COVER

CAPITALIZING ON THE GOOD TIMES

PATRICIA BEST,THERESA TEDESCO September 21 1987
COVER

CAPITALIZING ON THE GOOD TIMES

PATRICIA BEST,THERESA TEDESCO September 21 1987

CAPITALIZING ON THE GOOD TIMES

COVER

For many Canadians, the economic recovery from the recession of 1982 has been slow and unremarkable. But for most people in Toronto, life is good right now. The windows of retail stores and restaurants—even in lower-income neighborhoods—are littered with Help Wanted signs because the city’s official unemployment rate is only 4.4 per cent, half the national rate. Major corporate tenants face years of waiting for prime office space in the downtown core because so many new businesses have moved into the city. And some city homeowners have been able to make profits of as much as 50 per cent on houses they bought only a year ago.

The wave of prosperity that broke over Toronto and the surrounding region that stretches from Oshawa to Windsor five years ago has continued undiminished. Although depressed com-

modity prices have battered the economies of the western provinces, for much of the 1980s Ontario has shot to the top of the economic charts. Nowhere else in the country is the jobless rate so low, the job creation rate so high and business expansion so vigorous. Said economist Edward Carmichael, a vice-president of the Toronto-based C. D. Howe Institute: “Ontario is making hay while the sun shines—just as Alberta and others did in the late 1970s.”

Boom: For David Peterson, the crest of the boom has coincided nicely with his first term as premier. In May, 1986, a year after the Peterson government took office, Liberal Treasurer Robert Nixon gleefully announced that government revenues were $2.2 billion higher than previously anticipated. In 1986, $31 billion poured into the government’s coffers, giving Peterson’s Liberals the chance to cut some taxes, expand social

spending and provide financial incentives for new plants. The net effect was a heightened sense that Ontario, and particularly Toronto, was more affluent and influential than it had been since the mid-1970s. Declared Carmichael: “There is no question of the relationship between a strong economy and a more influential role than might otherwise be the case for the premier of a province.”

Ontario owes its economic buoyancy to three factors. Its large manufacturing base—which represents two-thirds of the province’s gross domestic product—has benefited from the lower value of the Canadian g dollar on world markets I and a severe slide in s world commodity prices, I which made producing goods in Ontario even cheaper. As well, a policy decision in 1981 by the federal government to restrict the number of cars imported from Japan gave Ontario’s $30billion automotive industry, which was reeling from layoffs and plant closures at the time, an important boost. In the past three years Asian and U.S. automakers have announced five new car plants for Ontario, representing an investment of $3.5 billion.

Open: As well, Toronto’s position as Canada’s financial centre was enhanced when the move began 18 months ago to deregulate the capital markets. Since then, a more open financial industry has attracted $750 million in foreign investment to the city. Said Gilles Rhéaume, director of forecasting at the Conference Board of Canada, an Ottawa-based economic research group: “The revolution in the financial services sector will be a very significant factor in Ontario’s future economy.”

The growing Ontario economy has fed upon itself. Job opportunities in southern Ontario attracted people from other parts of the country. Last year Ontario had a net increase of 43,900 people from other provinces, according to the Conference Board. Almost every other province has suffered an outflow of residents—Alberta alone lost 20,000 people in 1986. Those migrants to the province of plenty, in turn, fed a spiralling demand for housing, household goods and cars. During the first half of 1987, 51,826 new houses were built in Ontario.

On the other hand, that frenetic

economic activity has coincided with labor shortages, which have threatened to undermine the boom. Most economists say that they consider an unemployment rate of 4.4 per cent—which Toronto has—as more than full employment. Said Carl Beigie, chief economist with Toronto-based investment dealer Dominion Securities Inc.: “I hear all the time that everyone is moving into Toronto, so we don’t have to worry about labor shortages. But you won’t get someone to leave Corner Brook for minimum wage in Toronto when the cost of living here is skyrocketing well into the six-per-cent range.”

Dropped: The Conference Board economists say that Ontario’s unemployment rate, which dropped to 5.8 per cent in August, will continue to be as much as three percentage points lower than other provinces and the country as a whole. But the provincewide figure conceals regional disparities within Ontario. The economic problems of the West and the East—the result of poor commodities markets— have also deeply affected Northern Ontario. In Thunder Bay, the unemployment rate is 7.7 per cent; in Sudbury it is 11.6 per cent. Said Nixon last spring: “The non-core area is suffering.” But even in the north, some sectors of the economy, including tourism, are prospering.

As Peterson begins his second term of office, the prosperity gap that has existed between Ontario and the rest of Canada has begun to narrow. Although in 1986 Ontario created all but 15,000 of the 168,000 new jobs in Canada, by mid-1987 the province was creating only half of the country’s new jobs. Ontario’s boom has not slowed significantly. Instead, the rest of the country is beginning to enjoy better economic times. Said Carmichael: “In the last 12 months, some of the other areas of the country are starting to pick up.”

For one thing, a rise in metals prices over the summer has improved the prospects for mining in Quebec, Northern

Ontario and British Columbia. Similarly, prices for forestry products have been rising since the end of 1986. And in Alberta, the mood is one of “emerging growth,” says Donald Herring, managing director of the Canadian Association of Oilwell Drilling Contractors in Calgary. Said Herring: “If oil prices hadn’t collapsed, we would be moving right along with Ontario.”

Indeed, the Conference Board estimates that net migration to Ontario will slow to 33,000 for 1987 and 1988 as other areas improve. In a forecast to be released later this month, the board estimated that Ontario’s growth rate will drop to 2.5 per cent to in 1988 from 4.8 per cent &lt this year because hous3 ing demand is expected 1 to level off. The national s growth rate, which has z lagged behind Ontario’s § by two percentage points in recent years, will also hit 2.5 per cent in 1988. By contrast, the board forecasts that Alberta’s economy, which shrank by 1.2 per cent this year, will grow by two per cent next year.

But the unknown factor in Ontario’s economic future is the prospect of a free trade agreement with the United States. Although 90 per cent of Ontario’s trade

is with the Americans, Peterson has reserved his support until six conditions are met. Said Dominion Securities’ Beigie: “I have a theory that Canadians tend to move closer to the United States when they feel threatened. Economically, Ontarians don’t feel threatened right now. If we were talking about it in 1989, and not 1987,1 would argue that Ontarians would be in a tougher patch and more supportive of free trade.” And although other regions in Canada have already suffered as the testy and protectionist-minded Americans curbed the importation of Saskatchewan potash and B.C. softwood lumber, Ontario has been left largely untouched. Said Beigie: “It is hard to argue that that will continue forever.”

Moves: As the world economy moves from oversupply to undersupply of commodities, the fortunes of the western and, to a lesser degree, the eastern provinces will once again improve. Said C.D. Howe Institute’s Carmichael: “The mid1970s scenario could repeat itself. It is not in the cards for the next few years, but it is certainly a possibility within the decade.” How David Peterson manages the province in the good times will have a lot to do with how well Ontario weathers the bad times that almost inevitably will come again.

PATRICIA BEST

THERESA TEDESCO

-PATRICIA BEST with THERESA TEDESCO in Toronto