NORTHERN ECONOMIST 2.0

Friday, 20 July 2018

Is the Russia-America Global CoDominium About to Begin?

Well, I had so much fun writing this and posting it on Worthwhile Canadian Initiative that I decided it was worth posting here too!

In the wake of the Putin-Trump Helsinki summit, there is much speculation about what was actually said between Putin and Trump behind closed doors and the uncertainty spread throughout the American government about whether agreements had been reached on issues such as Syria and the Ukraine. The subsequent invitation to Putin to visit the White house in the fall – probably just before the November elections – has resulted in further uncertainty especially after Putin’s statement that he proposed to Trump holding a referendum to resolve the eastern Ukraine issue. So, what is really going on here?
Quite frankly, we have all have been scratching our heads as the behaviour in some respects is reminiscent of 18^th and 19^th century monarchs gathering to decide the fate of wide swaths of the world in private meetings. Putin is an autocrat and Trump is a business autocrat who admires political autocrats, so their personal level diplomacy may indeed be a series of moves designed to remake the world and return it to an age when Russian and American led blocs were the only game in town. Both the Russians and the Americans have seen their political influence decline in a multilateral world led by growing Asia-Pacific economies and both countries have been less than comfortable with the rise of China.
One has to wonder if this is an attempt by Trump to forge some type of private alliance with the Russians in an effort to coordinate their interests and deal with their ebbing international influence? The idea sounds like science fiction. Indeed, the idea of these two countries getting together and establishing a CoDominium actually has substance in an alternate reality – the science fiction world of Larry Niven and Jerry Pournelle. In their novel The Mote in God’s Eye, which was originally published in 1974, a series of treaties between the Russians and the Americans establishing the CoDominium in the 1990s sets the stage for a global government and the expansion of the human species out into the galaxy. This of course would place Trump’s musings about setting up a Space Force into quite an entirely different light. Indeed, is Donald Trump drawing inspiration from a mythical civilization disrupting character known as a Crazy Eddie?
Trump may be trying to engineer some broader type of Russian-American political alliance to counter their waning influence in the world driven by a nostalgia for the 1960s and 1970s. After all, the rise of the Chinese economy and the growth of Chinese military influence is seen as a potential concern in some circles. It does not matter how far-fetched the idea may seem given everything else that has been happening lately whenever Donald Trump takes the world stage. Disrupting the world, wrecking the liberal economic order and creating chaos and then having America and Russia step in to fix things may seem crazy but does it make sense to foreign policy experts? And, while Trump may be thinking along these lines what is Putin really thinking? I doubt he is a Niven and Pournelle fan.
Of course, one expects that greater formal cooperation between the Americans and the Russians will ultimately require Congress to sign-off especially if actual treaties are eventually negotiated. On the other hand, if it is all kept informal and behind closed doors, who knows what is eventually going to emerge?

Monday, 9 July 2018

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.

Saturday, 7 July 2018

Why So Few Seeking Municipal Office?

With the July 27^th nomination deadline for municipal office in Ontario rapidly approaching, attention has been drawn to the observation that the number of candidates seeking municipal office in Thunder Bay seems to have dropped. The accompanying figure plots the number of candidates seeking a position on Thunder Bay City council as of July 6^th. With the exception of the race for Mayor which has seen a healthy increase in both the quantity and quality of candidates, there has been a drop in most of the other ward races with McKellar Ward being an exception.

Current River had four candidates last election while at present there is only one. McIntyre and Neebing also only have one candidate whereas they had four and three respectively last time. Northwood and Red River are down to two each from four each last time and Westfort only has three compared to four last time. The drop is most noticeable in the At-Large Race which had 19 candidates in 2014 and only 5 to date. The total number of candidates for the City of Thunder Bay was 51 in 2014 and currently sits at 28 – a drop of 45 percent.

Of course, the decline in the At-Large race is partly a function of the fact that a number of At-Large councillors have opted to run for Mayor. Given that the number of candidates running for Mayor has grown while the councillor candidates have declined, it suggests that being the top dog in Thunder Bay is perhaps a more attractive job than being a councillor. Another possibility is that there is a general lack of interest in running for municipal office in Thunder Bay this time given that the same faces have had the positions locked up for years barring the entry of fresh faces and repeated defeats have reduced the candidate pool in the long run. Even though there are now some openings, there may also be a feeling of why bother given the headaches of holding office in a city with so many economic and social challenges.

Yet, there may be other explanations. Explaining this decline, the Thunder Bay City Clerk has suggested that the earlier deadline compared to other years may be a factor. In the past, candidates had from January 1^st to mid-September to decide to run but a change in the Ontario Municipal Act shortened the period to May 1 to July 27. This could indeed be the case given that Greater Sudbury, which is a larger city than Thunder Bay at present (July 7^th) also only has 28 municipal candidates seeking office down from 70 last time and they have 12 wards plus a mayoral race. There were ten candidates for Mayor in Sudbury in 2014 and currently there are only 4. Of the twelve ward races, ten are down from 2014 (See Figure).

If this drop in the number of candidates is replicating itself across Ontario it means that the changes to the Ontario Municipal Act that have shortened the nomination period may actually serve to reduce the quality of our local democracy by having the unanticipated effect of reducing the candidate pool. Deciding to run for office is not something that one takes on lightly and a longer period to decide may be beneficial. Certainly, having the deadline in the middle of summer when minds are preoccupied with vacations may also not be a help. On the other hand, if you are going to run why should a shorter decision period matter? Perhaps there are other changes that have occurred that have made filing more onerous? Has the volume of paperwork or the fee required gone up? There are still about three weeks left to go before the nominations close. We will have to see if a surge in candidates declaring occurs.

Friday, 29 June 2018

New Ontario Government and Cabinet Sworn In

Ontario now has a new provincial government with Doug Ford sworn in as Premier this morning and a new trimmed down cabinet of 20 members. It would appear that Premier Ford has decided to make good use of the talent on his team and embrace a team of rivals approach to his cabinet with key positions for those he ran against to gain the party leadership. First and foremost, Christine Elliot is Deputy Premier and in charge of the important health portfolio. Caroline Mulroney is Attorney General and interim leader Vic Fedeli is in charge of the Finance portfolio. This is certainly an astute set of choices and bodes well for what will be a large set of challenges not the least of which will include dealing with the province’s finances.

And contrary to what might have been feared as a lack of interest in post-secondary issues, Premier Ford has not merged Training, Colleges and Universities with Education but instead given it its own minister – Merrilee Fullerton – who has a background as a physician. Also keep an eye on Monte McNaughton in the vital infrastructure portfolio. Interestingly, Premier Ford will also be Ontario’s federal diplomat in chief given that he is retaining the intergovernmental affairs portfolio for himself. He will be directly making Ontario’s case when it comes to transfer payments and working with the federal government.

In terms of northern Ontario representation in cabinet, we are well represented with two northern Ontario members. Kenora’s Greg Rickford is in charge of the all important energy portfolio as well as northern and indigenous affairs with his appointment as Minister of Energy, Northern Development and Mines, and Minister of Indigenous Affairs. This is alot and will be hard work but will give him the scope to be a key player in northern Ontario energy, resource and economic issues given the importance of First Nations in developing the Ring of Fire. And of course, there is Vic Fedeli from North Bay who probably has the most important and challenging job dealing with the province’s finances. Personally, I cannot think of a better person for the job given his years of work and interest on provincial finance matters.

So, there you have it. We have been sent a new government. Once again, the drama begins.

Wednesday, 27 June 2018

Celebrating Grain Transshipment at the Lakehead

There was a short and well attended ceremony and plaque unveiling today at the Western Grain By-Products Elevator Site on Kingston Street held by the Historic Sites and Monuments Board of Canada and Parks Canada. The elevator is the former Fort William Elevator No. 10 which was built in 1913 at the peak of the Canadian wheat boom. The plaque is the outcome of a long period of lobbying and work by the Friends of Grain Elevators and commemorates the role of the grain elevators at the Lakehead twin cities of Fort William and Port Arthur in facilitating Canada’s role as a leader in the international grain trade.

The development of the grain industry and its transportation infrastructure during the Wheat Boom period of 1896-1929 was an event of national historic importance given that it represented the fulfillment of the national economic strategy envisioned by the Fathers of Confederation. Under the criteria for events of national historic significance, the development of the grain industry and the grain transport infrastructure at the Lakehead (the former twin cities of Port-Arthur-Fort William, now Thunder Bay) qualifies as a “defining episode” in Canadian history.

At the Lakehead, the rail and water components of the grain transportation system came together in a transportation node that linked together the economy of Canada. Along with the fleets of grain transport steamers, the twin cities also became key points for the three national transcontinental railways that were completed during the boom era. As well, at the Lakehead, the grain transport sector played the role of a booming sector in Thunder Bay's economic development.

Between 1905-1929, grain shipments increased seven-fold and for much of the 20th century The Lakehead was the largest grain port in the world and Canada accounted for the bulk of the world’s grain exports. At its peak, over 30 grain terminals lined the harbour with a storage capacity of nearly 100 million bushels. Today, fewer than a dozen of these giant “Castles of Commerce” (as they were so aptly named by Rudyard Kipling) remain along the waterfront. Many of the key players in the development of the Lakehead’s grain transportation role and the Canadian grain industry in general such as C.D. Howe and N.M. Paterson also went on to contribute their expertise to the national political stage.

Grain transshipment at the Lakehead is an economic event of national historic significance in that it played the cementing role in the east-west grain transport infrastructure of the Wheat Boom era, a key stage of Canada’s development. It represents a fulfillment of the key ideas of the National Policy economic strategy and represents a tangible application of those ideas in Canadian economic and historical development. Without the Lakehead, there would have been no east-west economic flow.

Today’s ceremony was recognition of The Lakehead’s important role in Canadian economic history.