C HAPTER 1: T HE P ROSPERITY C HALLENGE
Raising our performance by $5,900 would fill the government coffers as well. It would enable Ontario to double annual spending on all levels of education with its portion and the federal government to use its Ontario portion to fund the entire Romanow bill. So the harsh truth is, we are not keeping pace with the finest economies in the world. The difference between the standard of living in Massachusetts and Ontario is exactly the same as the difference between Ontario and Slovenia. What explains the gap? At its simplest level, an economy generates prosperity when four factors are positive: • a high proportion of its citizens are capable of working; • a high proportion of those capable of work both want to work and can find gainful employment; We can relate Ontario’s $6,000 per capita gap to these four areas as follows: • On the first factor, it turns out that Ontario has more working age citizens proportionately than our peer states – providing us with an advantage of $1,000 per capita. • On the second factor, more Ontarians seek to work than those in peer states, but our unemployment rate is higher – creating a net disadvantage of about $750 per capita. The state numbers are unavailable for 2002, but when they come out, they will probably show what the U.S./Canada numbers show, which is that Canada is $250 per capita ahead. • On the third factor, Ontarians work approximately as hard as those in peer states – as of 2000, the disadvantage was $400 per capita. On the basis of these first three factors, Ontario is even with its peer states. Proportionately, it has as many people working as hard as the leading economies in the world. Nothing yet explains the $6,000 per capita gap. • The fourth factor, productivity is the big challenge. When dedicated Ontarians work an hour, do they work as productively as an employee in the average peer state? The answer is no, to the tune of the entire gap of $6,000 per capita. And why is that? Is it because they work in bad industries, industries that have lower productivity potential? The answer is no. We have done the most comprehensive analysis ever of the structure of Ontario industry against the structure of the peer states and, in fact, Ontario has, on balance, a superior mix. This should result in an advantage of $1,000 per capita if everything else is equal. Are these industries being hollowed out? That is, do we have the worst parts of the industries we are in? We don’t yet have an absolutely definitive answer, but the initial data suggests strongly that the answer is “no”. In fact an analysis of two-thirds of the industries suggests that the composition of our individual industries should provide an advantage of approximately $600 per capita, other things being equal. • those who do find employment, work hard; • and they work productively and effectively. This leaves an actual gap of over $7,000 per capita. There are two main pieces to the gap. First is our level of urbanization. It turns out that because of scale economies and the benefits of agglomeration, we can expect a worker in an urban environment to be more productive than one
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