C HAPTER 1: T HE P ROSPERITY C HALLENGE
• The third issue, which is related to investment and motivation, is aspirations . We are analyzing this question as we speak, but our view from the initial data is that Ontario firms have systematically lower aspirations with respect to competing internationally than their peer states. This results in lower investments in R&D, branding, international distribution and innovation in general. • The fourth issue is the structures of our key markets and institutions. On this front, we know that one feature of the Ontario structure is that government is more highly involved in the economy than in the peer states when measured by the government’s revenues as a share of GDP. Ontario’s is higher than all peer states other than Florida, which is poorer than Ontario. And this may have an effect. The net combined effect, we hypothesize, is that because of lower aspirations, we invest less in education and M&E. And we are motivated to aspire lower and invest less by high marginal tax rates on capital and labour. These high marginal tax rates are a product of a structure by which our governments process a higher share of our output than those of our peers.
So what does Ontario need to do to close the $6,000 per capita gap in prosperity – or more to the point, the $7,000 per capita gap in productivity?
The $3,000 per capita attributable to our rural structure will take a long time and may not be in the interests of Ontarians in general. But what about the $4,000 per capita gap in effectiveness? Some suggestions: • We need to raise our aspirations with respect to upgrading ourselves and the way in which we compete. This is doable. We just need to try harder. • We need to figure out how to tax in a more effective manner — one that enables us to collect the revenue we need without producing the high marginal rates that reduce motivations. This is not a race to the bottom. Massachusetts, now the richest jurisdiction on the planet, has figured out ways to collect substantial revenues in a way that appears less harmful to motivations. • We simply need to invest more in our future prosperity. This includes both M&E and higher education. We need to invest more instead of consuming. Our work on this question is incomplete, but from what we can tell, the various levels of our government spend more on consumption of current prosperity versus investment in future prosperity compared to our peers. In aggregate, Ontario and our 14 peers spend the same proportion of their total spending – 32 per cent – on a combination of debt service, basic government operations, environment and protection. Of the remaining 68 per cent, they can choose to spend on consumption of current prosperity – health care, social security, social services, income stabilization, culture and recreation – or investment in future prosperity – education, transportation and communication, infrastructure, and research and development.
12
Powered by FlippingBook