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Earlier Discussion

Ontario's back is to the wall

ONLINE DISCUSSION

"Canada's most populous province is dealing not only with the economic crisis that has raged since last autumn but also with a profound structural change in the key manufacturing sector," The Globe's Queen's Park columnist Murray Campbell wrote Saturday in his Globe essay Ontario's back is to the wall

"Ontario remains the country's 800-pound gorilla by virtue of its size, but most economic indicators show that it is in distress.

"The question posed last summer by the TD Bank — 'Are the wheels falling off the Ontario economy?' — has been answered in the affirmative.

"And, on the eve of Finance Minister Jim Flaherty's pivotal budget presentation on Tuesday, there are loud calls from economists, government officials and business leaders for the federal government to recognize Ontario's plight — if only out of its own self-interest."

Mr. Campbell quotes provincial Finance Minister Dwight Duncan as saying: "Given the fact that Ontario is still 40 per cent of the economy, as Ontario goes, so goes Canada."

Mr. Campbell goes on to write:

"Ontario's situation is different from provinces whose fortunes are suffering because of a global slump in commodity prices, such as Alberta.

"The arc of Ontario's decline can be traced to the crumbling in the past decade of the pillars of its industrial base.

"The U.S.-Canada Auto Pact, which spurred the growth of the auto industry in Ontario after 1965, was overruled in 1999 by the World Trade Organization. (At that point, Canada had a $22-billion auto trade surplus in vehicles and parts, but it's now in a global deficit by nearly $15-billion.)

"Two years later, in the wake of 9/11, the relatively free access to the U.S. market that had begun with the 1988 bilateral trade pact and had accelerated with NAFTA in 1994, began to erode, as Washington chose security concerns over commercial interests at every opportunity.

"These developments, combined with surging energy prices and a strong Canadian dollar, shook Ontario's economic foundations.

"In the past five years, more than 200,000 manufacturing jobs have disappeared and 10,000 more in the forestry sector . . .

"There's one thing that Mr. McGuinty could do for himself.

"The Ontario Chamber of Commerce, among others, is urging the government to harmonize its sales tax with the federal GST, saying it could save businesses $100-million a year.

"The Premier has been lukewarm to the idea, because he fears it would hurt ordinary consumers by putting a tax on home heating oil, children's clothing and books.

"But yesterday, he said he would take a serious look at the proposal in light of Ontario's ailing economy.

"We will find out Tuesday whether Mr. Flaherty will show similar flexibility in helping his home province.

Whether you agree or not, it's a fascinating debate, so we at globeandmail.com are pleased that Mr. Campbell will be online today from 12:30 p.m. to 1:30 p.m. ET to take your questions on his essay, on Ontario politics and on the federal budget Tuesday.

Join the Conversation at that time or submit a question in advance.

Your questions and Mr. Campbell's answers will appear at the bottom of this page when the discussion begins.

Mr. Campbell has written The Globe's Queen's Park column since 2002.

He joined The Globe in 1977 after earlier experience at The Toronto Star, Ottawa Citizen and in England.

In his career with The Globe he has worked in a wide variety of positions, including city editor and sports editor.

He served as bureau chief in both Los Angeles and Washington in the 1990s. Since then, has worked as a national and foreign desk reporter, both based in Toronto, and as a feature writer.

In reporting from five continents, he has covered innumerable elections, four Olympic Games and the aftermath of the 1994 genocide in Rwanda.

He was a Southam fellow at Massey College in the University of Toronto in 1983-4 and won The Globe's Stanley McDowell award for writing in 1992 for his coverage of (among other things) the L.A. riots and the U.S. presidential election that year.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Sasha Nagy, globeandmail.com: Murray: Thanks for taking questions today. Your Saturday essay neatly summarized the issues facing Ontario, and by extention the rest of the country. Clearly, the job landscape in Ontario is moving into uncharted waters. Today, more than 70,000 jobs losses globally were announced across all sectors. Clearly there are no quick fixes to this economic crisis. Are their any immediate signs that Ontario will benefit from Barack Obama's move into the White House?

Murray Campbell: Thanks, Sasha, for inviting me. It's a large, and rather daunting issue, to deal with but it's also crucial to the functioning of the federation.

As to Mr. Obama's impact, the thinking at Queen's Park at this point is that he will certain push a green agenda, which might offer opportunities for Ontario businesses, but there is some concern about whether he will be influenced by the protectionist instincts of Democratic politicians, particularly in northern tier states.

That said, the McGuinty government does have some solid ties with Obama officials. One of the President's senior advisers, David Axelrod, worked with Mr. McGuinty nearly a decade ago to bring out his inner politician and Cass Sunstein, a senior official on regulatory matters, dropped in to see the Premier when he was in Toronto a few weeks ago.

The first chance to see which way the new administration is leaning will come in February when we see the outline of the U.S. plan to rescue the auto industry. If it gives short shrift to Canadian production, that could mean problems.

Bob London: Why is the focus on the federal government's budget when Ontario's suffering is self-induced. We are the least competitive tax-wise, both corporate and personal. The property tax rate increases during Liberal and NDP reigns were substantial and the fees and other levies were increased dramatically including WSIB. Why has there been no focus on these matters? Or does Ontario prefer not to admit that it has a spending problem?

Murray Campbell: Bob London: I would never argue that the McGuinty government has personfied spendthrift government. After all, its revenues soared after 2003 and it now has about $30-billion more to send than it did five years ago.

It certainly could have used that windfall to reduce corporate and personal taxes but it reasoned that it was elected in 2003 to repair tattered social services and that it couldn't abandon that task. This is why the government chose to institute the health premium (and take the political hit that resulted) rather than hold the line on spending.

You may ask how it is that other provinces manage to maintain social programs while cutting taxes. The answer is one word: equalization. Quebec, for example, receives about $6-billion a year in redistributed money under that scheme.

Nathan Weatherdon: Given the relative stability of the Canadian financial sector, and considering the number of international cities that seek to become finance hubs, do you think there are particular strategies Ontario can take to enhance opportunities in its financial services or banking sectors? Perhaps more importantly, since many of the lost jobs will be among skilled workers in industry, I'd be curious to hear your opinion on the possibilities of these workers being retrained to work in alternative energies producing components for wind and solar generators. Where might these people going to be working in two or five years time, and what can the government go to help make sure they can take advantage of the opportunities that may present themselves? What kinds of companies might see particular advantages in what they Ontario labour market has to offer, and are these endowments unique or valuable enough to bring them to Ontario despite having such a costly currency?

Murray Campbell: Until last September, it seemed that the critical factor in building a booming financial sector was to have as few restraints as possible. The experience since then, in Britain and the United States, for example, suggests this may not be the wisest course. Ontario has great pools of capital and the financial services sector will thrive, in the long run, but it's a bit too soon to speculate on the amount of regulatory oversight that will be needed.

On your second point -- about retraining, perhaps retraining, skilled workers -- I think there's a splendid opportunity for the province to use the workers it has to kick-start its hoped-for green economy.

I have suggested to a couple of ministers that Ontario could buy up disused plants -- particularly ones that may be abandoned by the Detroit Three auto makers -- at distress prices and use the workers there to build new things. Canada did this during the war -- auto plants started turning out airplanes and tanks -- and it could be done again. The important thing is to hold the workforce of a certain plant together rather than let it scatter into lower-paid service-industry jobs. It wouldn't necessarily mean a series of Crown corporations -- the government could turn over operations to the private sector when the economy bounces back.

Needless to say, my suggestion hasn't been met with any enthusiasm within the government.

Judy Green: During this time where there are not enough jobs in Ontario, why does Ontario have a law, which bars employers from forcing those people who are 65 years old to retire? If there is a shortage of jobs, would it not make more sense to keep the jobs that do exist for those younger than 65, rather than for those who just want to keep busy past the age of 65? A second question: Would it not make sense to change the legislation so that employers would have to pay more than the minimum two weeks of severance per year of the employee's service (which is what we have here in Ontario)? I would suggest that four to five weeks of severance would make more sense. That way, there would be less of a burden on the public EI system. Also, it would force employers to weigh more carefully whether it makes economic sense to let people go.

Murray Campbell: There's a bit of Murphy's Law in the ban on retirement, isn't there? At the time when the mandatory retirement age was lifted, few would have anticipated the current economic turmoil. I don't know how the government would put the genie back into the bottle without a massively complicated legal fight. Human rights lawyers would be delighted with that but the recession would likely be over -- and the retirement of baby boomers well under way -- by the time it was resolved.

More severance would certainly seem to be in order but, again, that would be a headache for the government. Employers looking to lay off workers are in trouble and the government would face accusations that it was compounding their difficulties by extending the severance period.

While we're at it, though, we might ask EI officials to defend the two-week minimum waiting period before benefits can be collected.

Sasha Nagy: This comment came from a reader of your Saturday essay.

Bob Dylan's Voice from Canada writes: Maybe I missed it but the whole article about Ontario having tough times and no action from the Ontario government other than the ongoing equalization complaints. I find it unacceptable that the Ontario government has been laying back for 5 years waiting for the pie to be sliced differently instead of pursuing some initiatives to help its economy. What is also disconcerting is that the citizens of this once proud province accept this. Other provinces who have experienced these situations jump to action. BC is working an economic plan as is Alberta and their situation is not nearly so dire as Ontario. Please come out of your basement Daulton. Ontario needs a plan.

Sasha Nagy: Murray: I guess the question here is, if equalization does not change, what then? Does the province have a plan?

Murray Campbell: As I said earlier, I'm not trying to defend the McGuinty government. It has what it thinks is a economic plan for the future. It is based, primarily, on trying to produce a new generation of skilled workers to pave the way to a future in which manufacturing figures less prominently. Government officials have been saying for years that they want Ontario to resemble Massachusetts's Route 128 high-tech corridor rather than the rusted-out sections of Ohio. To that end, they have poured money into K-12 education and into post-secondary education.

Clearly, that transition from the present to the future isn't complete and laid-off workers in the manufacturing sector are finding if difficult to get new jobs and to get access to training for new skills.

As for Alberta, I'm sure Mr. McGuinty would be delighted to find himself sitting on vast pools of oil as prices went through the roof. The question is what will Alberta do now that oil prices have sunk.

Ryan Ginger from Canada writes: Well gee, when our own Federal Finance Minister goes around telling his friends that Ontario is the 'last place to do business', should we be surprised if businesses aren't exactly clamoring to invest in Ontario?

Sasha Nagy: Further to this comment. This does beg the question. Did Flaherty's ugly rhetoric of last year really hurt Ontario?

Murray Campbell: It's possible that it scared off a few initial sorties but I doubt it affected serious investment plans. Those with sizeable amounts of money to invest don't do it on a whim. They want to know if the government is stable, if the jurisdiction's education system is sound, if it has a skilled work force, a decent health care system, abundant supplies of moderately priced electricity and, yes, what its tax rates are. Mr. Flaherty's comments were puzzling and irritating but I doubt that the due-diligence gang was put off.

Sasha Nagy: Murray, in scanning the comments to your Saturday essay, it is clear that two polar opposite views exist about Ontario. It got fat and lazy as a beneficiary of Ottawa's handouts. or it has managed fine without its fair share from Ottawa over the years by being largely self-sufficient. Both can't be true. Can you weigh on these two views, perhaps tilting the scales one way or the other?

Murray Campbell: There is a way to reconcile those two views. For years, dating back to Macdonald's National Policy, Ontario manfacturers thrived behind a high tariff wall that forced consumers in the region to buy Ontario-made goods. The equalization scheme established in 1957 formalized a certain reciprocity in which Ontario gave back money to the regions to allow them to provide uniform social services (and, not coincidentally, to have the wherewithal to buy Ontario goods).

This has all fallen apart. First, the U.S.-Canada free trade pact and then Nafta, reduced the tariff wall. Second, Ontario has been hit hard by globalization.

Now, it seems, we're at a point where Ontario is producing fewer and fewer goods at competitive prices and yet it its taxpayers are still subsidizing the numerous have-not provinces.

Sasha Nagy: Murray: Thanks for taking time to answer reader questions. In closing, can you give us a sense of what Ontarioans can expect from Tuesday's budget?

Murray Campbell: Lots of infrastructure spending, it seems, which is good. But in many cases, this spending will simply repair or renovate existing infrastructure so it may not advance the province into a new era. The McGuinty government is hoping for some recognition of its grievances about the gap in spending and services but it's not holding its breath.

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