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.
Northern Economist 2.0
Wednesday 29 February 2012
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.
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