Northern Economist 2.0

Wednesday, 29 February 2012

Time for a Break

Well it has been a busy time for Northern Economist and getting busier all the time.  March always marks the onset of my busiest time of the year and this year along with finishing up supervising two honour's theses, teaching my courses, and being Department Chair, I am also involved in an undergraduate program evaluation for the Department of Economics at Lakehead and helping to draft our new Department academic plan.  I'm also on the university Promotion, Tenure and Renewal committee again in the spring.  In addition, I'm also committed to conference papers to present my research in April, May, June, July and September so as much as I enjoy blogging about northern Ontario's economy, I'm out of time. 

As my colleague Steve Gordon at Worthwhile Canadian Initiative has remarked, blogging is a lot like giving out free pizza.  However, the pizza is free only for those who choose to consume the product - I still have to do the baking.  We blog to contribute to debate and policy formation, to try and help make a difference, but in the end there is only so much time to go around.  This break may last a while as I'm also heading into a sabbatical and for academics, sabbaticals are generally breaks from your usual routine and investment of your time in professional development.  I will be spending mine on wealth research and analysis of health expenditure and health system sustainability along with some deepening on my econometric skills.  Sorry, but baking lots of free pizza is not the way I was planning to spend my sabbatical.

For those of you who like my stuff on northern Ontario, you can continue to access the past posts I've done both here and at at my original Northern Economist 1.0 site where there is a wealth of material dealing with the region's economy from a descriptive and analytical perspective.  Enjoy.  You can also check in at this site from time to time just in case an important topic grabs my attention.  As well, I will continue to post occasionally on more general economic topics as part of the team on Worthwhile Canadian Initiative, Canada's premier economics blog.  You can access all of my posts on Worthwhile Canadian Initiative in a convenient listing at Ufollow.

All the best and cheers! Livio.

Friday, 24 February 2012

Thunder Bay's Fiscal Follies

The Thunder Bay City Council budget situation grows more and more curious.  A media report yesterday contained what can only be termed contradictory information.  On the one hand, the story in the Chronicle-Journal stated that: “The proposed budget includes a 2.67 per-cent property tax increase on top of a 1.5 percent hike for the enhanced infrastructure renewal program.”  This means that the combined property tax increase for this budget year is actually 4.2 percent.  Yet, a little later in the story, Councilor Linda Rydholm is quoted as saying she was willing to support the budget because: “At ward meetings and other places, it seems like people are expecting the 2.67 per cent increase, particularly knowing that 1.5 percent is for infrastructure, roads and buildings.”  In other words, the tax increase is 2.67 percent but the 1.5 percent is included. 

It would appear that we are still sorting out the size of the actual increase in Thunder Bay’s 2012 municipal taxes.  Moreover, it would appear that even city councilors are confused as to whether the total increase is 2.67 percent or 4.2 percent.  Add to this the fact that seven million dollars was inadvertently left out of this year’s municipal budget and now will be funded out of the reserve fund, one has to wonder what exactly is going on?  Is there some confusion on the part of the media in understanding council's message?  Are city councilors unable to grasp the details and complexity of the budget process?  Are city administrators and councilors engaged in a strategy of sowing confusion to obscure the true size of the increase? Or is this simply some giant comedy of errors at taxpayer expense?

If the total municipal tax increase is indeed 4.2 percent, it means that total payments to the city by municipal ratepayers will rise nearly 5 percent this year once the rise in water rates of 6.7 percent is included.   In 2011, the water bill for the average household was 714 dollars while the average property tax bill was 2,501 dollars.  Using these figures to compute a weighted average results in an increase of 4.8 percent in total payments by ratepayers to the city in 2012 (4.8=0.22*6.7+0.78*4.2).  Breaking up a 4.8 percent increase into three separate numbers may fool some of the taxpayers some of the time but it cannot fool all of them.  If City Council wants to remain at all credible, it will need to come clean and address this confusion and very quickly.  This credibility is all the more important given the cost overruns for operating the new waterfront park and the desire to build a new multiplex that will also require a large public operating subsidy.

Thursday, 23 February 2012

Does Ontario Need Another Growth Plan?

Last Saturday’s Globe and Mail (February 18, B6) ran an article titled “Rebuilding Ontario: A Plan for the Way Forward” which laid out a discussion of Ontario's economic future. For Northerners, all the talk of decline and the need for diversification was strangely familiar.  Indeed, one can best describe what is happening as the “Northern Ontarioization” of Ontario’s economic discourse as Ontario tries to decide how to grow its future economy in the wake of the Drummond Report, which seems to have finally crystallized the fact that Empire Ontario has slipped into decline.  Of course, some of us saw the eclipse of Ontario a bit earlier than that (check out End of Empire, National Post, February 19, 2005, FP19) but better late than never.

The Globe and Mail described four options for the province to get its “mojo back”. They were financial services, technology, health care and natural resources. Missing was that perennial Northern Ontario favorite - tourism.  Despite the talk of putting a casino in Toronto, it is unlikely to see Ontario reinventing itself as Vegas North. Vegas style tourism requires a degree of individual and entrepreneurial freedom that regulatory Ontario is unlikely to acquire anytime soon.

Of all these options, the one most likely to kick start Ontario’s economy is the natural resource sector. The mining frontier in Ontario’s North – especially the so-called Ring of Fire- can serve as an investment frontier for the rest of the province much like mining and forestry did in the late nineteenth and early twentieth century.  However, this does require that the province embrace its North rather than treat it as a remote relic of the economic past.  Here, the contrast is made with Quebec.  According to the Globe and Mail: “Rather than shun its expansive north, Quebec is emphasizing it, hashing out an ambitious 25-year project dubbed “Plan Nord”.  Quebec is betting its future on developing mining, energy and forestry resources located far north of its major cities. Ontario could adopt a similar scheme.”

Really?  How interesting.  The fact is Ontario has also developed a Northern Growth Plan – a point the Globe and Mail article seemed to have missed but then Canada’s “national” newspaper is based in Toronto.  Part of what is wrong with Ontario’s economy is a myopic economic vision that does not look outside of Toronto.  Perhaps that is why since the Northern Growth Plan has been released, all that has resulted is more planning.  Given the dominance of Toronto vision in Ontario and its government, the chromite deposits of the Ring of Fire could only be developed quickly if they were at the corner of Yonge and Bloor.

Ontario does not need a growth plan.  Ontario needs a set of concrete actions to develop its northern resource frontier as an investment frontier for the province.  The North can be a place for infrastructure investment and value-added processing that can drive economic growth in Ontario.  The North can be a frontier for the deployment of Ontario’s labour skills and human capital.  Given the capital and technology intensive nature of modern mining, the North can also be a frontier for high technology industries.  And, the financial service industry in Toronto got its start in the financing of mining ventures in Northern Ontario.  Financing new mining ventures in the North can once again be a source of growth for Toronto’s financial sector.  What is Ontario waiting for?

Northern Economist Does Vegas!

Well, I have had the ultimate travel and tourism experience by spending a few days in Las Vegas – a place I can now best characterize as a Disneyland experience for adults.  The state of Nevada and the desert metropolis are relatively isolated and yet Las Vegas has established itself as a large and dynamic urban centre focused around gambling and entertainment on a grand industrial scale.  Nevada and Las Vegas offers an interesting example of how remote and isolated places can innovate and create economic opportunity – in this case with tourism.  While the region has the advantage of a warm climate and populous nearby states, it came as a surprise to learn that the land in the region is largely owned by the U.S. federal government – about 85 percent.  As well, nearby California also appears to be resented because of past historical actions with respect to land and water resources.  It would appear that regional alienation is not limited to Northern Ontario.  As well, recessions affect Las Vegas also.  There are a number large and impressive work sites where activity has ground to a halt due to lack of funds.

Las Vegas offers a unique experience.  Where else in the course of a single day can you visit massive reproductions of New York, Egypt, Paris, Rome and Venice?  At The Venetian, the shopping mall follows the path of an inland waterway with gondolas and singing gondoliers.  City planners in Thunder Bay take note.  What Thunder Bay needs are canals and gondolas at the Intercity Mall with a direct canal link to the new waterfront park (it can get double use for skating in the winter).  Too expensive you say?  No problem.  Thunder Bay is just as capable of creative accounting and sudden flash funds as Vegas.  City Council and administration can simply “forget” to budget for millions of dollars in expenditures and then dip into either the reserve fund or find some new leveraging partners.

Vegas is not just about gambling.  There is entertainment ranging from the amazing Cirque du Soleil to comedians and singers of all kinds.  Malls and shops abound.  There are also tours of the region to places like Hoover Dam and the Grand Canyon.  Hoover Dam was an impressive feat of engineering and full of tourists the day I went.   

And then there is the food and drink!  You know you’ve left Ontario when you see shoppers at the mall with beer and wine glass in hand walking around and chatting.  As for the food, the all you can eat buffets are astounding though you do need to pace yourself.  The high fat content of many of the buffet offerings does not always agree with your digestion and can result in what you eat in Vegas staying in Vegas.

Ah Las Vegas.  I wonder if Caesar’s Palace needs an economist?

Friday, 17 February 2012

Drummond and Health

A large number of recommendations in the Drummond Report have to do with health care.  There is a lot there - much of which we have heard before in terms of things like focusing more on home care, patient centered care and evidence based care.  Indeed, the first recommendation on health care made by the Drummond Report is the most likely to be adopted by the provincial government given its affinity for planning:

Recommendation 5-1: “Develop and publish a comprehensive plan to address health care challenges   over the next 20 years.  The plan should set objectives and drive solutions that are built around the following principles..."

Those principles include being patient centered, a fully integrated system-wide approach, more emphasis on chronic care and home care, disease prevention, etc...A plan to address health care over the next twenty years is definitely something that would appeal to the current provincial government and they would be able to apply the expertise acquired in doing the Northern Growth Plan - which also has a long-term horizon of decades and has yet to yield anything tangible.  Indeed, the propensity to embrace a planning rather than an action culture is one of the things that is wrong with Ontario today and in my opinion a key factor in its poor economic performance.  While planning frameworks are necessary, they appear to have become ends in themselves rather than a means to an end.  But I digress.  Back to health.

While much has been made of Drummond's recommendation to bring in a payment freeze for physicians and the remarks that they are among the highest paid in the country, one recommendation appears to have flown under the radar.  Here it is:
Recommendation 5-59: "Compensate physicians using a blended model of salary/capitation and fee-for service; the right balance is probably in the area of 70 per cent salary/capitation and 30 per cent fee-for-service."

The Drummond Report appears to advocate a big move away from fee-for-service.  It will be interesting to see what the reaction to this will be. 

Thursday, 16 February 2012

The Slowdown in Net Worth

While I've always had an interest in wealth distribution, composition and growth from the perspective of 19th century economic history, recent evidence is also of interest.  I received a report on wealth in Italian households this week and posted a comparison of net worth to income estimates across G-7 countries on Worthwhile Canadian Initiative.  I decided to follow up with a look at data on per capita Canadian net worth for persons and unincorporated businesses.  Given the recent warnings about the rising level of consumer and personal indebtedness in Canada, it comes as no surprise that the last four years have seen a halt to rising net worth.  Between 1971 and 2010, real per capita net worth (in 2002 dollars) in Canada nearly tripled.  It peaked in 2007, then dropped,  but has yet to recover to its 2007 level.  Along with the shock of the financial crisis on investment portfolios, recent years have also seen growth in personal and consumer debt limit net worth growth.  Over the period 2007 to 2010, the average annual growth rate of net worth was 0.7 percent.  Compare that to 3.2 percent for the period 2000 to 2006 or 3.7 percent for the 1990s.  While the growth rate of net worth has slowed, we have not seen the steep declines of the United States where the recession was driven by a collapse in net worth brought about by the end of the U.S. housing boom and the drop in house values.  To date, we have been spared that type of "balance sheet" recession.  However, the February 4th issue of The Economist drew attention to Canada's housing market as being in a bubble of its own. The good news is that a soft landing was predicted.  Rather than a bubble, the Canadian housing market was referred to being more of a "balloon"  and balloons can deflate slowly - if not pricked by a pin.

Wednesday, 15 February 2012

Dissecting Drummond

Well, the Drummond Report (a.k.a. The Commission on the Reform of Ontario’s Public Services) is finally out and it is indeed a weighty tome.  It is encyclopedic in its scope and details hundreds of recommendations.  Despite it being described as gloomy, I thought that it was actually a relatively optimistic document.  While Ontarians have to come to grips with a diminished economy and diminished fiscal state, as the report writes: “By current international standards, Ontario’s debt is still relatively small.  We are a very long way from the dreadful fiscal condition of countries that have dominated the news in the past two years.”  This reinforces my prior view that the report is in many ways a bogeyman designed to scare Ontarians before a relatively more modest program of expenditure restraint is introduced in the spring Ontario budget.

There is a lot of material here but a preliminary scan suggests the report has some very interesting and useful ideas – some of which will not be palatable to the government.  Health and education get off relatively lightly in that they are recommended to have nominal if small expenditure increases.  

With respect to Northern Ontario, the Drummond Report is rather impressive in its grasp of the significance of various aspects of Northern economic development.  The following points in particular extracted from the Drummond Report:

Ring of Fire: This development of major mineral deposits in northern Ontario offers the prospect of substantial socio-economic opportunities for all northern residents, particularly Aboriginal Peoples. The government should collaborate with Aboriginals, industry and the federal government to maximize these opportunities.

Recommendation 9-8: Develop a labour-market policy framework to link planning for employment and training services more strongly to economic development initiatives led by ministries such as Economic Development and Innovation; Agriculture, Food and Rural Affairs; and Northern Development and Mines.

Ring of Fire
The Ring of Fire development in northern Ontario represents a significant opportunity to both realize major mineral development in the region and improve socio-economic opportunity and quality of life for Aboriginal People and other residents of the north. Managed properly, the project will provide benefits over several decades.  Success in the Ring of Fire will require collaboration between Aboriginal People, industry, and the federal and provincial governments. With a focus on creating a healthy workforce, education and skills training, and basic community infrastructure, the government should take innovative approaches to expand labour-market and training programs for First Nations communities. This approach would include implementing a full range of employment programs and related social supports that are available through social assistance for recipients living on reserve. These include education programs, job-specific training, literacy programs and programs that support young parents. The Commission is optimistic that industry partners will employ Aboriginal People throughout the life of the Ring of Fire and work as partners with government to deliver or fund (perhaps both) the employment and training services required. If voluntary efforts by the business sector lag, the government should consider putting a levy on mining-related activities to directly fund initiatives that will prepare Aboriginal People to participate economically in the Ring of Fire.

All in all, this is not bad news for the north.  The specific focus on the Ring of Fire and its potential benefits for Aboriginal peoples will hopefully provide an impetus for the provincial government to pursue this region as an investment frontier for the entire province.  The Drummond Report also mentions regional gas tax revenues, which suggests that he may be more inclined towards devolution in his perspectives than the Ontario government as a whole.  After all, if you can have regional gas tax revenues, why not regional resource revenue retention?  As for the Northern Ontario Heritage Fund, there is no specific mention of what should be done with it.  However, while the report is critical of business subsidies, it recommends that future policy should refocus the mandate of business support programs from job creation to productivity growth in the private sector. Refocusing the NOHF to productivity investments is not a bad thing. 

Tuesday, 14 February 2012

Northern Economist in the Winnipeg Free Press


Harper seeking a sustainable Canada

News headlines present what seem to be unconnected stories regarding government initiatives and yet there is an underlying strategy to what any government does. For example, recent weeks have seen the term "sustainability" being applied to describe federal government policies with respect to health transfers and pensions.
At the same time, there have been references to Canada forging new trade links with Asia and Europe. Coupled with all this is the looming federal budget, which is expected to unveil substantial budget cuts.
Linking all these items together is the agenda of Canada's present federal government, which can best be understood as a comprehensive strategy of national sustainability. That is, the pursuit of a strategy that will make Canada economically sustainable for the 21st century.
To borrow a Prairie metaphor, the government's vision is passing the farm on to our children via two policy pillars. First, is restructuring the public finances and second, the pursuit of an economic strategy designed to ensure long-term growth and opportunity by taking our trade eggs out of one basket.
Securing the public finances requires balancing the budget and making sure the national debt begins to decline as the prospect of rising interest rates and debt service costs may squeeze health and social programs.
The sustainability of government spending and elimination of the deficit in the long term requires government spending not rise faster than the resource base.
To this effect, federal health transfers will eventually rise at the rate of GDP growth. As for government pensions, there is ongoing discussion about reforms to Old Age Security to increase the eligibility age and thereby also limit spending. Eliminating the federal deficit primarily through expenditure reduction rather than revenue increases can also be seen as a calculated strategy of fiscal sustainability designed to keep our tax rates low for the purposes of international competitiveness.
Given that one third of our GDP is rooted in the export sector, Canada's economic viability also requires that we seek opportunities to grow our trading relationships. The pursuit of trade opportunities in Asia and Europe represents a long-term strategy to diversify our trade portfolio and is a departure from our monogamous historical trade patterns. First, we had Great Britain as our primary trade partner and directed most of our exports there. Then, we cultivated the United States as our trade partner, which at one point absorbed nearly 80 per cent of our exports.
Reliance on one major market for our goods makes us vulnerable to political and economic shocks. In the case of the U.S., while it represents a convenient and wealthy market for our wares, recent years have seen the Americans become increasingly inward looking and preoccupied with their border to the extent that trade with them has become increasingly more difficult. The shift away from the American market began during the world financial crisis and the Great Recession of 2009. Between 2005 and 2010, the value of exports to the U.S. dropped by 10 per cent and their share of our exports fell from 82 to 73 per cent. Over the same period, exports to the United Kingdom and Europe have grown as well as exports to other OECD countries, China and India. The pursuit of China as a market for Canadian energy also marks a departure from our previous continental approach to energy markets.
The federal government is following in the path of previous governments in crafting an economic strategy to secure Canada's sustainability as a nation. From 1867 to the Second World War, we were dominated by the national policies of land settlement, tariff protection and railway construction, which erected an east-west national space. The period from the end of the Second World War to the 1980s saw the pursuit of trade opportunities with the United States via agreements such as the Auto Pact with increasing dominance of the North American market leading to the 1988 Free Trade Agreement and NAFTA.
We are embarking on a 21st-century strategy of economic diversification with the pursuit of trade and investment opportunities with Asia and Europe. The continental economic vision of guaranteed access to the U.S. market has been increasingly under siege as a result of repeated lumber disputes, tighter border controls, and an economically weaker United States that is more inclined towards protectionism. In the face of these challenges to Canada's economic future, the government response is a strategy to balance the books and to make sure we will not be dependent on one international market for our future economic welfare. Who can really argue with that?

Livio Di Matteo is professor of economics at Lakehead University.
Republished from the Winnipeg Free Press print edition February 13, 2012 A10

Monday, 13 February 2012

Northern Growth: Adding Up the Successes

Well, the provincial government has not forgotten about the Northern Growth Plan after all.  It would appear that planning for the plan to plan all plans is still being planned.  This morning's opinion piece in the Thunder Bay Chronicle-Journal by Northern Development and Mines Minister Rick Bartolucci "Consensus in the North: The arithmetic of success" was no doubt designed to provide a quantitative bent to the government's activities not by listing the investments it was planning to make in Northern infrastructure or documenting the size of the budget for new projects but by listing the number of consultations and their participants.

Indeed, according to the Minister:"When it comes to consulting, listening and collaborating with northerners, the McGuinty government is also ahead of the curve."  The provincial government is working with northerners "to create two regional economic development planning pilots in Northern Ontario".  The Northwest Joint Taskforce has posted their draft online and according to the Minister "The local planning teams will be inviting your input on their proposed approach.  This is a time for us to work together on a made-in-the-North solution, and I urge you to participate." And finally, "I encourage you to keep contributing your advice and ideas for increasing prosperity in Northern Ontario."

What would be a more interesting pursuit by the Minister is not asking what we think about the Northwest Joint Task Force draft framework but what he or perhaps the MNDM Deputy Minister or perhaps Cabinet thinks of it. What the Minister is outlining is yet another set of consultations on a plan devised in response to a plan and whose implementation ultimately requires approval and action on the part of the government.  Unless of course, by asking our views yet again on a proposal, the minister plans to finally base his decision on what we want. Is the Minister gradually moving towards a view of more regional autonomy for the North?  Otherwise, all of this is simply another exercise is Northern economic development arithmetic in which the squared sum of the time spent consulting Northerners plus the number of ministerial announcements on progress in planning is equal to zero.

Sunday, 12 February 2012

Drummond and the North

Wednesday will see the unveiling of Don Drummond’s recommendations for the repairing of Ontario’s finances.  Ontario is not experiencing the best of times.  Along with its deficit and debt, its economic growth has stalled, its population growth rate is slowing, its high electricity costs have been a factor in the manufacturing sector’s demise, and Ontario is receiving equalization. 

The Premier has promised a “relentless attack” on the deficit. Yet, it is difficult to visualize Ontario’s education and health Premier leading an attack on the spending programs he has invested so much of his reputation in.  Given that he has repeatedly stated he will not raise taxes, he is left with the options of expenditure cuts or economies via transformation and restructuring of government. In the end, there are really only three options for Ontario’s government after Wednesday – raise taxes, cut spending or some combination thereof.  While some of the recommendations Drummond makes may complement these courses of action, there will be no miracles.

Of course, if the Premier is waiting for the Drummond report to show him the way he is bound to be disappointed.  Many of the recommendations and suggestions have already been leaked and they make eminent sense.  The real question is how to go about implementing them. It will be interesting to see what suggestions if any Don Drummond has here. 

For example, universities can possibly save money by having professors teach more and Drummond has said as much in the media.  Yet most Ontario universities have collective agreements with their faculty that specify teaching loads.  Will the Ontario government pass legislation suspending those agreements?  Will the Ontario simply create new “teaching only” universities but which entail spending more money now to save money later?  Or will the Ontario government simply cut grants to universities with guidelines as to how the cuts are to be distributed and to increase teaching loads?  Yet, the grant stick has gotten weaker over the years.  Ontario universities now only get about forty percent of their revenues from government grants.  Will they be allowed to raise tuition more?

How about health care?  Can we transform its delivery by implementing electronic health records?  Sadly, it has already been tried once via the E-Health approach and look where that got the government?  How about more private-public partnerships to create efficient and innovative new service delivery?  Have we not tried that with ORNGE in the case of transport medicine – and where are we now?  How about efficiencies via regionalization in health care by dispersing more responsibilities to the Local Health Integration Networks?  Interestingly enough, Alberta, one of the pioneers in regionalized health care delivery has gone back to a centralized model.  One suspects it is easier to cut global budgets when they are centralized.

And what about Ontario's North?  The recent Census numbers show a stagnant population in a slower growing province.  In some sense, southern Ontario is becoming more like the North given the job losses, unemployment and slower income growth though that will not likely create any additional sympathy for the North.  When the empire is in turmoil, the legions are called back first from the frontier.  Any reductions in government services will have a major impact in our geographically dispersed and thinly populated region.  And what about the Northern Growth Plan and the need for government infrastructure investments in the Ring of Fire?  The government has been remarkably quiet on the Plan to Plan all Plans and one wonders if this means a shift in priorities when it comes to northern economic development policy - assuming that it ever actually was a priority.  Will the Drummond Report deal at all with how to invest in the North's economy in a cost-effective manner?  Will the Drummond Report urge an elimination of government economic development programs such as the Heritage Fund?  Wednesday should be interesting.

Friday, 10 February 2012

What's Up in Kenora?

The release of the 2011 census results for Northwestern Ontario were disappointing given the population declines that were registered.  There is however one curiosity if one goes back to the 2001 Census.  When the three Districts of the Northwest are compared over the period 2001 to 2011, Kenora District is a bit of an anomaly.  Between 2001 and 2006, while the Thunder Bay District and the Rainy District registered population declines, Kenora registered a 4.2 percent increase - or 2,617 more people.  Now, from 2006 to 2011, Kenora shows a bigger decline than either the Thunder Bay or Rainy River district at -10.6 percent or a drop of 6,812 people.  The increase in Kenora District between 2001 and 2006 was attributed in large part to the growing First Nation population and their high birth rates.  So what happened?  Has the birth rate collapsed?  Has a mass out-migration of non-aboriginal population counteracted the growing aboriginal population?  Did the Census somehow not enumerate large numbers of first Nations residents in the outlying reserves this time around?  Hopefully, there will be answers to these questions.

UPDATE: MONDAY FEBRUARY 13TH. Well, it turns out as announced this morning on the CBC Thunder Bay News that Statistics Canada has announced it missed 13 remote First Nations when it conducted the Census and did them in the fall with the updated numbers for Northwestern Ontario to be released soon.  It would have been nice to know this when the numbers were initially released.  After all, it likely means the population of the region as a whole probably did not drop 4.7 percent.  Who knows, maybe it even went up?  Let's hope the government waits for a final tally before reallocating seats in the House of Commons.

Thursday, 9 February 2012

Northern Economist on the Census!

Well, the release of the 20111 Census results yesterday spawned alot of media activity for me yesterday ranging from the Huffington Post to Thunder Bay Television News to editorial mention in the Thunder Bay Chronicle-Journal.  Thunder Bay Television has posted part of the interview they conducted with me on Youtube which you can access here.

Wednesday, 8 February 2012

2011 Census Results for Population In: Northern Ontario Declines

Statistics Canada released the first set of 2011 census results today dealing with population and dwelling counts.  Canada's population is up 5.9 percent from 2006, Ontario's is up 5.7 percent while within Ontario, the North is down overall by 1.4 percent.  As the accompanying table shows, the Northeast stayed stable in terms of its overall population while the Northwest showed a decline of 4.7 percent.  As for the major urban centers of the North, Greater Sudbury posted a 1.6 percent increase, North Bay a 1 percent increase, and Timmins a 0.4 percent increase.  The Sault and Thunder Bay both saw declines in their populations of -0.4 and -1.1 respectively.

The Northwest during the period 2006 to 2011 worked its way through the aftermath of the forest sector crisis with the region outside of Thunder Bay bearing the brunt of the employment and population adjustment.  Employment and GDP in Thunder Bay shrank by about 10 percent during the forest sector crisis and its population has been remarkably resilient given the decline.  Employment in the region outside of Thunder Bay shrank by almost 30 percent.  Employment numbers over the last year have been showing increases in Thunder Bay and the Northwest and these population results are hopefully a lagging indicator.  The Northeast has been buoyed by its mining sector though there is a redistribution of population towards the major urban centers.  Evidence from the Northeast suggests that should the Ring of Fire mining development successfully proceed, the Northwest can also expect to see stabilization and even some growth in its population.

What will be interesting is the additional sub-regional breakdowns in population with the Northeast and the Northwest.  For example, between 2001 and 2006, while the Northwest declined in population, the Kenora District actually saw increasing population.  As well, the aboriginal population increased substantially in the Northwest between 2001 and 2006.  Further results and analysis on whether these trends have continued since 2006 to come.

Tuesday, 7 February 2012

New Health Fiscal Sustainability Report Released

A new report on the fiscal sustainability of public health care in Canada was just released by the Canadian Health Services Research Foundation.  The report is titled “The Fiscal Sustainability of Canadian Publicly Funded Healthcare Systems and the Policy Response to the Fiscal Gap” and is authored by myself and Rosanna Di Matteo and is available on the CHSRF web site.  For a summary of the results, see below:

Key Messages
  • Fiscal sustainability generally refers to the extent to which spending growth matches growth in measures of a society’s resource base. Since 1975, real per capita government health spending in Canada has risen at an average annual rate of 2.3%, in excess of the growth in real per capita GDP, government revenues, federal transfers and total government expenditures.
  • Five expenditure scenarios were constructed, using regression determinants and growth extrapolation approaches, for Canada as a whole, each of the ten provinces and the territories for the period 2010–2035.
  • For Canada as a whole, real per capita public healthcare spending from 2010 to 2035 can be expected to grow anywhere from 78% to 115% and reach a level in 2035 in 2010 dollars ranging from $6,552 to $8,798 per capita.
  • For the provinces, the average increase across the ten provinces from 2010 to 2035 in real per capita provincial government health spending ranges from 81% to 160%. Average estimated spending in 2035 ranges from a low of $6,711 to a high of $10,819 per capita.
  • For the Yukon, real per capita public healthcare spending between 2010 and 2035 can be expected to increase from a low of 142% to a high of 652% – a range in 2035 of $14,316 to $41,089 per capita. For the Northwest Territories and Nunavut, low-end growth was 57% while the highest growth was 281%. Spending in 2035 would be estimated to range from a low of $12,423 to a high of $32,557 per capita.
  • In terms of the fiscal gap, annual compound growth rates for forecast government health spending exceed those for government revenue growth for most scenarios and jurisdictions. For Canada as a whole, the public healthcare expenditure-to-GDP ratio could rise to as little as 9.5% or to as much as 13.4% by 2035 from the current 7.6%. The territories and most provinces generally also see increases in the public healthcare expenditure-to-GDP ratio by 2035.
  • Under the extrapolation assumption that health expenditure trends for the 1996 to 2008 period continue but with lower economic growth, government health spending in Canada in 2035 would reach $8,798 per capita and the public healthcare expenditure-to-GDP ratio would reach 13.4%. This projected increase is equivalent to an increase in public spending today of about $2,797 per capita, possibly requiring up to a 15% increase in per capita revenues.
  • Potential policy solutions to make public healthcare spending more sustainable include controlling and restructuring expenditure, raising additional tax revenues, creating a federal health tax to generate revenues for a national health endowment fund, and allowing for a greater private role in healthcare spending.

Sunday, 5 February 2012

Where the Jobs Are – Ontario Edition

Statistics Canada’s labor force release on Friday revealed that in Ontario there was an increase in the number of people searching for work which pushed the unemployment rate up 0.4 percentage points to 8.1%. In the 12 months to January 2012, employment in the province increased with all the growth occurring in the first half of the period.  When the numbers are examined by major urban centre, it becomes apparent that a slowdown in employment growth has begun over the last six months with much of it is being driven by the Toronto area.  The two accompanying figures show the percentage change in seasonally adjusted monthly employment for major Ontario centers January 2011 to January 2012 (Figure 1) and August 2011 to January 2012 (Figure 2).

Year over year (Figure 1), there were employment increases in Ottawa-Gatineau, Kingston, Peterborough, Oshawa, Hamilton, St. Catharines-Niagara, Kitchener-Waterloo-Cambridge, Guelph, Barrie and Thunder Bay.  The cities with the largest annual percent increases in employment were Guelph, Peterborough and Thunder Bay.  The last six months (Figure 2) reveal that a slowdown has indeed begun with employment growth slowing just about everywhere except Peterborough, Thunder Bay and Hamilton – which all saw increases in their employment growth rate.  Toronto – which accounts for 48 percent of the employment in Ontario has seen a drop in employment of just under 1 percent over the course of the year.  Brantford has seen the largest percentage declines in employment.  Over the last six months, even the usually robust Kitchener-Waterloo-Cambridge and Barrie areas have slipped into employment declines.  Right now, the best places in Ontario for job growth are Peterborough, Hamilton, Guelph and believe it or not – Thunder Bay.

Investment Activity and Trends in Northern Ontario: Part Three – Thunder Bay and Sudbury

In this third installment on investment activity in Northern Ontario as illustrated by building permit data, I am going to focus on the roles of Thunder Bay and Sudbury.  These are the two largest urban centres in Northern Ontario with CMA populations of 122,000 and 158,000 respectively accounting for about 38 percent of Northern Ontario’s population of 745,000.  As the largest urban nodes, one would expect them to be major drivers of economic activity and new investment and the data suggests that they are indeed major economic contributors but are not exactly punching much above their population weight.

Figure 1 shows the total nominal value of building permits (and the linear trends) issued in Thunder Bay and Greater Sudbury over a 20-year period and reveal that Thunder Bay has stayed relatively flat over this period whereas Sudbury enjoyed a pronounced boom from 2003 to 2009 but has since cooled off somewhat.  More interesting is Figure 2, which plots Sudbury’s share of Northeastern Ontario’s permits, Thunder Bay’s share of the Northwest’s permits and then their combined share of all of Northern Ontario.  On average, over the period 1989-2011, Greater Sudbury has accounted for about 34 percent of all building permit values in the Northeast and Thunder Bay for about 60 percent of the values in the Northwest.  Both of these are in line with their respective population shares with Thunder Bay somewhat more dominant in its region and together they account for an average of about 41 percent of Northern Ontario’s building permit activity.  This share has been trending down slightly over the period 1989-2011 generally as a result of weaker performance by Thunder Bay given that the trend for Sudbury has been pretty constant.

While Thunder Bay and Sudbury are important economic drivers for the region, these results suggest that they are not overly dominant and that new investment activity is dispersed throughout Northern Ontario.  The other towns and cities of the North – particularly Sault Ste. Marie, Timmins and North Bay – are also important drivers.  Thunder Bay and Sudbury’s share of new investment activity in Northern Ontario is approximately the same as their combined population share of the region.

Friday, 3 February 2012

Employment Picture Improves in Thunder Bay

The latest Labour Force Survey numbers from Statistics Canada suggest the Canadian economy as a whole is treading water as employment stayed virtually unchanged while the unemployment rate edged up slightly.  However, the results for Thunder Bay show a decline in the unemployment rate to where it now is at 6.2 percent - well below the national average of 7.6 percent.  In addition, the numbers for the last four months show that both employment and the labour force have expanded in Thunder Bay.  Between October 2011 and January 2012, employment rose from 60,100 to 63,600 - an increase of 6 percent.  Meanwhile, the labour force grew from 64,600 to 67,800 over the same period - an increase of 5 percent.  Employment has actually been growing faster than the labour force recently which is good economic news.  What is the source of all this growth?  Well, the numbers are not broken down locally by sector but the national numbers show increases in annual employment growth (January 2011 to January 2012) in the natural resource and construction sectors as well as transportation and housing.  It is likely a similar trend is at work in Thunder Bay given the numerous construction job sites dotting the city, the mining service activities and our traditional transportation role. 

Balancing the Budget: The Ontario Plot Thickens

The Conference Board of Canada has waded into the Ontario pre-budget deliberation process with a report that says Ontario will be unable to balance its budget for a decade as a result of sluggish economic growth and shrinking government revenues.  Moreover, the Conference Board has focused on reining in health care costs as the most important factor in dealing with the budget balance – which hopefully can be achieved by 2021-22.  Aging and slower labor force growth can be expected to reduce Ontario’s economic growth and hence the growth of government revenues. 

According to a report on Global News, Premier McGuinty is disputing the prognosis of the Conference Board that Ontario will not be able to balance the budget.  I have to admit that while Ontario does have a serious budget problem, the Premier is probably right in not getting too obsessed with the Conference Board report.  The Conference Board is predicting a dismal decade of economic growth for Ontario but then it has also been predicting major upturns for Thunder Bay’s economy for at least five years and that has not happened either.  (See my post Forecasting Thunder Bay's GDP Growth).  The point is, circumstances change and predictions are revised.

Ontario has been experiencing slow economic growth for about a decade now.  During the period 2000-2011, its provincial government expenditures grew at an average annual rate of 5.7 percent while its revenues grew 4.5 percent.  For the period 2008 to 2011, expenditures grew at 6.7 percent while revenues grew at 3.0 percent.  In 2011-12, total revenue was 108.8 billion dollars and expenditures 124.8 billion for a 16 billion dollar deficit.

Let’s assume the following scenario.  For 2012-13, the Ontario government freezes total government spending at 124.8 billion dollars (note the Table is in millions of dollars).  The year after, it implements some of the recommendations of the Drummond Report and then cuts 3% in spending from the total Ontario government budget – a cut of about 3.8 billion dollars in spending.  After this, it allows spending to grow at 1 percent annually.  At the same time all of this is happening, we let total government revenue grow at 2.5 percent annually - below the average rate for 2008-2011.  The result, by 2017-18, there is indeed a balanced budget (see the Table below).  This is not a painless exercise. In real terms (adjusted for inflation) these represent real reductions in resources.  Assuming 2 percent inflation, between 2012-13 and 2017-18, total spending would rise less than 1% while prices would rise 13 percent.  In real terms, government spending would shrink 10 percent. 

The budget deficit could shrink even faster if economic growth recovers somewhat and revenues rise faster, which is not outside the realm of possibility given the slight rebound being detected in the United States to which much of Ontario’s economy is tied.  It could also shrink faster if larger upfront cuts are made.   It is certainly not going to be any fun governing in a decade like this but it will be possible to balance the budget ahead of schedule provided a government is able to set out a plan and stick to it in a disciplined fashion.

Thursday, 2 February 2012

Reorganizing Health in Ontario

As part of the Ontario government’s austerity drive, health minister Deb Matthews recently announced plans to save money by reorganizing health care.  To start with, the province’s family health teams will be placed under the control of Ontario’s Local Health Integration Networks (LHINS) so as to help plan and provide physician resources and care more effectively.  In addition, they want to move more routine procedures out of hospitals and into specialized not-for-profit clinics but with little detail as to what might happen.  All in all, there will be efforts to provide more community care and integration of that care with the main health system in an effort to rein in spending.  The health minister in her remarks to the Toronto Board of Trade earlier this week also remarked that the changes “will not happen overnight”.

Will this work?  Well, it has been tried before.  We only have to go back to the 1990s with hospital restructuring and the implementation of home and community care initiatives that nearly 20 years later are still not very well developed.  Why?  It turns out effective home care was really not that cheap after all.  As for handing over physician resource planning to the LHINs, well that suggests another complicated exercise in planning fraught with transaction and administrative costs especially given that the LHINs when they were created were never given any responsibility over core health spending resource allocations – physicians and hospitals.  For LHINs to be effective resource allocators, health budgets would need to be completely decentralized from the health ministry so that LHINs could tailor their health services to local and regional needs.  However, LHINs have evolved more into “planning” mechanisms rather than service providers.  Moreover, at this point Ontario would be a late comer to the regionalization game as other provinces – for example Alberta – have already tried it and it turns out they have retreated back to a more centralized model.  It turns out centralized budget decision-making is more useful when you are trying to cut costs across an entire health system.

It is difficult not to come to the conclusion given the vagueness of statements and pronouncements to date that the Ontario government is treading water on health care reform.  Health is contentious and the government has a minority.  True integration of the health care system in an effort to eliminate duplication of mandates and services, reorganization of physician services, billing practices and hospital human resources, the delisting of less cost-effective services and the transfer of additional procedures to not-for-profit clinics will be controversial.  Witness what happened after the health minister’s musings that reducing the number of C-section births would ease health-spending costs.  The media storm was immediate.  After several days, there was a statement that the government would not be delisting C-sections ands that the government would be encouraging new birthing centers as a better way. Taken at its word, this means keeping the current practices and introducing new ones – which means even more health spending down the road.  In health care reform, tomorrow is yesterday.

Wednesday, 1 February 2012

Investment Activity and Trends in Northern Ontario: Part Two

In the first installment of this series on investment activity in Northern Ontario as measured by building permit data, we saw that building permit values in the north have ebbed and flowed with an overall flat performance over a 35-year period.  In this installment, I want to compare Northeastern and Northwestern Ontario in two ways: first, comparing their long-term trends in the real value of permits and second, comparing the composition of building permits across the categories on residential, industrial, commercial and institutional/governmental.
Figure 1 plots the real total value of building permits and while the ebb and flow of activity is there, the long term trends as depicted by the linear trend are markedly different across the two regions.  The Northeast exhibits a rising trend which albeit weak is infinitely preferable to the long term decline exhibited by the Northwest trend line.  Figures 2 and 3 plot the composition of the permits in 1976 and in 2011.  In 1976, the Northwest has a larger share of industrial permit activity compared to the Northeast while both had comparable shares of residential activity.  Compared to 1976, 2011 shows a decline in the residential shares of permit activity in both regions as well as an increase in the share of institutional and governmental permits.  In 1976, the public sector accounted for 8 and 5 percent of investment activity respectively in Northeastern and Northwestern Ontario.  By 2011, those shares had risen to 21 and 12 percent respectively.  It would appear the Northeast has been able to secure more public sector investment than the Northwest.
The industrial share has declined in both regions but it is surprisingly still quite high in the Northwest - perhaps an indicator of the recent surge of activity in the Ring of Fire.  The residential share has declined in both and indeed a big driver of the flat performance overall in new investment over 35 years has been the weak residential sector.  Both regions show an overall downward trend in the real value of their residential permits over the 1976-2011 period though the northeast has shown some recovery since 2000.

Figure 1

Figure 2

Figure 3