by Livio Di Matteo Winnipeg Free Press
While global economic circumstances have played a part in Ontario’s predicament, Ontario’s regulatory and interventionist government policy culture has not helped much. Witness the initiatives of recent years: the messianic closing of cost-effective coal plants and implementing higher cost wind and solar energy initiatives in the name of the environment.
Those whose television memories stretch back to the 1960s may well remember the robot from Lost in Space who whenever faced with a threat to his unaware young charge would immediately intone “Danger, Will Robinson.” Ontario’s premier, who has been seemingly unaware of the impact of his energy and economic policies on the province’s economy, would do well to take heed from the danger signs provided by the recent update to provincial GDP numbers.
The new numbers from Statistics Canada show that as a result of the recession, real gross domestic product in 2009 fell in every province except Manitoba. Moreover, the declines were steepest in Newfoundland and Labrador, Saskatchewan, Alberta and Ontario.
Being in the company of so many poor performers will not be a suitable defence for Ontario’s economic record for two main reasons. First, while Ontario’s decline was smaller than Newfoundland, Alberta and Saskatchewan — those provinces can blame their drop primarily on the fall in natural resource commodity prices — namely oil. Ontario’s key natural resource sector — forestry — while hit hard over the last decade, is not as important a sector to Ontario as oil and gas is in these other provinces and their economies will see growth as oil and gas prices recover.
Second, Ontario’s dismal performance is on top of a decade of dismal performance when it comes to per capita output growth. Ontario has become a laggard in per capita GDP, which was highlighted when it entered the ranks of the “have-not” provinces and began to collect equalization. A survey of statistics for the last two decades show that Ontario’s share of total provincial GDP has declined from 42 per cent in 1990 to 37 per cent in 2010. More ominous, the bulk of that decline has occurred since 2000 — largely coinciding with Dalton McGuinty’s decade of political power. Whereas in 1990, productive Ontario’s share of national output exceeded its population share, we now are witnessing the sorry spectacle of the reverse.
When Ontario’s economic productivity performance is examined in terms of real per capita GDP, it emerges that Ontario’s output has stagnated for an entire decade. Between 2000 and 2010, real per capita GDP in Ontario actually declined by eight per cent. While one may wish to ascribe this to the impact of the recession and the global financial crisis since 2008, the fact remains that Ontario’s performance was the worst of all 10 provinces. Indeed, over the first decade of the 21st century, eight out of 10 provinces experienced an increase in their real per capita output while only Ontario and New Brunswick saw declines. Even Quebec, which has been the historical poor economic sibling to Ontario, saw its real per capita GDP grow six per cent during the decade. Since 2000, Ontario’s real per capita has gone from being 25 per cent above the provincial average to barely at the provincial average. From having the second highest real per capita GDP in the country (second only to oil rich Alberta) it is now the fourth highest. It is no wonder that Ontario is now receiving equalization payments.
Ontario’s economy appears to be adrift in economic space with its government oblivious to the real state of its economy and seemingly unable to get a grip on economic and fiscal policy. While global economic circumstances have played a part in Ontario’s predicament, Ontario’s regulatory and interventionist government policy culture has not helped much. Witness the initiatives of recent years: the messianic closing of cost-effective coal plants and implementing higher cost wind and solar energy initiatives in the name of the environment, raising minimum wages, implementing and then rescinding eco-taxes, timing the arrival of the HST with a recession, sequestering large land areas of the province’s north from economic development.
In the midst of all the economic carnage, the Ontario government is presiding over a massive hike in electricity costs — an energy source that used to be the foundation of Ontario’s economic advantage. Add to this the fiscal deficit and a net debt that is expected to reach $240 billion by 2011, and one has an economy that is on the verge of being unable to deliver the standard of living that its citizens have come to expect. That Ontario’s future economic welfare is in a clear and present danger is a sad understatement.
Livio Di Matteo is professor of economics at Lakehead University.