Many see this transition in terms of a downturn – Don Drummond, in a major review of Ontario’s finances, suggests that its time to rethink what Ontario is and what it wants to become. He also suggests significant changes to the role of government in this new Ontario world.
Rather than seeing these challenges as a threat and trying to cling to a view of the past as a basis for the future, we might want first to understand the challenge and then understand what the opportunity is.
In a speech in Sudbury this week, I outlined these challenges for Ontario:
Demographics
• Demographic change 1: Population: Ontario’s birth rate is below replacement. The annual rate of growth of Ontario’s population is projected to slow gradually over the period 2011-2036, starting at 1.2 per cent in 2010-11 and moderating to 1.0 per cent by 2035-36. For replacement, the fertility rate needs to be in the order of 2.1. Ontario is thus dependent on immigration for its socioeconomic future. Ontario normally receives app. 125,000 immigrants each year, though this number showed a slight decline in 2011. Ontario also has a fast growing First Nations Community,
• Demographic Change 2: Rural Decline: A related, but distinctive, feature of Ontario’s demography is the concentration of the population in urban regions and the relative decline of the rural population. In 2000, just 15% of Ontario’s population lived in rural communities (down from 19% in 1980). Some rural communities are growing (e.g. Brant, Halton), but many are shrinking or have “stable” populations.
• Demographic Change 3: Ageing Population: Over the past 50 years, the percentage of Ontarians over the age of 65 has increased from 8.4% in 1956 to 13.6% in 2006. The Ministry of Finance, Ontario Populations Update, 2009 - 2036, indicates the number of seniors aged 65 and over is projected to more than double from 1.8 million (13.7% of population) in 2009 to 4.2 million (23.4%) by 2036, almost 25% of the population as a whole. The number of Ontarians aged 15–64 is projected to grow from 9.2 million in 2010 to 10.7 million by 2036. This age group is projected to decline as a share of total population, falling from 69.4 per cent in 2010 to 60.5 per cent by 2036. Seniors are also living longer, placing pressure on health care and social services.
• Demographic Change 4: The War for Talent: Ontario competes with other jurisdictions for available skilled and professional workers. The Conference Board of Canada has noted that the province faces a shortage of more than 360,000 skilled employees by 2025. This will further escalate to a shortage of more than 560,000 skilled employees by 2030. One key opportunity here is the fast growth of First Nations communities – and the availability of a significant and growing number of aboriginal young workers. The challenge is to ensure equity in their access to and success in education and training to enable them to play their role in the emerging economies within Ontario.
• Demographic Change 5: Economic Impact of an Ageing Population: Labour-force growth is a key determinant of economic growth. Population aging and the slowing pace of growth in the working-age group could contribute to a slower rate of future real gross domestic product (GDP) growth. As the provincial population grows by 28 per cent by 2030 and the senior population more than doubles to account for over one in five Ontarians, government spending, particularly on health care, will come under increased pressure. Average per-capita health spending by the provincial government is about three times higher for seniors than for the population overall.
Economics
• Economic Challenge 1 Economic Growth and Inflation: Real GDP growth is now forecast at 1.8% for 2012 and may fall lower due to recessionary forces operating globally (especially in Europe). Downward revi¬sions are affecting GDP over the following two years as well. Inflation in Ontario is app. 3.1% - inflation is running ahead of growth.
• Economic Challenge 2 Shifting Focus for the Economy: Ontario’s economy is primarily a service economy, with 75% of its GDP coming from the service sector. Its manufacturing base is 15% and falling. Manufacturing exports (especially motor vehicles and parts and mining) remain key to the Province’s economy.
• Economic Challenge 3 Productivity: In 2010, the average Ontario worker worked 1,670 hours, while at the median of the US states, the average employee worked 1,830 hours. This gap of 160 hours, or 4.3 weeks annually, widened slightly from 2009, when Ontario trailed the peer median by 150 hours weekly or 4.1 weeks. In 2010, our intensity gap equated to $4,100 in GDP per capita. Ontario businesses have under invested in machinery, equipment, and software relative to their counterparts in the United States, so that the capital base that supports workers in Ontario is not as modern as that of their counterparts in the peer states. As a result, Ontario workers are not as productive. This under investment in capital equipment lowers Ontario’s productivity by $1,000 per capita. Overall, GDP per capita is significantly lower than many US jurisdictions – Ontario’s GDP per capital is $45,600 versus a median of $54,200 in the US and a high of $71,200 (New York).
• Economic Challenge 4 Unemployment: The total available pool for employment is 7.3 million persons (total population is 13.37 million). Unemployment (Jan 2012) is at 8.1%. Ontario’s unemployment rate is forecast to average 7.5 per cent in 2012 and 6.9 per cent in 2013, down from 7.8 per cent in 2011.
• Economic Challenge 5 Trade Balance: Ontario imports ($315 billion) more than it exports ($304 billion). Small trade deficits, a negative balance, are generally not viewed as being a great threat to both the importing and exporting companies. However, if these small deficits continue to grow and expand then problems could be encountered. A key related challenge here is that 79% of all exported goods go to a single market (the US), with the implication that shifts in demand and the economy of that market could have significant implications for the economy of Ontario. Less than 1% of goods are exported to China.
• Economic Challenge 6 Government Debt and Deficits: Ontario’s 2011-12 deficit is estimated to be $16.0 billion. Ontario’s net debt is now $238.4 billion – 37% of GDP. Some consider the debt : GDP ratio high, but it is in fact within the guidelines recently adopted for healthy economies by the EU. The challenge is whether the debt can be seen as related to investments in Ontario’s future (e.g. education, infrastructure) or operational expenditure (e.g. most health care costs). The deficit and debt numbers do not include the unfunded liabilities of the Government of Ontario, such as the (app.) $12.2 billion Workplace Safety and Insurance Board liability or the $13.4 billion in debt for energy related costs.
Government
• Government Challenge 1 Spending Exceeds Revenues – The Ontario Government anticipates revenues from taxation, investments, royalties, transfer payments and other arrangements to be $108.2 billion in 2011-12. However, it intends to spend $124 billion (20% of GDP) in this same fiscal year – creating a deficit (after using $200 million of its reserves) of $16 billion and leading to a net debt position of $238 billion (37% of GDP).
• Government Challenge 2 Spending on Health and Education Growing: Spending on health and all forms of education (K-PhD), including all day kindergarten, accounts for 65% of the budget of the Province. At the end of 2010, government health spending accounted for 49.5 per cent of Ontario’s total available revenues; compared with 41.5 per cent in 2000/2001. Health spending will continue to grow at a rate of 3% per year.
• Government Challenge 3 Reducing the Rate at Which Spending Grows: To cut deficits and repay debt requires either a significant increase in revenues (either through tax increases or significant economic growth) or reduce spending by reducing or eliminating services. The strategy the Government of Ontario is pursuing is to limit the rate of spending growth to 1.7% and to seek to eliminate deficit budgets by 2017-18 – something seen as optimistic by most forecasters and analysts, with the Conference Board suggesting that the balancing of the budget may take as long as 2020-21.
Energy and Environment
• Energy and Environment Challenge 1 Costs of Energy Rising: Ontario's electricity system is undergoing a major transformation. Much of the electricity transmission infrastructure is old and in need of refurbishing, most of the nuclear capacity is nearing the end its lifetime and Ontario has made a commitment to shut down its coal-fired power plants. The Ontario government has indicated that the province's rates will rise 46 per cent by 2015. Energy poverty is already real for some and it will grow as a challenge.
• Energy and Environment Challenge 2 Green Energy Strategy: Ontario is seeking to green its energy system, partly in the name of climate change mitigation and partly in the name of creating “green” jobs. The Government suggests that some 50,000 green jobs will be created over three years, in part through subsidies for green energy production. Jan Carr, the former President of the Ontario Power Authority, completed a study of the economic impacts of Ontario's Green Energy Act and found that each so-called 'green job' would result in a taxpayer subsidy of $179,000 per job, per year.
• Energy and Environment Challenge 3 Managing the Impacts of Climate Change: Rising temperatures, longer growing seasons (4-7 weeks longer in Southern Ontario), more extreme events, negative impacts on biodiversity, less ice on lakes making them accessible for more weeks of the year, less healthy forests and possible impacts on human health have all been suggested as climate change impacts for Ontario. The climate change “ledger” will have positive impacts and negative ones.
The In Between Time
There are also other patterns at work. I suggest that this is an inbetween time – a time between two ages. Such a time looks like this:
•
Transition from a post modern/information age to a biotech/robotic age
• Transition from an age of abundance to one of austerity
• Transition from an age of “me” to an age of “who am I?”
• Transition from the text to the tweet and from an age of newspapers to one of sound bits and digi-clips
• Transition from a robust, rich US dominated world to a declining/ weak US disengaged world with China holding sway
• Transition from a community oriented society to a “self” oriented society
• Transition from established and meaningful global institutions to the G-Zero world
This could be messy. But it could also be an opportunity. It could be the beginning of a new renaissance, as individuals, groups and communities redefine their future and their world.
The New Renaissance
The medieval renaissance in Italy looked like this:
– Challenges to generally accepted boundaries of thought and action
– Redefining of who had power/authority
– Realignment of the power of the church and state
– Exploration, innovation and cultural enrichment
– New technology (printing)
– Reinvention of “self”
– New forms of expression – new forms of art, music, drama, poetry
The 21st Century renaissance could have these characteristics:
– Realigning of social, political and economic boundaries
– Power shifting in terms of social democratic movements and the fractionation of politics
– New forms of religious beliefs and a new secularism
– Innovation, technological disruption with social consequences (e.g. social media, biotech, robotics)
– Reinvention of “self” and “followership”
– New forms of expression – social media, new forms of music and art, drama, film..
So rather than seeing Ontario as a “problem child” in need of care, why not see Ontario as the home and starting point for a Canadian led renaissance. Make it so – let the journey continue!
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