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.
Northern Economist 2.0
Thursday 16 February 2012
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
By: Livio Di Matteo
February 13th, 2012
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.
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.
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