‘How did everything go so terribly wrong?’

Mike Moffatt, a member of Trudeau’s economic council of advisors, tells the federal Liberal caucus about the erosion of southwestern Ontario’s economy

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Liberals face tough test in the muddled middle
Photograph by Cole Garside

On Tuesday I spoke to the federal Liberal caucus in London, Ontario on the state of southwestern Ontario’s economy. These sessions take place behind closed doors without media present, but the organizer has graciously given me permission to publish my opening remarks.

Thank you for having me here today. I’m Mike Moffatt, Assistant Professor of Business, Economics and Public Policy at the Ivey Business School, Chief Economist of the Mowat Centre and on Mr. Trudeau’s Economic Council of Advisors.
I’ll start by giving a brief overview of the economic issues of southwestern Ontario and how they relate to the overall Canadian picture.

This region means a great deal to me. I live here in London, a couple blocks from St. Joseph’s Hospital where I was born. My family’s roots in the area extend for generations. My parents met as teenagers when they both lived in a small rural community called Whalen Corners, about a half-hour drive away. The best description I can give you of the place is this: When my grandmother passed away a couple years ago, the entire community of Whalen Corners came to the funeral. They arrived in one car.

Related: Inside Justin Trudeau’s economic advisory team

Southwestern Ontario is comprised of three regions, each of which has about a million and a half people split between cities, towns and small rural communities like Whalen Corners. These three regions – I’ll call them North, East and West, combined have a population the size of British Columbia’s.

The North region is made up of the area around Kitchener-Cambridge-Waterloo, Guelph and Barrie. It has unemployment rate below the national average and a relatively strong economy due to its proximity to Toronto, the strength of the tech sector in Waterloo, and local success stories like Linamar. Their economic issues are not dissimilar to the rest of the country: rising household debts, affordability of childcare and the erosion of blue collar jobs, particularly in Kitchener.

The East region starts in the Hamilton-Burlington area and extends east to Niagara Falls. Their story is of manufacturing job losses offset somewhat by a growing Burlington economy and the reinvention of Hamilton. The east has added 100,000 to its working age population but added only 20,000 full-time jobs. That’s not nearly enough to keep up with a growing population, but it’s something.

The West region, where we’re located, starts in Windsor, follows Lake Erie and Lake St. Clair to London and Sarnia then turns north through Stratford and Bruce County. The 10 parliamentary seats often described as southwestern Ontario, that’s the west region.

Despite significant population increases over the last decade, the number of persons with a full-time job dropped by about 30,000. When you hear about plant closures in southwestern Ontario, it’s typically from this region. GM’s transmission plant in Windsor, Heinz in Leamington, Ford Talbotville, Navistar in Chatham-Kent, Sterling Truck in St. Thomas, Electro-Motive Diesel in London. And so on.

You’ve got two regions, the East and the West, which combined have 3 million people, added about 150,000 working age persons and have 10,000 fewer people working full-time than a decade ago. Outside of a few pockets like Stratford, it’s been a lost decade for an area that has a population halfway between Atlantic Canada’s and Alberta’s.

It’s clear why I care about the fate of London and Whalen Corners, but this issue should concern Canadians from Maple Ridge to Montreal to Moncton. The erosion of the southwestern Ontario’s tax base costs the federal government billions every year. How much different would our conversations be about the government’s ability to fund infrastructure or childcare or tariff reduction if we still had that money?

So how did everything go so terribly wrong?

Southwestern Ontario has always been and will always be an exporting region, which leaves it vulnerable to shifts in the global economy. At the same time our exporters were facing increased competition from emerging powers such as China, they experienced rapidly escalating costs thanks to a Canadian dollar fuelled by rising oil prices.

As an example, 10 years ago, when I wrote the 1st business plan for a company I own, Nexreg Compliance, an exporter of consulting services, we assumed an 86 cent dollar thinking it was a worst-case scenario. Fortunately we were able to adapt to the reality of a Canadian dollar at par thanks to product differentiation and automation. Companies that couldn’t adapt to that reality left or died. The ones that stayed and survived became leaner, meaner and more automated, which ensured their survival but saw them cut jobs, at least in the short-run.

At the same time as these global shifts were taking place, our local exporters were fighting with one arm tied behind their back due to Canada’s deteriorating relationship with key trading partners United States and Mexico, which has caused the thickening of borders and delays in crucial projects such as a new Windsor-Detroit crossing. Even what should be a good news story such as Canada’s trade deal with Korea is bittersweet. Because the Americans were able to complete a deal before we could, Canadian pork exports to Korea fell nearly 70% from 2011 to 2013 as American producers had preferential market access denied to Canadians.

Southwestern Ontario’s recovery will happen through the growth of innovative local companies that can compete and thrive on world markets. In order for that to happen, we need to remove the bottlenecks that deter their growth. At a big picture level, here are five ways of doing so:

  1. Repairing our relationship with our NAFTA partners. This must include the US but also Mexico which is vitally important in continent-wide supply chain. The visa issue is an ongoing irritation that needs to be addressed.
  2. Reducing red-tape, particularly around small dollar import tariffs on key inputs needed by manufacturers and agri-food companies.
  3. Just-in-time business models require products be delivered in a consistent time-frame. This necessitates addressing gridlock in the GTA as well as streamlining border crossings near Sarnia, Windsor and Niagara Falls.
  4. In the 21st century, data is both a production input and product sold by entrepreneurs. We need to ensure that all companies in the region have the ability to access high-speed broadband networks. President Obama has indicated this as a priority for his country, we must do the same here.
  5. Many of the business models that places such as Chatham-Kent and Woodstock are relying on for economic growth require residents to travel all over the world to meet customers, suppliers and sources of capital. They need to be able to quickly and cost-effectively travel to Atlanta, Boston, Calgary and Dallas. This can be accomplished through expansion of regional airports and increasing transportation links to Pearson Airport.

My time should just about be up. Again, thank you for having me. I look forward to your questions.