NORTHERN ECONOMIST

Livio Di Matteo's Site

71 Posts with tag "ontario"

Election Eve: Looking Ahead at Post-Election

The time has comes to take stock of the implications for the North of the potential outcomes of the October 6th provincial election. According to the polls, it is a close race and the possibility of a minority government is high.  At the same time, polls do not always fully predict the outcome and much depends on the concentration of party support across the various ridings, as well as the actual voter turnout.  What can we expect the morning after?

Whatever party forms the government, expect to see the donning of sackcloth and ashes as it suddenly becomes apparent that the economy is on the verge of recession, the stock markets have dropped 20 percent and the province’s coffers are bare as a result of a massive deficit.  All those rosy revenue forecasts that were going to see the budget balanced by 2017 will now go out the window.  Expect to see announcements of government expenditure cuts, freezes and restructuring as well as the discussion of temporary “revenue enhancements.” A Liberal or NDP backed government will likely favor revenue enhancements over expenditure cuts while a Conservative government is more likely to favor cuts or restructuring. 

Should the Liberals win another majority, it will be interpreted as a vindication for their program of policies, especially their job creation strategy focused on Green Energy.  As for the North, it means the Far North Act will stay in place.  For northern Ontario, a Liberal majority win will put it in an odd situation.  If the North returns Liberal members and there is a Liberal majority, it means that any future complaints about the government’s economic policies towards the North especially with respect to energy, the forest sector and natural resource development will be taken with a grain of salt and Northerners dismissed as simply habitual complainers.  On the other hand, not returning Liberal members to a Liberal majority after the substantial investments that the Liberals have made in the North’s knowledge economy, research and health sectors and road construction will be seen as adolescent ingratitude.  With a Liberal majority, the North could be in a political no-win situation.

If there is a Conservative or Liberal minority, the situation becomes much more fluid for the North.  Either will likely be short-lived as given the differences between the parties, a formal alliance or coalition that might provide stable government is unlikely.  For the North, a minority government will provide it with more opportunities to get its points across as every party will now be much more sensitive to opinions even from smaller and more remote regions. A minority government, because of its inherent fragility, is much more open to debate and compromise.  The parties need to work together and that forces a degree of consultation and accommodation that takes multiple points of view into account.  On the other hand, a minority government may be less able to take concrete action especially given the fiscal situation.  Moreover, a minority government could place a halt to the public investment in research and knowledge economy jobs that has been driving the northern economic transition.  The Ontario minority government of the 1980s saw the creation of Northern Health Travel grants and the Heritage Fund. On the other hand, there was not a looming 250 billion dollar provincial debt in the 1980s and an international sovereign debt crisis.

Are there any wild cards in all of this?  Is there a possible Conservative majority?  Not really likely based on the polls but then nobody saw Bob Rae’s NDP victory coming in 1990 either.  A Conservative majority would help create an environment that would boost private sector job creation in the North but it would also be accompanied by public sector austerity that would hurt the North disproportionately given its dependence on government spending for job creation.  The North’s dependence on public sector funds for job creation has grown in the wake of the forest sector crisis. 

Of course, nobody is forecasting an NDP government this time, but who knows?  An NDP majority government may have campaigned on “Respect for the North” but once in power would also face the same constraints as any other government.  There will be respect for the North when necessary but the most respect would flow towards the greatest mass of voters – and they are in the South, not in the North. As for the NDP economic strategy, what short term benefits it creates will come at the expense of the long-term competitiveness of the Ontario economy.

As a sign of where the priorities really lie, consider the fact that in all of the main party platforms, there was no real mention of new institutions for the North or any real policy of decentralization or devolution of decision-making when it comes to northern resource development.   On the other hand, there seems to be no real demand in the North for new institutions either.  Northerners seem to be quite happy in their role as an economic dependency punctuated by bouts of adolescent outrage.  They will be dealt with accordingly no matter who forms the government.  As for new decentralized decision making institutions for the North? Their day will come when the growing aboriginal population in the region reaches a critical mass and articulates a compelling case for a new deal.  When that day comes, it will be a call that no provincial government will be able to ignore.

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The Medieval Heritage of Ontario Political Parties

In the Ontario election campaign, both the Ontario Conservatives and the NDP have put in their platforms pledges to remove the HST from home hydro bills and home heating.  It is argued that these items are not luxuries and the HST has made life less affordable for families.  The NDP goes a step further arguing that it will take the HST off of daily essentials including a reduction on gasoline at the pumps.  Furthermore, if elected they plan to put in a weekly gasoline price ceiling.  This view of certain consumer goods as essentials that should be treated differently from other less essential consumer goods when it comes to either taxation or price regulation in general struck a bell for me this week as I finished delivering my set of lectures on ancient and medieval economic thought. 

From time to time we see political debates and initiatives that call for things like capping gasoline prices, reducing the high interest rates on credit card bills or lowering tax rates on essential consumer items. I think the reason the fundamental arguments driving these discussions seem so contrary to how economic theory would approach these issues is because they are rooted in views that predate modern economic thought.   The call for regulation of gasoline prices strikes me with overtones of the debates over the “just price” which concerned much of the work of St. Thomas Acquinas and medieval economic thought, which in turn was derived from Greek and Biblical thinking as well as Roman Law. The occasional cries for credit card companies to lower their interest rates call back to the Roman Catholic church’s prohibitions on usury as when it came to loans it was a sin to demand more than what was given. This type of thinking has probably also marked public attitudes towards the government taxation of essential goods such as gasoline and heating oil, which are seen as essential for daily life and therefore should be treated differently. For a more detailed analysis, see my recent post on Worthwhile Canadian Initiative.

It may seem odd that both the NDP and the Conservatives are proposing similar policies given their political philosophies but then both of their philosophies are rooted in a long history of political and economic thought going back centuries.

Did the Earth Move for Horwath?

Who won last night's Ontario leader's debate?  From the bit of the debate I saw, there were no clear winners and losers and all three leaders managed to hold their own reasonably well.  However, for an incumbent, holding your own may not be enough and an examination of the number of Twitter followers suggests that Dalton McGuinty may be the debate loser.  McGuinty's share of Twitter followers has declined slightly during the month of September from 45 percent on September 7th to 44 percent on September 26th while the shares of Mike Schreiner and Tim Hudak  remained the same at 6 percent and 30 percent respectively.  Andrea Horwath increased her share slightly over this period from 19 to 20 percent.  The debate was held yesterday and as of today, McGuinty is now down to 43 percent while Horwath is up to 21 percent while Schreiner and Hudak are still at 6 percent and 30 percent respectively. In one day, there was a greater shift than occurred during the first couple weeks of the campaign.  This could signal that many voters perceive Horwath the most favorably in the wake of the debate.

 

 

 

 

The earth may have finally begun to move.  It would appear that based on the number of Twitter followers, Horwath is up, McGuinty is down and Hudak is holding his own.  Polls have indicated a close race with a potential minority government situation after October 6th.  Should this type of preference shift continue over the days leading to October 6th we could very well be on the road to a Conservative minority government as the NDP erode the Liberal vote. 

 

P.S. By the way, did anyone notice if any part of the debate dealt explicitly with Northern Ontario economic issues? If it did, I seem to have missed it.

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An Analysis of Employment Growth: Ontario and the Northwest

I've taken the monthly employment numbers for all of Ontario and for Northwestern Ontario for the period 1990 to 2011 from Statistics Canada.  These are three month moving averages unadjusted for seasonality but I then use them to construct annualized growth rates for each month.  For those of you who are interested, the two Statistics Canada series are: v2054703 and v2054737.  The results are quite interesting.  When you simply plot the growth rates for both Ontario and the Northwest against time (Figure 1), you get a picture of wider swings in employment growth in the Northwest versus Ontario as a whole.  As well, you can see that while there were some periods when employment growth was negative or positive for both, there are times when they move in opposite directions.  For example, the recession of the early 1990s see both the Northwest and Ontario with negative employment growth.  However, the period from 1996 to 1998 sees the Northwest with negative employment growth while Ontario is generally positive.  Ontario and the northwest are both positive again from about 1998 to 2000 but then Ontario continues to see positive employment growth rates while the Northwest is negative again.   As we move forward, the recession period in 2009 sees both the Northwest and Ontario with negative employment growth rates but the recovery since 2010 after a brief spurt in the northwest sees a return to negative growth in our region while Ontario is in positive territory.

Figure 1

 

 

It would appear that when there is a recession, both Ontario as a whole and the Northwest experience negative growth rates.  Outside of recession, Ontario as a whole sees positive employment growth rates while the Northwest seems to cycle between booms and busts.  With such fluctuations, it is difficult to see what the trend might be in employment growth rates.  For examples, are growth rates in our region stable over the long term or declining?  For Ontario as a whole, there have been more positive than negative growth rates so that overall employment has grown over the last twenty years.  For the Northwest, overall employment has declined and a quick visual inspection shows that there are probably more periods of negative employment growth than positive over the last twenty years. 

To show trends I've used a simple data smoothing technique called LOWESS which allows for the regression relationship of employment growth rates on year to be demonstrated visually and which can also help take into account extreme observations  known as "outliers".   The plotted results basically present a long-term trend picture of employment growth rates over time.  The individual plots for both the Northwest and Ontario are presented below  (Figure 2).  The smoothing line essentially is a calculated flexible line of best fit through the data points over time.

Figure 2

 

 

 

The results are also plotted together for comparison purposes (Figure 3) and show results that are both expected and surprising.  First, employment growth rates in Ontario have generally been higher than for Northwestern Ontario - the one exception was during the early 1990s when Ontario as a whole actually did slightly worse.  Since then, there has been a growth gap and the gap has grown over time.  Second, both Ontario and the Northwest have seen declining employment growth rates over the last decade.  Employment growth rates in Ontario peaked in 2000 and have since been declining though the long term shows they are still positive. For Northwestern Ontario, the peak was reached in the late 1990s and there has been decline since with average long term trend showing negative growth rates since 2002. 

 

Figure 3

 

 

These results are fascinating because they actually show the same trend in both Ontario and the Northwest - declining employment growth rates over the last decade.  The difference is that Ontario has a whole still has averaged positive albeit small growth rates whereas the Northwest has headed into negative territory.  The northwest has simply been harder hit because of its employment concentration in forestry whereas Ontario as a whole has not been as affected by the manufacturing sector decline because of its greater diversification.  This reinforces my view that Ontario over the last decade has been a province facing serious economic challenges.  Its per capita real GDP performance has been the worst in the country and this additional evidence showing declining employment growth rates reinforces the economic challenges it faces. 

 

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Why Premier McGuinty is Not in Thunder Bay Today

Today is the NOMA provincial party leaders debate in Thunder Bay between Tim Hudak and Andrea Horwath.  Premier McGuinty has declined to attend.  The premier apparently has a previous engagement and furthermore probably believes that as the premier for all Ontario, debates should be held with the entire province rather than a single region as the stage.  The outrage in the North has been palpable but in simple cost-benefit terms, if I were the premier, I would have made the same decision. I probably also would have added that the debate seemed exclusionary and elitist given that according to my last look it required a 95 dollar conference admission fee.  But then what do I know, I'm an economist, not a political advisor. (By the way, the charge of elitism can be deflected by the fact the debate is being webcast on the NOMA site.  NOMA stands for Northwestern Ontario Municipal Association. Web Coverage is also available on Netnewsledger.).

For Dalton McGuinty, coming to Northern Ontario for a regional debate is fraught with high costs and little in the way of benefits.  This is a region - that usually tends to vote Liberal or NDP anyway.  It generally is not an arena for rational and open debate with a reasonable chance that you can change someone's mind, but a highly partisan political herd environment.  In some ridings, the tradition is to vote Liberal and when you want to punish the Liberals you vote NDP.  Given the anger over what many see as a weak response to the forest sector crisis by the provincial Liberal government, the desire to publicly punish is high.  Having Tim Hudak and Andrea Horwath pummel the premier on forestry job losses when they have not had that much to say about forestry policy themselves is probably not how the premier wants to spend his day.

The debate is also being held in a region that is relatively marginal compared to the vote rich GTA.  It is difficult to see the premier turning down a similar chance to debate the other two leaders in Toronto on the issue of the GTA as Ontario's economic driver.  The media is clustered in Toronto as are the voters.  In the case of the Northern debate, not too many people in Toronto will be paying attention to the debate anyway unless he makes a major gaffe that is trumpeted in the evening newscasts. 

The result of the political calculus?  Coming to the Northern debate has high costs and very low benefits.  Given the very small number of seats at stake particularly in the Northwest where the debate will receive the greatest coverage, he is willing to take his chances. 

 

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