Ontario Network on the Regional Innovation System

Government Programs Help Make Ontario a Hot Spot for Companies in the Alternative Energy Industry

Ontario's government recently announced a $610 million fund to develop a green technology industry and attract carmakers and solar panel makers. Municipalities will also be able to dip into a separate $206 million fund for retrofitting buildings. Additionally, the province has unfurled programs that eliminate sales tax on Energy Star-rated lightbulbs and appliances for a year, offer homeowners up to about $4,689 to install energy-efficient appliances, and set a goal to see 100,000 homes go solar. A pilot program will also extend zero-interest loans to homeowners who install renewable energy systems. These build on other programs designed to increase solar power demand.

EDITOR'S PICK                                                             [Table of Contents]

CITIES, CLUSTERS & REGIONS                                          [Table of Contents]

Urban Economies and Productivity

John R Baldwin et al, Statistics Canada
Productivity levels and productivity growth rates vary significantly over space. These differences are perhaps most pronounced between countries, but they remain acutely evident within national spaces as economic growth favors some cities and regions and not others. This paper maps the spatial variation in productivity levels across Canadian cities and models the underlying determinants of that variation. The goals of the paper are, first, to confirm the existence, the nature and the size of agglomeration economies - the gains in efficiency related to the spatial clustering of economic activity. The study focuses on the impacts of buyer-supplier networks, labour market pooling and knowledge spillovers. Second, it identifies the geographical extent of knowledge spillovers using information on the location of individual manufacturing plants. After controlling for a series of plant and firm characteristics, analysis reveals that the productivity performance of plants is positively influenced by all three of Marshall's mechanisms of agglomeration. The analysis also shows that the effect of knowledge spillovers on productivity is spatially circumscribed, extending, at most, only 10 km beyond individual plants. The reliance of individual businesses on place-based economies varies across the sectors to which the businesses are aggregated. These sectors are defined by the factors that influence the process of competition'access to natural resources, labour costs, scale economies, product differentiation, and the application of scientific knowledge. Neither labour market pooling, buyer-supplier networks nor knowledge spillovers are universally important across all sectors. This paper provides confirmation of the importance of agglomeration, while also providing evidence that external economies are spatially bounded and not universally important across all industries.

Assessing Toronto's Financial Services Cluster

The Institute for Competitiveness and Prosperity
This report evaluates and compares the Toronto financial services cluster. This project was undertaken to provide guidance in tracking the cluster’s development and will guide its efforts in engaging other stakeholders. Overall the report concludes that Toronto has one of the most vibrant financial services clusters in North America. It has strong and successful Canadian firms in each area of the cluster – banking, insurance, investments, securities dealers, and risk capital. The banks are world leaders in shareholder returns. Canadian life insurance firms are among global leaders by market capitalization. Yet the cluster has opportunities for improvement. Wages – an indicator of industry productivity and competitiveness – match US peers in parts of the cluster but trail behind more significantly in higher wage sub-clusters. Toronto banks are not near the top of lists of global leaders and securities brokers have not succeeded in working with Canadian firms to meet their financing needs as they expand abroad.

STATISTICS & INDICATORS                                                 [Table of Contents]

How Canada Performs: A Report Card on Canada

Conference Board of Canada
Canada is an uneven performer, according to the new report card that benchmarks Canada’s performance against that of leading OECD countries across six broad domains—Economy, Innovation, Environment, Education and Skills, Health and Society. With one “A,” three “B”s and two “D”s, the Conference Board of Canada maintaints that Canada is not keeping up with the top performers in the new global economy. Most startling and important to Canada’s competitiveness and sustainable prosperity is the “D” grade on Innovation, where Canada ranks fourth to last in the 17-country comparator group. The only “A” grade is earned in Education and Skills where, despite Canada's ability to deliver a high quality education to children and youth, a large percentage of adults with low level basic skills and literacy remain underserved. Additionally, not enough students are stimulated to complete post-graduate degrees.

Innovation
Canada's performance in innovation is stunningly poor. It ranks 14th out of 17 countries, the fourth from the bottom. Performance in this area is assessed by looking at the creation of knowledge, the diffusion of knowledge, the transformation of knowledge and the use of knowledge through commercialization. Also considered is the creation of a policy environment that enables innovation. On the two indicators of knowledge creation, Canada rates a “C” and a “D.” Canadian scientists publish 783 scientific articles per million population, while Swiss and Swedish scientists publish over 1,100 per million population. Only on knowledge transformation does Canada rank well. On this measure, Canada gets an “A.” Canada is second only to the U.S. in the amount of venture capital investment as a percentage of gross domestic product (GDP). But there are important caveats. Capital investments for each venture in Canada are typically one-third the size of those in the United States, due partly to the high number of early-stage ventures. As a result, Canada spends a larger percentage of GDP on early-stage financing, while all 16 comparator countries allocate the majority of investment to expansion. On the use of new knowledge products Canada is below average in the share of gross value added generated by high- and medium-high technology manufacturing. A look at the best performer—Ireland— highlights the gap. Ireland generates about 21 per cent of its total gross value from high- and medium-high technology manufacturing while Canada generates only 6.4 per cent. Canada is a leader, along with Norway and Japan, in the tax subsidies it offers to small- and medium-sized enterprises and to large firms for R&D. If we ranked Canadian performance on tax subsidies, Ottawa would get an “A.” Yet, despite these generous tax subsidies, business R&D intensity is low— Canada ranks fourth from the bottom.

Economy
Canada has a booming economy, subdued inflation and a strong currency, and its resources are a global asset, particularly in today’s markets with their high commodity prices. All the fundamentals seem to be in place for top economic performance. Yet Canada ranks only 11th among 17 countries in the Economy domain. Seven indicators paint the picture. Canada scores an “A” on inflation, “B”s on GDP growth, labour productivity growth and unemployment, and “C”s on GDP per capita and outward FDI. Canada’s worst performance—a “D”—is on inward FDI according to the Conference Board. To strengthen its economy, Canada needs to increase its productivity and investment. To improve economic performance so that Canada can sustain a high quality of life for all its citizens, Canada has to increase domestic investment, both in machinery and equipment (particularly information and communications technology) and in physical infrastructure. Canada’s high taxes on capital investment are not conducive to fostering investment; they should be cut to bring rates much closer to the world average.

Environment
Canada is a yin-yang performer in the Environment domain. On balance, it gets a “D,” which puts it near the bottom of the pack. Performance in this area is measured in terms of indicators on air, water, biodiversity, land and climate change. Canada does relatively well on some dimensions. It gets a “B” in air quality, although several major urban regions are suffering from high levels of air pollution. The quality of air directly impacts population health and the quality of life, so Canada’s leaders across all levels of government will have to pay special attention to the pollution that is so troubling in some of Canada’s big cities. Canada scores very well in water quality and ability to maintain forest cover. However, the level of waste generation is higher than that of any comparator countries. Canada gets only a “D” on this indicator. Despite that poor ranking, Canada’s recycling effort—a policy indicator—is large compared with the effort of comparator countries, earning Canada a “leading” designation. Another weakness is on climate change - carbon dioxide emission levels (per capita and per unit of GDP) are among the highest in the comparator group of countries. Only Australia and the U.S. have higher per capita levels of carbon dioxide emissions.

Education and Skills
Canada gets its best grade—an “A”—in the Education and Skills domain, ranking third out of 17 countries. Canada has an efficient, cost-effective and flexible system for moving large numbers of young people through elementary, secondary and post-secondary education. Canada has a high rate of secondary and post-secondary completion, which testifies to the effectiveness of the education system for the mainstream participants. It does not work as well, though, for the basic participants, who include disproportionate numbers of disadvantaged people, Aboriginal people, immigrants and mature workers. Nor does the education system work well for the highly educated and innovative people at the other end of the spectrum. There is a strong and direct relationship between investments in education, educational attainment and economic growth. An average per capita increase in education of one year increases aggregate productivity by 5 per cent. In Canada’s economy today, this would add more than $60 billion to our GDP. A 1 per cent increase in numeracy and literacy skills would lead to a 1.5 per cent permanent increase in GDP. A strong performance on education is vital to good citizenship, better quality of life and improved productivity and innovation.

Health
In the domain of health Canada scores a "B". Canada does best on low death rates from influenza and pneumonia and on the public’s perception of health status. It gets solid “B”s on male life expectancy, premature mortality, the suicide rate, and death from chronic diseases such as cancer, circulatory diseases and respiratory disease. Canada is only in the third quartile for female life expectancy and death from heart disease. However, it receives two “D”s, one for infant mortality and the other on death from diabetes.

Society
Canada ranks 10th out of 17 countries in the Society domain - below the Nordic countries, but Canada also scores less well than the Netherlands, Austria, Germany and France on a broad set of measures. Social performance is measured using 15 indicators across three dimensions—self-sufficiency, equity and social cohesion. Canada does not get a “D” grade on any one of these indicators, but it does get “C”s on 6 of the 15 measures. Particularly troubling is the low score on child poverty, a marker of equity in the present and the future of our society. Another poor score is on poverty among the working-age population.Canada needs to increase its spending on social programs if rates of child and working-age poverty are to decrease. Taking on child and working-age poverty will require a multi-pronged policy approach, which was successful in reducing poverty among the elderly. Canada can increase its spending to attack poverty through “passive” income transfers and through “active” programs that promote entry into labour markets. Several of the big spenders on social programs—such as Norway and Switzerland— are moving away from a reliance on income transfers to programs that move people into the labour market.

The comparison of Canada’s performance with the performance of the 16 other countries in the comparator group across six domains—Innovation, Economy, Environment, Education and Skills, Health and Society— is not encouraging. In comparison with those of peer countries, the education system does very well with modest spending. Even here, though, there are important gaps at the top and at the bottom that must be addressed. Running through this story is the common thread of failure to innovate. Innovation is an essential component of a high-performing economy, and it is also critical to environmental protection, to a high-performing education system, to a well-functioning system of health promotion and health care, and to an inclusive society. Without innovation, all these systems stagnate and Canada’s performance deteriorates relative to that of its peers.

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