Wednesday, December 14, 2016

October 2011 Posts

19 Posts from October 2011
What Vision for Universities?
My friend and PhD Thesis advisor Peter George was awarded the David C. Smith Award for Significant Contribution to Scholarship and Policy on Higher Education in Canada at a dinner on October 13th hosted by the Council of Ontario Universities.  As part of the celebration, Peter George delivered a speech that drew upon his three-term experience as President of McMaster to reflect and comment on the state and future of university education.  He noted that during the recent provincial election in Ontario, he did not see a vision for higher education articulated by any of the parties and yet he believes that this is what is needed the most. 
As he said: “This lack of a real strategic vision for higher education in Ontario is the BIGGEST elephant in this room for it is the one we are ALL riding.”  While acknowledging the importance of increased participation and enrollment, among the things he would like to see in a vision for post secondary education include more emphasis on quality and less on accessibility and enrollment levels, more differentiation across universities, and the integration of research and educational priorities so that research spills over into the educational mission.
It is hard not to agree with these components of a vision for Ontario and indeed Canadian post-secondary education but I would like to add a few more points.  If we are to have a new vision for post-secondary education, I think it is important that the vision also focus on what post-secondary education is about.  I think universities have lost their way over the last few decades and the undergraduate experience diluted but not necessarily because university professors are too focused on their research or because universities are severely underfunded. 
Universities should be about advanced research and teaching.  They are places where our young – the future of our civilization – should come to learn and learn how to think and how to advance knowledge.    Research and teaching are integrally linked – you cannot have good teaching without the depth of knowledge that research activity affords.   Without research on the part of academics, teaching ultimately becomes recitation rather than active learning and knowledge generation. 
As for the underfunding claim, per capita resources in the post-secondary sector have actually been rising over the last decade and at an impressive clip but the government contribution to basic operations has lagged.  Much of the real resource growth has occurred because of increases in research funding as well as tuition increases.  However, this resource increase has not been directed into improving the undergraduate experience because universities have lost their focus as places of advanced research and learning designed to build knowledge and learning.  Indeed, students are actually paying for this lost focus via higher tuition that is going to fund a wide range of alternate priorities.
In their bid to attract limited government funding and curry favor with a public focused on the immediate, universities have allowed their core mission of research and teaching to become blurred.  Universities are now expected to be businesses and generate revenue by fostering commercialization.  Universities are expected to prepare students for the jobs of the present and the future by providing relevant skills and job training with knowledge deepening provided by liberal arts and science as an afterthought rather than a core component.  Universities are expected to look current by embracing all the latest classroom technologies often at considerable expense without any real evidence as to their efficacy. 
Universities are expected to promote accessibility by boosting enrollment.  Universities are then also expected to increase student success by offering remedial help and augmented student assistance and support.  Universities are expected to be regional economic drivers by strengthening their relationships with their regional communities and embracing their role as contributors to economic development.   Universities are expected to promote, support and recognize research that addresses major community concerns as well as drive the frontiers of knowledge. 
Universities are also expected to champion every leading cause that comes along and formally integrate it into the curriculum whether it be social justice, wealth inequality, an aging population, global warming, locally grown food, financial literacy or the hazards of reality television as well as develop clear policies to address any issues of oppression on campus.  It is no longer enough to rely on the research interests of autonomous faculty and their research programs to do this – it must be planned, directed and coordinated with an ever expanding administrative apparatus.  The best of intentions may be behind these moves to expand the undergraduate experience and many of them are indeed noble but there are simply far too many targets for universities to address and not enough instruments. 
University is supposed to be a broadening experience for students by exposing them to different ideas and views and new knowledge.  However, universities today seem to be afflicted with a massive case of attention deficit disorder as they try to be many things to many people.  In the end, they risk not doing any of them particularly well and in the process damaging their core function of research and teaching on which the future transmission of our civilization rests.  Is this to be our vision for universities in the 21st century?  Perhaps it is time for corrective lenses that allow for some focus.

Housing Affordability: Thunder Bay's Competitive Advantage
The affordability of housing is a major contributor to the cost of living in major urban centers and ultimately the quality of life.  Moreover, affordable housing can also be an important economic development tool given the international war for talent which seeks to attract mobile and skilled knowledge economy workers. According to the 7th Annual Demographia International Housing Affordability Survey, the rise in the price of housing has been financially damaging to households in major urban centers and housing markets of Australia, the UK, New Zealand as well as the United States and Canada with housing prices having doubled or tripled relative to income in some of these markets. This has been a factor in migration and population change.  For example, for 500 metropolitan areas in the United states, between 2000 and 2009, the more unaffordable metropolitan areas lost 9.6 percent of their residents (4.7 million) by domestic migration to other areas, nearly 10 percent of their 2000 population. By contrast, the less expensive metropolitan areas gained 4.2 million domestic migrants (2.3 percent of their population).
In terms of affordability, the most expensive housing market in the world for metropolitan areas with a population greater than one million people was Hong Kong with a median house price to median income ratio of 11.4.  The most affordable market in this category was Atlanta, Georgia at a ratio of 2.3.  By way of comparison, Vancouver sat just a notch below Hong Kong with a ratio of 9.5 while Toronto was at 5.1.
An affordable housing market was defined as one with a median price to median income ratio of 3.0 or less and amongst these cities, Thunder Bay was ranked as extremely affordable with a ratio of 2.3.  In terms of housing affordability, Thunder Bay is in the same league as Fredericton, New Brunswick Atlanta, Georgia; Duluth, Minnesota and Provo, Utah - all with scores of 2.3.  Only Windsor, Ontario  was more affordable than Thunder Bay with a ratio of 2.1.  Thunder Bay had an international affordability rank of 22 with Saginaw Michigan at a rank of 1, Calgary Alberta at 200, Montreal at 257, Victoria BC at 309 and Hong Kong last at 325.
Now of course, this affordability also can be an indicator of a weak economy.  After all, Fredericton, Thunder Bay and Windsor have not exactly been leading the country in terms of economic growth.  At the same time, the affordability of housing can be an ingredient in strategies designed to attract professionals and businesses to set up shop.  It can be a source of competitive advantage in the long run by allowing families to own their own home and have financial resources left over for activities that can boost the quality of life.

A Sustainability Snapshot for Ontario Post-Secondary Education
An examination of Statistics Canada data on post-secondary education for Ontario reveals some interesting trends in terms of its sustainability.  While fiscal sustainability is a term generally used in the health care policy debate, it can also be applied to government programs in general and post-secondary education in particular.  One definition of fiscal sustainability can relate the increase in real per capita expenditures to increases in some measure of the real per capita resource base - such as GDP.  If real per capita government spending is rising faster than GDP then one may argue that there is a potential long-term sustainability problem. 
For Ontario, I've calculated average annual growth rates of real per capita GDP (in 2002 constant dollars), real per capita tuition revenues and real per capita post-secondary education (deflated using the All items CPI 2002=100) by available category for the period 1990 to 2009 and plotted them in a bar chart (Fig 1.).  In addition, I graphed pie charts showing the composition of these post-secondary expenditures in 1990 and 2009 (Figs 2 & 3) to show how composition has evolved over time.  A draw-back to this data source is that it is for all post-secondary education with no decomposition into universities and community colleges. 




Generally speaking, real per capita spending on post-secondary education in Ontario has risen faster than the growth rate of the economy which would suggest that future sustainability of the sector is a concern.  Yet, the growth rate of spending has been outstripped by the growth rate of tuition revenue.  Real per capita tuition revenues over the period 1990 to 2009 grew at an annual average rate of 6.4 percent while the comparable figure for post-secondary expenditure was 2.4 percent.  However, tuition revenue rising faster than spending still does not a sustainable system make because tuition does not cover all post-secondary expenditures - the rest is made up with provincial grant funding and other revenues.  In 1990. the tuition share of total post-secondary spending in Ontario was 13 percent and it rose to 29 percent by 2009.  Students are bearing a greater burden of their university education and the burden has risen faster than the economy's general productivity as measured by real per capita GDP.
The other interesting thing about Figure 1 is that of the five categories provided for post-secondary spending by these statistics Canada numbers, the one with the lowest growth rate was "Education" at 1.41 percent while the two highest were "Debt charges" and "Student Support" 8.6 and 6.6 percent respectively.  Next came "Administration" at 3.5 percent and then the "Other Post-Secondary Education Expenditures" at 3.4 percent.  What this suggests is that of all the categories of spending on post-secondary education, the traditional academic function has been the most sustainable with the expenditure surge largely being driven by student support, administration, debt charges and other spending. 



 

This in turn has affected composition. (See Figures 2 & 3).  In 1990, the education component accounts for 57 percent of post-secondary education spending whereas by 2009 it is down to 46 percent.  Administration's share has risen from 17 to 21 percent, student support from 3 to 5.7 percent, debt charges from about one-half of one percent to 1.5 percent and the other category from 22 to 27 percent. 
Obviously,there needs to be an examination of what exactly the priorities of the post-secondary education in Ontario are?  Despite calls for a greater emphasis on educating undergraduates, it would appear that there has been a shift away from the academic side.  The trend to large classes in many Ontario universities and colleges appears to have freed up resources - some of which were redirected to student support as compensation - but the rest which went to debt charges incurred from capital projects, administration and other spending not directly tied to education.  In the case of debt charges, the result could have been worse in terms of its effect if interest rates during this period had been higher.  While all of this spending can be viewed as generally unsustainable, it would appear obvious where restraint will need to be exercised the most. 



Equity in Municipal Taxation?
The City of Thunder Bay is apparently considering a report from their revenue department on bringing about “equity” amongst different property classes.  In particular, media reports have stated that the report recommends gradually lowering commercial and industrial tax levels to bring them in line with the provincial average. A shift towards easing the burden on business properties is a feature that has marked Ontario over the last decade.  This is naturally going to be a contentious issue given that the burden of municipal taxation over the years in Thunder Bay has already been shifting towards the residential taxpayer given the erosion of the industrial tax base.  It is also odd to use the term “equity” in making these proposals as any equity consideration should be within industrial and commercial properties rather than a comparison of industrial and commercial versus residential properties as these properties have quite different functions
Similarly valued industrial properties in Thunder Bay should be paying similar property taxes just as similarly valued residential properties within Thunder Bay should also be paying similar municipal taxes.   Trying to shift the burden more towards residential users by sugar coating it as “fair” or “equitable” seems to be a serious under assessment of the intelligence of the municipal ratepayer.  Making a change to lower industrial and commercial taxes in Thunder Bay is not necessarily an “equity” or fairness issue but an economic efficiency issue as taxes in those areas that are higher than the provincial average would theoretically hurt our economic competitiveness in attracting business.   However, it should be noted that despite our high municipal tax rates, we appear to have had no recent difficulty in attracting new business investment in hotels, restaurants and commercial retailers.
The fact of the matter is that all municipal taxes in Thunder Bay are generally viewed as high when comparisons are made with other Ontario municipalities.   The most recent BMA Municipal Study 2010 finds that Thunder Bay property taxes are in the mid-high range for residential properties, in the mid-high range for multi-unit residential properties, in the high range for office properties, in the high range for neighborhood commercial properties, in the mid range for hotel/motel properties, in the middle range for standard industrial properties and in the high range for large industrial properties.  In comparisons, one does not see a class of property in Thunder Bay associated with low taxes at the municipal level.
In addition, when figures on municipal tax revenues from business taxation, user fees and residential taxation are examined, they show that between 1990 and 2005, there was an increase the share of total tax revenue paid by residential owners.  As the accompanying figure shows, between 1990 and 1997, the residential share of municipal tax revenue (residential, business and user fees) was flat at about 35 percent.  It then rose and by 2005 had reached almost 45 percent.  Over the same period, business tax revenues as a share of total municipal tax revenue went from 35 percent to 21 percent.  In 1990, for every dollar of business tax revenue the City raised, residential provided 97 cents.  However, by 2005, for every dollar of business revenue, residential owners were providing $2.14.  The largest share of tax revenue is already coming from the residential sector so how shifting the tax burden even further towards residential users is supposed to bring about “equity” is an interesting question.
Interestingly enough, the data used for this revenue breakdown was published in City of Thunder Bay annual consolidated financial statements until 2005.   Since then much more abbreviated financial statements are published which only provide a total revenue figure for taxation.  It is interesting how in the age of the inter-net, more and more reports are posted but with less and less information that a taxpayer can use to make informed decisions and choices.





Here is an interpretation of what has happened.  Decades ago, Thunder Bay had a large forest products and transportation sector that afforded a rich municipal tax base that allowed for a very generous program of municipal spending.  Since the 1990s, the rich industrial tax base and the property tax revenues it afforded has declined necessitating more of a shift towards the residential taxpayer in order to maintain the expenditure infrastructure.  This situation was complicated by the provincial grant cuts and downloading of the mid 1990s though these grant revenues have since recovered.  Per capita municipal tax revenues  (residential, business and user fee revenues) in Thunder Bay have grown handsomely with the shift to a greater residential burden as the accompanying figure (Fig. 2) shows.  However, per capita revenue growth has started to slow and the fiscal sustainability of future municipal spending is now a concern.  Moreover, there is the infrastructure deficit in roads and sewers that is also being advanced as a reason for tax increases.  However, shifting even more of the burden to residential users is not equity, it is a revenue grab.


Cross-Border Travel at Pigeon River
Thunder Bay and northwestern Ontario residents have long crossed the border to visit and shop in Grand Portage, Grand Marais and of course Duluth.  Moreover, despite the lower regional population of northwestern Ontario relative to Minnesota, the number of Canadians crossing at Pigeon River to visit the United States has always been much larger than the number of Americans visiting Canada at this crossing.  However, the long-term trend in cross-border travel between Canada and the United States at the Pigeon River crossing just south of Thunder Bay demonstrates two different long term trends.  The number of total crossings obtained from Statistics Canada's counts and plotted in the accompanying figure show that despite the ebbs and flows, the long term trend of Canadians visiting the United States is up over the twenty year period from 1990 to 2010.  On the other hand, the number of Americans visitors into Canada at Pigeon River is on a downward trend. 
Short term fluctuations in cross-border travel is mainly affected by personal incomes, the value of the exchange rate, and gasoline prices.  For example , the depreciation of the Canadian dollar between 1995 and 2000 is accompanied by a drop in Canadian crossings back into Canada at Pigeon River and an increase in American crossings into Canada.  However, despite a high value of the American dollar relative to the Canadian dollar between 2000 and 2006, American visits declined while Canadian visits continued to rise.  Indeed, from 2001 to 2010, American crossings into Canada at Pigeon River declined at about 7 percent annually while Canadian crossings back into Canada rose at an average rate of 2.6 percent annually.
There was an obvious structural change in the determinants of cross-border travel and that was likely the reaction to 9-11 and the border changes that came into effect in the period after 9-11.  Moreover, those border changes appear to have had an asymmetric effect.  While Canadians continued to cross into the United States in order to visit, vacation and shop, the converse is not true.  Americans have been more reluctant to travel across the border.  What can be done to entice Americans to cross the border at Pigeon River in greater numbers?  The answer to that question is vital given the investment in the waterfront going on in Thunder Bay and the need to attract tourists as an economic diversification activity.




Northern Economist at Heart of the Continent Congress
The Heart of the Continent Partnership will be holding an international community congress to develop sustainable economic development in the Heart of the Continent Region straddling the Canada-US border between northeastern Minnesota and northwestern Ontario.  This region contains 5.5 million aces of public lands that provide opportunities for economic development.  There will be attendance from northwestern Ontario and Minnesota as well as other areas of North America at the activities of the congress which will span four days (October 24th-27th) as well as two locations - Fort William Historical Park in Thunder Bay and Grand Portage Lodge in Grand Portage.
Northern Economist will be there on opening day delivering a presentation that will provide a regional overview of the history, economic structure, trends and economic opportunities in the region.  For an agenda of the congress activities, visit the Heart of the Continent web site while slides of my talk will be available on my Economics Department web site.


Northern Economist in the Winnipeg Free Press
The New Debt Divide
by Livio Di Matteo

Winnipeg Free Press, October 20, 2011
THUNDER BAY -- With provincial elections over in Manitoba and Ontario, there will soon be a new preoccupation with the realities of government and particularly the public finances.
According to the recently released 2011 Federal Fiscal Reference Tables, in 2010-11, Manitoba had a deficit of $467 million and a net debt of $13 billion. Ontario, on the other hand, had a deficit of $14 billion and a net debt that had reached $215 billion.
A more reasonable comparison is net debt relative to GDP and even here Manitoba's performance is better with a net debt-to-GDP ratio in 2009-10 of 23 per cent compared to Ontario's 33 per cent.
There has always been an east-west gradient on many Canadian social and economic indicators. But Ontario and Manitoba are examples of a new east-west divide in Canada -- the debt divide.
When net debt is examined, it turns out Western Canada is in much better fiscal shape than the eastern provinces.
In terms of the net debt-to-GDP ratio, the average across British Columbia, Alberta, Saskatchewan and Manitoba in 2009-10 was 8.7 per cent, with Manitoba the most indebted of the four western provinces, at least in the debt-to-GDP ratio category.
On the other hand, the average debt-to-GDP ratio in Atlantic Canada was 34 per cent, while for both Ontario and Quebec, the ratio stands at 41 per cent.
As Canada's largest provinces, Ontario and Quebec can be expected to have the largest absolute net provincial public debts, but they are also the largest in per-capita terms.
In 2009-10, the per capita net debt in Quebec was $19,173, while in Ontario it was $14,813. By contrast, Manitoba's was only $9,652. The average for the four Atlantic provinces was $13,143, while the average for the four western provinces was $3,264.
There is again a major division with the eastern half of the country far more indebted than the western half.
This is a divide that has been 20 years in the making. In the late 1980s, the debt gap between Canada's provinces was much narrower.
For example, in 1987-88, the net debt-to-GDP ratio averaged 26 per cent in the Atlantic provinces, 19 per cent in Central Canada and 11 per cent in the West.
Since then, the debt share of GDP has gone up most dramatically in Central Canada. Ontario and Quebec are the traditional industrial heartlands of the country and bore the brunt of the economic restructuring of the last 20 years, which affected both their public revenues and spending.
The Atlantic region, having lived with the constraints of weak economies and transfer dependency for a long time, experienced a more modest debt surge relative to GDP.
As for Western Canada, it has been blessed with a resource product and investment boom, which has translated into better long-term public finances.
Manitoba represents a transitional province on the east-west debt divide. While its debt-to-GDP performance is superior to the eastern provinces, it is nevertheless the poorest performer among the western provinces.
Manitoba has a diversified economy that is able to withstand the ups and downs of the business cycle but it has not had the resource bounty of Alberta and Saskatchewan or the offshore investment of British Columbia. It is the most transfer-dependent of the four western provinces, making it more akin to Ontario than Saskatchewan in this regard.
Why does any of this matter?
Rising debt levels combined with rising interest rates will generate increasing fiscal pressure on the provision of public services in Ontario and Quebec. If this results in spending cuts, it will fuel a slowdown in the Canadian economy with spillover effects on the rest of the country but particularly the more transfer-dependent provinces.
This will generate rising strains in the federation between the wealthier provinces -- which are now almost entirely western-based -- and the more transfer-dependent provinces.
On the one hand, as part of the rising West, Manitoba will have a western outlook when it comes to promoting economic growth and diversification. On the other hand, increased federal assistance to Ontario and Quebec to support their health and education systems may also benefit Manitoba.
This could lead to an enhanced role for Manitoba as a political bridge between east and west, a sort of broker given its multiple economic interests. Or, it could lead to a polarization of Manitoba politics and growing confusion as to its identity and role within the federation.
Manitoba will be an interesting meeting ground for the Canadian federation as it wrestles with its role as part of the transfer-dependent East or the vigorous new West.
Livio Di Matteo is professor of economics at Lakehead University in Thunder Bay.

A Fiscal Reminder for Ontario
Cabinet day is upon us in Ontario and as part of their orientation to their new cabinet posts, ministers might want to take a few minutes to review the province’s public finances given that the election campaign apparently focused on more important matters.  The 2011 Federal Fiscal Reference Tables have been released and they provide data for a number of interesting snapshots. 
First, the average annual growth rates in provincial government revenues and expenditures for the period 2003-04 to 2010-11 were 4.8 and 6.2 percent respectively.  These are clearly not sustainable and while 2010-11 actually saw revenues grow faster than expenditures, one year of good growth does not a balanced budget make.   Indeed, the deficit according to the Fiscal Reference Tables in 2010-11 was still 14 billion dollars and that is the second highest absolute deficit recorded by the Ontario government – after 2009-10 - which was the highest.  Ministers can console themselves with the fact that as a share of GDP these deficits are still smaller than those of the early 1990s. 
Second, the sorry state to which Ontario has fallen as an equalization receiving “have not” province did not seem to bother the voters but Ontario is now more transfer dependent than ever when it comes to its revenues.  Ontario is now dependent on federal cash transfers for 22 percent of its revenues.  In absolute terms, Ontario is now also the second largest equalization recipient.  While some may see this as a reversal of the fiscal imbalance and Ontario’s due, the fact is that this transfer share has seen a steady rise since the late 1990s and is also a reflection of the weakness in Ontario’s own source revenue base which in turn is a function of its economic productivity.  If one removes federal cash transfers, Ontario own source revenues since 2003-04 only grew at an average of 3.2 percent annually making the fiscal gap an even greater problem. Without federal transfers, Ontario cannot support its current fiscal lifestyle.
Third, there is the question of the debt.  According to the Fiscal Reference Tables, the Ontario net public debt in 2010-11 had reached 214.5 billion dollars.  When one looks at it in per capita terms, it has reached over 16,000 dollars per person and has been on a steady upward trend for the last twenty years.   Ontario does not have the highest per capita provincial government net debt in the country – that distinction belongs to Quebec – but what it has will prove to be a sufficient drag on the public finances if interest rates begin to climb and boost debt service costs.  Moreover, the high debt burden is another indicator of how low the fortunes of central Canada have fallen within the Canadian federation given that as a share of GDP, the provincial net debt burden in Ontario and Quebec now exceeds the average burden of either the western or the Atlantic provinces.
With these fiscal constraints, the Ontario government will be in a real policy squeeze.  On the one hand, they will want to spend money in a manner that meets the expectations of its voter support but they will face a larger and more determined opposition as a result of the minority government outcome.   The Ontario government will be hard pressed to stimulate the economy with new spending if a downturn develops, invest in its priority areas of health and education and balance the books.  Add to this the high costs of its Green Energy Program for Ontario electricity consumers and it is definitely not going to be much fun being a cabinet minister in Ontario.



 





Thunder Bay Housing Prices: Another View
It has become the recent conventional local wisdom to remark that Thunder Bay's real estate housing market is "hot" and that prices have finally begun to rise.  Given the price increases in other cities, Thunder Bay homeowners have probably felt left out of the wealth increases brought about by rising real estate in other Canadian cities.  However, over the last few years, average residential prices as reported by Canada Mortgage and Housing have finally started to rise.  In 2000, the average residential price in Thunder Bay was $109,811.  By 2010, the average residential price had risen to $144,034 dollars - an increase of nearly 32 percent.  Given that prices had been largely stagnant for much of the 1990s, and into the first couple years of the new century, an increase of 32 percent is remarkable.  However, it is still not as remarkable an increase as some other Canadian cities.  Winnipeg, for example, over the 2000-2010 period saw its average residential prices rise by 134 percent. 
Of course, one might argue that we should compare Thunder Bay to similarly sized cities.  Our northern counterpart, Sudbury, saw its prices rise from 109,262 dollars in 2000 to 200,947 dollars in 2010 - an increase of 84 percent.  Kingston and Peterborough saw similar increases over this period.  Nonetheless, one could argue that Thunder Bay's performance is outstanding given that employment over the same period dropped by about 10 percent and the city's GDP dropped by about as much.  However, the one thing to take note of is that the 44 percent increase is an increase in nominal house values.  Once you take inflation into account, you would have the real or inflation-adjusted value of the housing increase.  I've done that and produced the results in the accompanying graph for both Thunder Bay and Sudbury.  I used the CPI-all items index for Ontario as the inflation measure.  Once you convert everything into 2002 dollars, one finds that the average real residential price in Thunder Bay from 2000 to 2010 rose from 115,469 dollars to 123,634 dollars  - a real increase of 7 percent over the 10 year period or a real return of less than one percent a year.  By way of comparison, in Sudbury, even after inflation is taken into account, the real increase was still 66 percent. 
I suppose it gets even worse if you consider that during the 10 years you lived in an average house that you purchased for just over 100,000 dollars you probably would have spent thousands of dollars in property taxes as well as substantial amounts for maintenance and renovations.  Residential property taxes in Thunder Bay may not seem high when you compare them to municipal averages for similarly sized cities in Ontario until you express the average tax paid as a percentage of the average residential price. 
For example, in Thunder Bay the BMA Group reports that the average residential tax paid for a bungalow in 2010 was 3,042 dollars while in Sudbury it was 2,522 dollars and in Hamilton, 3,540 dollars.  However, when you take the tax paid as a percentage of the average residential price you get 2.1 percent in Thunder Bay, 1.3 percent in Sudbury and about 1.2 percent in Hamilton.  Given that property taxes are supposed to be for services to property and are based on the assessed value of property, Thunder Bay residents are paying much higher effective tax rates.  Of course, this is the result of the erosion of the industrial tax base which has resulted in a shift to residential owners in an effort to maintain services and expenditures.
In the end, the burden of home ownership in Thunder Bay has likely produced a negative real economic return over the first decade of the 21st century. Contrast this with other cities where even after inflation, property taxes and maintenance costs are factored in, the real return has still been overwhelmingly positive.  Moreover, in the absence of any retrenchment in housing prices, this return can be expected to grow.
Now of course, home ownership is not supposed to be a financial or economic investment, it is supposed to be a lifestyle choice.  You buy a house because you want to own a home with a surrounding yard and not necessarily because you expect to make a lot of money from selling it 10 or 15 years down the road.  However, in the case of Thunder Bay, this lifestyle choice comes with a lot of foregone benefits given that in other cities you would have been able to buy a home as a lifestyle choice and still make money on it due to its appreciation as an asset.  Perhaps one can argue that by living in Thunder Bay and buying property here, there are other compensating benefits in the form of a more laid-back and stress-free life.  On the other hand, given some of the recent public debates in Thunder Bay over the location of cellphone towers, new commercial developments and wind mills, and the constant stories about crime, just how stress free is living in Thunder Bay compared to other urban centres?  Add to that the thought of seeing the real value of your property stay flat in real terms for decades on end and you really can start to feel stressed.




Who Will be the Northern Minister(s)?
On Thursday October 20th, Premier McGuinty will unveil his new cabinet and until then there will be much speculation as to which of his Northern MPPS will get in.  As we all know, prior to the election, Rick Bartolucci was Minister of Municipal Affairs and Housing while Michael Gravelle was Minister of Northern Development and Mines and Forestry.  Having two cabinet ministers from the North did not do much for Liberal fortunes in the North and their seven seats have shrunk to four.  Of the four current MPPS, who will make it into cabinet?
One possibility is that given the minority government situation and the beating taken from Northern voters, the Premier will take the safe route and opt for the status quo and retain Gravelle and Bartolucci in their current posts.  However, this is a new government and the Premier may opt for fresh faces. 
The Premier has a choice of Bill Mauro (Thunder Bay-Atikokan), Michael Gravelle (Thunder Bay-Superior North), Rick Bartolucci (Sudbury) and David Orazietti (Sault Ste. Marie).  Given that the number of Liberal MPPS has shrunk from 71 to 53, there will likely be a smaller cabinet - count on closer to 20-22 cabinet ministers rather than the previous 28.  This will also be a signal of the coming "austerity" due to the deficit and the slowing economy.   This means that there may probably only be one "northern minister" this time and it will most likely be Northern Development Mines and Forestry though there is always the possibility that it could be Natural Resources. 
A look through the recent roles of the four Liberal MPPS would suggest that if it comes down to only one choice, David Orazietti is probably best poised to enter cabinet.  He seems to have the biggest recent list of legislative assistantships and chairmanships - comparable to Bartolucci in the late 1990s. He is young and the Premier may be looking for fresh blood after both Gravelle and Bartolucci.  He has served as Parliamentary Assistant to both the Minister of Natural Resources and Northern Development and Mines making him familiar with both portfolios.  As well, of the four northern Liberal MPPs, he won by the largest margin - approximately 7,000 votes over the second place finisher - compared to about 2600 for Gravelle, 450 for Mauro and 500 for Bartolucci. Given the relative youth and energy of Orazietti and the slimmer cabinet, the Premier may even decide to be innovative and combine the Northern Development and Natural Resource portfolios into one under Orazietti
Where does this leave the other three MPPs?  Well, they are all "team players" and no doubt will happily abide with whatever decision the premier makes.  How the electorate in Sudbury or Thunder Bay will feel is another matter.  However, given that northern cabinet ministers have recently come from Sudbury or Thunder Bay, rotating the position to someone from Sault Ste. Marie will likely also be seen as "fair" at least by government supporters.  We shall see what Thursday brings.

Assessing Knowledge Economy Growth in the North
  • Oct 15, 2011 Posted By: Livio Di Matteo Tags: none
An important feature of the diversification of the economy of Northern Ontario is in the continued growth of the knowledge economy.  One measure of the knowledge economy's growth is employment in professional, technical and scientific occupations (PTSO).  While the knowledge economy is certainly broader than this category alone, this is nonetheless an important and readily quantifiable sector.  Data from Statistics Canada shows that there has indeed been growth in these occupations over the last twenty years in Northern Ontario.
As the accompanying graphs below show, there has been growth in the absolute number of people employed in professional, technical and scientific employment in both Northeastern and Northwestern Ontario. Average annual growth rates in employment of PTSO over the period 1988 to 2011(first nine months only) were 5.1 percent in the Northeast and 3.1 percent in the Northwest.  Based on a linear time trend, an average of 224 PTSO jobs a year were added in the Northeast over this period and 67 a year in the Northwest.  Growth in the absolute number of these occupations does appear to have been more robust in the Northeast.
However, it is also important to consider these knowledge economy jobs as a proportion of total employment.  It would appear that they constitute a small but growing proportion of total employment.  The proportion of total employment in PTSO grew in the Northeast from 1.96 percent in 1988 to reach 4.1 percent by 2011.  Meanwhile, in the Northwest over the same period it grew from 2.7 to 4.3 percent. At present, their share of employment in both regions is about the same.


 

Statistics Canada Data Series Used:
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Sustaining Universities
Judging from some of the ruminating going on in the media lately, it would appear that Canadian universities will soon be facing a new assault under the mantra of sustainability.  Some of this is a spillover from the United States where rising tuition fees have exceeded the general inflation rate fostering a view that higher education in the United States is another “bubble” waiting to burst and that once it does universities will be forced to close programs.  Canada is not the United States, but the discussion here can be summarized by Tuesday’s editorial in the Globe and Mail “Reform or Perish” which among other things states:
“Classes of 500 students or more taught by an emerging cohort of indentured PhDs who carry a growing share of teaching ‘burden’ but have little hope of long-term employment.  Professors who get ‘relief’ from teaching obligations to pursue research.  Classes and courses of study that prize particular academic disciplines rather than make the connections among disciplines that are so crucial to learning.  For students, its unacceptable; for taxpayers and families who spend tens of billions of dollars each year, it’s unsustainable.” 
The hard evidence offered in the Globe’s editorial is that we are getting less for more and that the quality of the undergraduate experience has suffered.  In particular, they cite the increase of the ratio of full-time students to full-time faculty, the reduction in faculty teaching loads and that faculty income growth has outpaced the rate of inflation.  In essence, they have offered what can be interpreted as a faculty- centered explanation of fiscal sustainability in post-secondary education.
We of course are familiar with the sustainability debate in health care, where health spending growth rates in excess of growth rates in the resource base are seen as a sign of lack of sustainability.  If post-secondary education is not fiscally sustainable, then one would expect to see a similar type of measure.  Saying the health care system is not sustainable simply because the number of patients per physician has increased, doctors serve fewer ER hours and their income growth outpaced the inflation rate would ignore the fact that health care is a system with multiple expenditure categories and players.  Similarly, one needs a broader picture of sustainability for post-secondary education.  For a closer look at the issue, visit my latest post on Worthwhile Canadian Initiative.

Is Economic Growth in the North on an Upswing?
The September labour force numbers released by Statistics Canada for the regional economy seem to contain some relatively good news for both the Northeast and Northwestern regions of Northern Ontario.  In the Northeast, monthly employment levels showed a slight decline between the middle of 2010 and spring 2011.  However, May to August have registered consecutive monthly increases and despite the small drop in September, the last six months have seen increasing employment in the Northeast.  As for the Northwest, the decline in employment underway over the last year and a half seems to have come to an end starting in April of 2011.  There have now been six consecutive months of rising employment in northwestern Ontario and total employment has gone from 92,200 in March 2011 to reach 102,600 in September of 2011.  This is an increase of about 11 percent.  However, these are not seasonally adjusted numbers.  If one examines annualized growth rates for the last six months, they are still negative for the Northwest until the summer.  However, August and September have registered positive employment growth rates on a year to year basis which provides further hope that the long-term employment decline may finally be about to reverse itself.  There is substantial construction activity underway in the Northwest, particularly in and around Thunder Bay and this is likely also being captured in the August and September growth rates.





The Divided North
One of the most interesting results of the October 6th provincial election is the urban rural divide in Ontario – a divide that also characterizes the North.  The GTA is mainly Liberal red with a few NDP exceptions and the Ottawa area is largely Liberal. A glance at the Toronto Star’s election map paints the North as a sea of orange with islands of red in Sudbury and the Sault – and somewhat larger swaths in Thunder Bay-Superior North and Thunder Bay Atikokan.  Those two ridings, however are dominated by Thunder Bay which makes them mainly urban. As for the Near North, Muskoka-Parry Sound and Nipissing, they are both Progressive Conservative but are more traditional rural areas that have been long-time areas of conservative support.
What might this mean?  For the two major Ontario political parties, their leaderships will need to get to work devising strategies to bring in their respective alienated voters.  For the Liberals, whose policies in Green Energy and knowledge and health sector economy investments are seen as primarily urban policies, they will need to craft policies that appeal to rural voters.  For the Progressive Conservatives, they will need to create policies that appeal to their rural base and also attract urban voters without alienating their rural base.  For the New Democrats, their support seems to be Northern resource rural and southern Ontario industrial urban – suggesting their appeal is protest against the job losses from economic change but how they plan to keep such diverse voters together will be a challenge.
For the North, these results suggest an even greater division to add along to the ones of geography.  The voters of the larger cities of the urban North seem to have more in common with voters in downtown Toronto than in the rural resource hinterlands outside their cities.  In Thunder Bay, for example, while the forest sector crisis led to major job losses, much of the government investment in health, research and education also went into Thunder Bay making it a beneficiary of the provincial government’s urban oriented policies.  The area outside of Thunder Bay, on the other hand, has had a much tougher go.  It bore the brunt of employment losses but does not have the population density to benefit from knowledge sector urban style investments.  It is likely a similar story in the northeast in the relationship between Sudbury and the Sault and their surrounding regions.  For a region with wide distances and low population density in general, this additional internal divide will make it more difficult to find common ground on northern policies and strategies.

The Day After...
Well the results are in and we have a minority Liberal government that depending on how the Speaker is assigned could become a razor thin majority.  At first glance, this may seem close to the 'worst case' scenarios for Northern Ontario that I outlined in my October 4th post.  We have a Liberal provincial government but the North only returned four Liberals (out of seven previous) while also electing five NDP (3 previously) and two Conservatives (1 previously).  A large reduction in Liberal representation in the North combined with a massive Liberal majority probably would have been the worst case scenario.  However, the Liberal mandate has been considerably weakened both in the province as a whole as well as the North which should send a strong message that not everyone was happy with Liberal policies.  The Liberals lost about one third of their seats in Ontario overall but in the North it was 40 percent.  At the same time, there is still representation from the North in the government as well as a strong set of regional opposing voices that will generate the necessary pressure to address Northern issues given the fragility of the razor-thin majority.   In a sense, the new government will be stable if necessary but not necessarily stable and the northern MPPs in the liberal caucus should have a larger voice even if they are diminished in numbers.   There should be a lot more political competition in the North - a competition that will be beneficial to getting new ideas out there.  One challenge will be the urban-rural divide as the government side representation from the north will be from Thunder Bay, the Sault and Sudbury - its largest urban centers.  This does appear to reflect the urban/rural divide in Ontario as a whole when it comes to support for the governing Liberals.  The provincial Liberal government will need to reach out from the cities to the countryside across the province.

Changing Demographic Forecasts
Northwestern Ontarians might be interested to learn that the dire forecasts of a shrinking population that were driving debate only a few years ago have been replaced by new forecasts that show a population that is essentially going to stabilize at just below where it currently is.  According to the Ontario Ministry of Finance's 2005 Ontario Population Projections 2004-2031, between 2011 and 2031, Northwestern Ontario's population according to its reference base case would drop from 237,600 to 224,900 - a decline of 5.3 percent.  Yet, in its 2011 Ontario Population Projections 2010-2036 it now estimates the region's population in 2011 to be 240,600 and expects it to be 240,600 in 2031.  It now projects a slight decline by 2036 to 238,400 but essentially population is now expected to remain constant over the next thirty years.  While the region's share of the province's population will still decline, the dire shrinkage scenario seems to have disappeared.  Why?  The earlier forecasts probably did not take the growing aboriginal population fully into account - something that only became apparent with the 2006 Census of Canada.  Once the 2011 Census results are released, who knows what further revisions may occur.  We could very well see forecasts of population increases over the next few decades.  It goes to show how cautious indeed we need to be when making policy decisions on government spending and service provision given that forecasts even for something as predictable as population are subject to substantial revision.




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.


How Are the Neighbours Doing? A Heartlandia Snapshot
The North American central cross-border economic region of Saskatchewan, Manitoba, North and South Dakota, Minnesota and Northwestern Ontario - otherwise known as "Heartlandia" covers 2.4 million square kilometers and has a population of nearly 9 million people.  It is centrally located and contains vital transportation corridors, is well endowed with natural resources and agricultural land and is also a repository of knowledge intensive industries especially in the larger urban centers.  For us living in Northwestern Ontario, it should represent a natural set of trading partners and markets for our goods.
What is interesting is how well some of the members of the Heartlandian community have fared over the last few years despite the Great Recession.  The accompanying figure plots real GDP growth rates (%) for the constituent economies of Heartlandia.  The American numbers are from the Bureau of Economic Analysis estimates of gross state product with 2010 as an "advance statistic".  The numbers for Saskatchewan and Manitoba are from Statistics Canada with 2010 as a forecast taken off of government finance web sites.  The numbers for Thunder Bay are a proxy for Northwestern Ontario and were obtained from the Conference Board metropolitan outlook series.  With half of Northwestern Ontario's population in the Thunder Bay region, these numbers are a suitable proxy for the Northwestern region.


 

The results show that Northwestern Ontario has fared the worst over the last few years, followed by Minnesota which was hit exceptionally hard in 2009 but in 2010 seems to have a solid recovery underway.  Manitoba and Saskatchewan have also done quite well though they were marked by near zero growth in 2009 - nevertheless a respectable performance given the GDP declines in so many parts of the world.  The real high performers however are North and South Dakota.  The Great Recession in those states merely saw a drop in the real GDP growth rate to below 2 percent.  For 2010, North Dakota is expected to come in at just over 7 percent real growth with South Dakota lagging at just over 2 percent. Strong performances in Manitoba and the Dakotas should be a source of opportunity for business in Northwestern Ontario.

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.

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