The Economic Agenda for the Next City Council

 

By late Monday evening, we will have in place the Thunder Bay City Council for the next four years and they will need to grapple with an assortment of issues not least of which will be trying to promote the City’s economic development.  As was noted in a report released last week, Thunder Bay’s economy has rebounded from the pandemic but still faces strong headwinds.  As the accompanying figure shows, while the employment declines of the COVID-19 pandemic were the steepest in over a decade, the recovery appears to have settled us at employment totals that are pretty much close to the long-term trend of flat long-term performance.  

 

 

 

Indeed, Thunder Bay’s rebound in both employment and income has lagged that of the rest of the province.   Moreover, given that the economy as a whole is facing higher interest rates and the probability of a recession, the New Year may not be exceptionally buoyant.  Economic growth and expansion of the city’s tax base is crucial if Thunder Bay is to avoid large tax increases as it seeks to deal with an assortment of social issues - not least of which is policing - that may indeed prove costly to the city’s budget.

 

As a result, it is surprising that there was relatively little discussion of the economy in this election campaign but perhaps that is because the local economy is still rather flush with stimulus money from assorted government initiatives while the City of Thunder Bay enjoyed substantial government grant revenues and pandemic savings.  This will not last forever especially given that the economy may be moving into recession.   While much of what happens economically is due to external forces and beyond the direct purview of the City of Thunder Bay, there are steps City Council can take to prepare the city to take advantage of opportunity when it presents itself to help foster economic development and strengthen the local economy.

 

First, City Council needs to ensure the City of Thunder Bay develops a reputation for efficient and effective delivery of public services and infrastructure projects based on outcomes rather than  wishful thinking.  While a problem before the pandemic, at present projects are taking even longer to complete than necessary and are very disruptive to local businesses and residents.  For any businesses considering coming to Thunder Bay, nimbleness on the part of City projects and services is a positive feature.

 

Second, City Council will need to be more competitive on the tax front and that will require providing its existing basket of services with fewer employees in order to hold the line on taxes. This may indeed prove to be the most serious immediate challenge the new council faces given that inflation is high, and wage and cost pressures are immense.  Nevertheless, the temptation to simply pass these costs onto local business and residential ratepayers should be resisted.  As part of the process of becoming more competitive, City Council also needs to cut red tape and facilitate quicker approval for building and business projects.

 

Third, the social challenges facing Thunder Bay are an economic as well as a social issue given that they create an environment that does not put the City’s best face forward when trying to attract new economic activity.  City Council with the help of Federal, Provincial, and Indigenous governments needs to effectively tackle issues that are currently not conducive to attracting business to the City and these issues include poverty, homelessness, and crime.  Despite some of the rhetoric that has been going on in this election campaign, there is no easy solution to these problems, but the first step is to recognize that the problem requires a team effort by all levels of government.

 

Fourth, there are some bright spots in the City’s economy that go beyond the stabilization provided by a broader public sector that employs over 30 percent of workers in Thunder Bay mainly in health and education.  City economic development marketing strategies should focus on sectors with the most growth potential and these include tourism, mining, and transportation.  The recent success of cruise ship visits to the city while not a panacea is nevertheless an optimistic development.  Mining support and supply is also a source of future opportunities and with the trend towards "own-shoring" more economic activity domestically, our transportation sector – in particular the Port – stands to benefit from increased activity. As a start, this fall is expected to see a bumper crop of wheat on the Prairies and given the disruption in global grain markets, Thunder Bay’s Port should see increased activity. 

 

And finally, looking ahead towards the future, another looming economic iceberg is the potential for a new out migration wave which may not be the young but the senior population.  People in the 50 to 65 age range are currently thinking about where and when they will retire and looking forward many may indeed decide that Thunder Bay is not the place to live out their golden years.  There are many in this age range whose children have moved away to southern Ontario or further afield, and they thus face the choice of remaining here in retirement or relocating closer to children.  While much is made of the fact that housing costs a lot in other cities, it is likely going to become more affordable as prices decline over the next 6 to 12 months. 

 

Wealth and income rise with age and the loss of the purchasing power of people with substantial assets will not help the local economy.  Weighing in on decisions to stay or go are the need to downsize accommodation but there is a lack of affordable and quality apartment and condo housing in Thunder Bay.  Cheap and poor design is indeed an issue given Thunder Bay’s winter climate as there is a surprising lack of indoor parking in many existing condos in Thunder Bay.  Then, there are the types of services that become more important as one ages especially if you choose to remain in your own home and here there is relatively poor performance on things like municipal snow removal. 

 

Massive municipal windrows in your driveway after a storm aside, the oft-heard mantra that you can retire and stay in your home and get affordable services as you age is aspirational in Thunder Bay given that residential services take second place to government contracts and large business projects for many providers resulting in relatively high-cost services.  No one likes a small residential contract when there are bountiful government and institutional contracts available.  This has only grown worse in the post pandemic labour shortage/inflationary world – for example, the average quote for getting the exterior of your house painted has literally tripled over the last ten years.   This  is well above and beyond where inflation has been over the last decade even with the pandemic.

 

As expensive as some think life in other cities in the rest of Canada is compared to Thunder Bay, there is still a lot more competition elsewhere that keeps prices and quotes for services in check as well as a better stock of well-designed housing options for all demographic groups.  True, City Council cannot be expected to single-handedly address Thunder Bay’s business culture and less competitive monopoly environment.  After all, Thunder Bay has always been a sort of monopoly company town with large employers such as pulp mills or railways and their economic spinoffs serving as milch cows for local business - not to mention municipal taxes.  We are now a government town, but City Council can stop adding fuel to the fire by insisting on better value for money when it comes to the services it purchases. 

From Air Canada to Thunder Bay with Love...Well Maybe Not

Air Canada chose Valentine’s Day to announce a number of route changes that consist of removing older, slower, more frequent and smaller regional propeller planes (the Q400s) currently operating under Jazz and substituting newer, faster (by about 20 minutes in Thunder Bay's case) less frequent but larger jet aircraft (A319s) operating under the Rouge banner.  In the case of Thunder Bay, this means that the current six flights a day to Toronto (with 78 seat capacity for each flight) will be replaced with three flights a day (with 136 seat capacity each).  If you do the math, daily capacity on the Thunder Bay-Toronto run for Air Canada will actually fall from 468 to 408 – a drop of about 13 percent. That means you can expect a price increase at some point in the future even though the newer planes and crews Rouge uses are likely lower cost per passenger mile.

I guess I am now old enough to remember the preamble to the era of airline deregulation when Norman Bonsor, my Transportation Economics professor, would intone that deregulation was a plus for small regional markets like Thunder Bay because more expensive jet service would be replaced by more frequent and cheaper albeit slightly slower turbo-props – which is indeed what came to pass in Thunder Bay.  Air Canada’s announcement is a bit like back to the future but the new jets today are much more fuel efficient and cost effective than they were in the 1970s and 1980s.

Still, I am looking forward to seeing how this transition proceeds and the passenger response.  Going from six flights a day to three will reduce passenger travel flexibility and one expects that Air Canada will schedule its three daily flights to Pearson similar to what Westjet is doing (which incidentally also in the last while went to three from four flights daily but still uses Q400s).  For May, Westjet is showing departure times to Pearson from Thunder Bay of 6:10am, 11:50am and 17:50 pm and returns to Thunder Bay from Toronto departing at 9am, 15:10 and 21:50.  One suspects that given Air Canada is more directly competing for passengers to Pearson with Westjet, it will have its flights in slots pretty close to Westjet.

Air Canada’s move pretty much consolidates the alternatives from Thunder Bay into two – going to Pearson at nearly the same times at three times a day or going to the Island Airport.  Of course, Porter is still maintaining its Q400 6-7 flights a day service to Toronto Island which means it may pick up even more business travel from Air Canada.  It is unfortunate that Porter was not able to bring regional jet service to the Toronto Island airport because 5-6 flights a day from Thunder Bay on smaller yet faster regional jets such as a CRJ550 or CRJ700 (50 and 78 passenger max respectively) would definitely have smoked the competition out of Pearson.  Still, I suspect that Porter will see a pickup in its bookings given its greater flexibility as well as its downtown location for business travellers. It will however probably need to reinvest in its aircraft stock as its fleet begins to age.

The other claim that was made was that the Rouge airplanes were roomier and more comfortable.  Perhaps I am missing something here but having flown on some of the newer jets and flown Rouge overseas, I found the seating in the Q400 was actually a bit roomier compared to my last Rouge flight.  But it will be roomier in business class (the 136 seat version of the A319 has a business class) and that may also be part of Air Canada’s strategy to hold onto business travellers who are much more lucrative to airlines than the rest of us.

 

So, the changes have pros and cons and it will be interesting to see how everything comes out in the wash.  The increased competition may eventually spark some real consolidation on the Thunder Bay route - after all, if Air Canada adopts Westjet time slots with larger and faster planes to Pearson, one might see an exit by Westjet and going down to only two airlines out of Thunder Bay.  That really would be going back to the future. Or Westjet may respond by bringing in jets which will spark a pretty competitive period until the inevitable departure by one or more players brings back monopoly and higher prices. Interesting times are ahead.

For those of you who have travel with Air Canada booked in May from Thunder Bay to Toronto, you can look forward to a message soon rescheduling your flight. Have a wonderful long weekend.

Advanced Industries: A Northern Ontario Economic Challenge

A recently released report jointly released by the Brookings Institute and the Martin Prosperity Institute lays out Canada’s path to future prosperity via advanced industries and the challenges Canada faces in this economic sector.  The report is titled Canada’s Advanced Industries: A Path to Prosperity and is authored by Mark Muro, Joseph Parilla, Gregory M. Spencer, Deiter F. Kogler and David Rigby. These industries are not just in manufacturing but span a number of diverse industries with the commonality being the application of advanced technology and innovation.  Brookings defines advanced industries as: “industries as diverse as auto and aerospace production, oil and gas extraction, and information technology—are the high-value innovation and technology application industries that inordinately drive regional and national prosperity. Such industries matter because they generate disproportionate shares of any nation’s output, exports, and research and development.”

The report argues that Canada’s advanced industries are not realizing their full potential and that these industries need to be targeted to build a dynamic advanced economy for future growth.  About 11 percent of Canada’s employment – about 1.9 million jobs – is currently employed in these higher wage advanced industries and they generate 17 percent of GDP, 61 percent of exports and 78 percent of research and development.  Services account for about half of the Canadian advanced industry worker base followed by manufacturing at about 36 percent.  What is more interesting is the variation in scale, intensity and diversity of this sector across provinces and Canadian CMAs. 

Ontario, Quebec, Alberta and British Columbia together account for 91 percent of advanced industry employment which is just a bit more than their total employment share which is about 87 percent.  Not surprisingly, the CMAs with the most advanced industry jobs are Toronto, Montreal, Calgary and Vancouver.  However, productivity growth in this sector has been lagging relative to the United states. What is particularly disconcerting from the point of view of northern Ontario economic development however is the fact that every Canadian CMA added advanced industry employment between 1996 and 2015 – the exceptions being St. Catharine’s-Niagara, Greater Sudbury and Thunder Bay.  Thunder Bay also ranks low when it comes to the regional value added generated by advanced industries (See figure taken from page 22 of report) whereas Sudbury does better because of the intensity of its mining sector. Moreover, Greater Sudbury and Thunder Bay are also at the bottom of the CMA rankings when the number of advanced industry specializations is compared in terms of local concentrations of activity.

 

Boosting advanced manufacturing in Canada according to this report requires a strategy of “four C’s” – capital, competition, connectivity and complexity.  Capital is of course the most fundamental – that is, investment in machinery and equipment but also knowledge capital such as information and technology systems.  The weakness in business investment has been a long-known factor in Canada.  As for competitiveness, Canadian industries have traditionally had less exposure to intense competition and this may be limiting the capacity of its advanced industries to innovate.  Fixing this requires greater market competition and indeed deregulation and easing foreign ownership restrictions.  Connectivity involves Canadian firms participating more in global value and production chains and networks.  Finally, complexity requires firms to master the technological complexity and specialization of the modern economy and this is often measured by patent activity which in Canadian CMAs is generally below American ones.  Policies for building connectivity and complexity in the end also involve the unleashing of greater competitive forces within the Canadian economy in order to achieve the market size or scale within which advanced industrial output can grow.

Thus, a major obstacle for Canada when it comes to growing its advanced industrial sector is its highly regional nature which in the end results in barriers to internal trade, less competition and small market sizes that militate against the scale needed to grow output.  In the case of northern Ontario, even with the growth in local entrepreneurship which has been quite noticeable in its larger cities such as Thunder Bay and Sudbury, it remains that without growth in market size, new innovative ideas will be like so much seed fallen in rock if the companies cannot grow their output.  In the end, any regional economic policy must focus on increasing the scale of output by boosting market size either via exports or via immigration and local population growth.

Globe2Go From Thunder Bay

Well, I was rather disappointed to receive a letter from the Globe and Mail last week

informing me that the Globe and Mail would no longer deliver a paper copy in Thunder Bay starting September 1^st.  The letter stated rising costs and service delivery issues as the reason and offered as a substitute a cheaper subscription to the electronic Globe and Mail known as Globe2Go.  Oddly enough, our service has actually improved immensely over the last while and given all the airline competition and additional flights out of Thunder Bay (The Toronto edition of the Globe & Mail is flown into Thunder Bay every morning and delivered throughout the day) I do not see how costs have risen that much.  Yet, who am I to quibble with one of our many overlords from Toronto who constantly develop new methods to affect our daily lives here in the North.

In some respects, I suppose this was probably inevitable. I used to have a subscription to the National Post and they too left the local market citing costs.  They also dangled the prospect of a digital subscription at the time they left. This departure is particularly annoying because it also means I will no longer get my Sunday New York Times delivered.  It came on the Monday but its heft was something I looked forward to. 

Now, its not that I do not use computers or the internet (I'm blogging am I not?).  However, I find reading a newspaper on the computer or an ipad or an ipod inevitably feels like …being at work.  For some reason, I find reading the physical newspaper a more reflective ritual whereas once I’m on an electronic device I simply point and click on a few items, scan quickly and move on.  I get greater personal value from the more expensive hard copy than I do from the cheaper digital version.  If I’m only going to point and click on half a dozen stories, well the main ones are available for free on the web either from the Globe or dozens of other competitors.

Moreover, once you are into electronic subscriptions, the market opens up dramatically.  Whereas I only have the choice of the Globe and Mail or my own local paper when it comes to hard copy newspapers, once I start to consider electronic subscriptions – well, the choice is limitless. In some ways, this is an opportunity to reappraise how I currently get my news. I suppose the Globe and Mail is gambling I am so addicted to their product that an electronic Globe is better than no Globe at all.  I’m not so sure.  Maybe it is time to subscribe to the New York Times electronically or perhaps the Guardian to get my international news and rely on my local newspaper subscription and free web access to Canadian dailies for my Canadian news.  Maybe it is time to consider the choice between what the Globe offers electronically compared to the National Post.  In any event, I’m going to take some time to decide what I’m going to do given that I now am being forced to choose.

By the way, when the National Post decided to stop delivering in Thunder Bay, I did not take out the digital subscription.