and quite frankly, neither was the north’s political leadership.  One of the key initiatives of that plan – the Northwestern Ontario Policy Research Institute – survived into the Northern Growth Plan but since the announcement of its approval in Spring 2011 there has been silence. 
Nevertheless, there is a growing web of regional and district services ranging from the District Social Services Administrative Board, the Regional Food Distribution Network and the Superior North Emergency Medical Service (EMS).  These are currently operated with a patchwork of overlapping mandates centered on shared arrangements between the City of Thunder Bay and assorted provincial government ministries.  As well, there is TbayTel which is providing telecommunications services on a regional level.  As the number of these arrangements continue to grow, it is only a matter of time before there will be an attempt at consolidation into a more formal regional government apparatus.
Second, the Northwest will invariably need to keep an eye on the world economy and in particular, international commodity and resource prices.  The volatility of the international situation means that the only reliable economic prediction will be that the economy will be uncertain.  The forest sector in the region suffered additional setbacks in 2011 with the shutdown at the restarted mill in Terrace Bay as well as the shutdown at Global Sticks in Thunder Bay.  While newsprint and pulp prices rose in the wake of the 2008 recession, they were relatively flat in 2010 and have been showing signs of weakening in 2011 despite the massive restructuring, which reduced capacity.  As for oil prices, if they remain high, they will continue to generate activity out west for regional machinery and construction workers in the oil sands.  As well, there is oil development in North Dakota, which may also be a source of opportunity for regional firms.  Finally, metal and mineral prices will also be crucial.  Copper and gold have been exhibiting a mixture of stability and strength and healthy mineral prices will be crucial to continued prospecting and development in the Northwest’s mining sector.  Despite the new knowledge economy, rocks and trees will still be important to the regional economy in 2012. However, despite the promise of the Ring of Fire, nothing substantial will happen without the cooperation of the First Nations, competitive energy prices and new transportation infrastructure. 
Third, the region will be affected by whatever steps the provincial government takes to reduce its deficit.  Ontario faces a 16 billion dollar deficit, credit rating warnings and a debt of almost 250 billion dollars.  The spring budget will use the advice of economist Don Drummond’s government spending review report to attempt a restructuring of government services that the Ontario government thinks will modernize delivery, save billions of dollars, and even improve public services.  Dwight Duncan will eventually discover that only Harry Potter has magical powers and will be forced to revert to the fundamental deficit fighting tools of either cutting spending or raising revenues. Government spending cuts will be especially significant to Thunder Bay’s economy, which has been buoyed by public spending on infrastructure, education, health and research.

Evaluation
Northwestern Ontario enters 2012 with an employment situation that is vulnerable to international resource commodity price shocks and government deficit reduction exercises.   In the face of these economic forces, leaders in the Northwest and particularly Thunder Bay will need to exercise their leadership skills with respect to regional advocacy, economic development and First Nation’s issues in a manner that accommodates the region’s growing political diversity.  The Northwest is a large geographic expanse with a small and politically diverse population. 
The western-most part of the region – from Dryden west to the Manitoba border is the closest to the booming west and its robust economic opportunities and examples.  It also has the fastest growing population in the Northwest and this will likely be confirmed with the release of the population numbers in spring from the 2011 census.  As a result, this part of the Northwest has been more prone to political experimentation sending a Conservative to Ottawa while remaining NDP at the provincial level.
The eastern part of Northwestern Ontario was hit the hardest by the forest sector crisis and in the absence of immediate new economic opportunities has embraced the politics of protest and gone NDP federally while still keeping an eye on government economic support by voting Liberal provincially.  The provincial Liberal tide is strongest in the Nipigon-Thunder Bay-Atikokan Axis where Thunder Bay’s governing class sees itself not so much as a regional elite but as an extension of Toronto’s urban elite and its agenda of a green energy industrial strategy, knowledge sector research jobs and expanding government administration and regulation of social life and the economy.  However, the successful implementation of this vision now rests on a minority provincial government.
As strange as it may sound, frequent and convenient air travel has resulted in Thunder Bay’s governing class developing views more in common with residents of downtown Toronto than Greenstone.  Indeed, Thunder Bay is one of the islands of Liberal Red in the urban-rural split that characterized the results of the last Ontario election.  When it comes to public sector spending cuts, it will be interesting to see how much the Toronto-centric Ontario government and bureaucracy values the affinity and devotion of Thunder Bay’s governing elite.  It will also be interesting to see how long Thunder Bay’s governing elites can balance a vision of Thunder Bay as a regional center for the Northwest at home while portraying it as an extension of Toronto values at Queen’s Park.


Well, it would appear that Thunder Bay does have a new waterfront hotel – the Delta Thunder Bay Ocean Pointe Resort!  According to a web entry, this definitely is the place to stay:

This resort in the city features unobstructed views of the spectacular waterfront and city lights. Every June to September, enjoy a night at “Starlight Cinema”, with a three-course dinner on The Boardwalk patio as you watch a movie under the stars.
Indulge your senses in an elegant Signature Club guest room, with choice amenities including cozy terry cloth bathrobes and feather-soft pillows and duvets. Unwind in the tranquil Signature Club Lounge with a nightcap from the honour bar, or keep connected with complimentary high-speed Internet access. Pamper yourself at the Spa at Delta Thunder Bay, enjoy a martini & live jazz in Rick’s Lounge or play a game of tennis on our year round lit Tennis Courts.

Sounds exciting?  Well, there seems to be a caveat:

This four-diamond resort & spa is ideally located in the heart of the city, on the waterfront of Thunder Bay 's charming Inner Harbor. Voted the “Best City in the Americas” by Condé Nast Traveler, 2003, Thunder Bay is situated on the southern tip of Vancouver Island, where the cherry blossoms and daffodils are in abundance.

t turns out, when you click to make reservations on this web site, it is the Delta Victoria Ocean Pointe.  What does this mean?  Well, it could mean that Thunder Bay is getting a Delta Hotel on its waterfront and there has been a mix-up.  Or, it could mean that Delta Hotels has gotten Thunder Bay mixed up with Victoria and has built their waterfront hotel there.  Oddly enough, if there is going to be a mix up, I would have expected Delta to inadvertently build the hotel in North Bay!  Ah well, I am looking forward to the cherry blossoms and the daffodils.




Ontario is Canada’s largest province and befitting its status as the Queen of Confederation, now has the largest provincial debt and deficit in the country.  In dealing with the provincial fiscal situation, much rests on the program spending review being conducted by economist Don Drummond. Due to be delivered by the end of January, it is expected to usher in an era of transformation of public services that will overhaul provincial government expenditures, restore the public finances, and perhaps even improve the quantity and quality of public services.   The ability to transform government spending is Ontario finance minister Dwight Duncan’s great hope – a magic bullet that will reduce the need for destructive service cuts or incentive-destroying tax increases. 
If one wants a glimpse of what the future may hold in terms of the Ontario government’s approach to deficit reduction, one need not wait for Don Drummond. Ontario’s government funded policy institute - the Mowat Centre - released a report titled “Fiscal sustainability and the Future of Government Spending: A Shifting Gears Progress Report” in November 2011.  The report emphasizes transformative change – transformative tax initiatives such as the HST, transformative policy changes such as raising the retirement age, whole system reviews that harmonize functions across governments, embracing digitization, modernizing bureaucratic processes, new service delivery models, etc…There is a veritable buffet of international policy examples of how it is possible to reinvent delivery of government services and get more with less.
While restructuring and transformation of government service delivery is a viable long-term option, it operates best in small incremental steps.  Moreover, without the stick of expenditure reduction or unpopular tax increases there is often little to motivate either entrenched bureaucracies or the public.  Revolutions that seek broad economic restructuring of government in the end are doomed to failure because of entrenched interests as well as the high transactions costs of bringing about massive change.  The reluctance to change is also based on the belief that once budgets are balanced and revenues recover, politicians will embark on new program initiatives that will make up for lost spending with new spending.  In the case of Ontario, one only need look back to the Common Sense Revolution, which sought to restructure health care and government spending.  Nearly two decades later, we are still talking about the need to transform public services in Ontario.  And in the case of health, we cannot forget the Romanow Report and the prescription to buy “transformative change” – a decade later the provinces still clamor for more money and health is still considered unsustainable.
The one swoop magical approach to transforming government spending in a manner that balances the budget and maintains services is an appeal to fiscal magic on the part of those who flee from fiscal fundamentalism.  In the end, the way to fight a deficit is to either raise revenues or reduce expenditures or a combination of the two.  Either of these approaches may provide incentives to government bureaucracies to innovate on service delivery and engage in “transformation” but to expect that they will do so without the fiscal motivation of expenditure reduction is unrealistic.   It is also unrealistic to allow the public to expect that service levels will somehow remain unaffected. 
In the case of Ontario, this talk of government transformation is either expenditure reduction in disguise induced by the political fragility of a minority government situation or it reflects the government’s true views on how to manage the deficit.  If it is the latter, it is akin to a belief in fiscal magic.  If only there actually was a magical solution given the size of Ontario’s deficit and its decade long economic decline.  Realistic or not, Dwight Duncan seems to believe in magic but whether he is able to cast a spell on the public will be another matter.