Eleven wasted years trying to fix Ontario

Roger Martin should admit defeat.

Roger Martin, dean of the Rotman School of Business

Albert Einstein often gets credit for defining insanity as doing the same thing over and over and expecting different results. Regardless of whether the great scientist actually said it (the earliest print reference comes from an Alcoholics Anonymous pamphlet), it’s the sort of advice you’d expect from the world’s smartest guy: don’t waste your time on repetitive folly.

How, then, to explain the quixotic attempts by Roger Martin, dean of the Rotman School of Management at the University of Toronto, to fix Canada’s most important province?

Widely admired as a business strategist and administrator, for the past 11 years Martin has been churning out annual reports on the state of Ontario’s economy for the province’s Institute for Competitiveness & Prosperity, which he also chairs. Meant to gauge Ontario’s relative economic performance against competing jurisdictions and provide advice on how to improve the situation, each report has been remarkably similar to the one before.

In 2002, Ontario was ranked 14th out of 16 comparable North American jurisdictions on productivity, just ahead of Florida and Quebec. Since then, the province has bounced along the bottom. The 2012 edition, released at the end of November, has Ontario back in 14th. Eleven consecutive reports delivered, and nothing much has changed. It seems fair to ask: Is this sane behaviour?

There have been a few bright moments. Martin long argued for Ontario to harmonize its provincial sales tax with the GST and lower corporate tax rates. Both were announced in 2009. And his missives have proven to be a convenient source of evidence on the depths of Ontario’s travails as the once mighty province slipped into have-not status driven by the McGuinty government’s overspending and interference in the private sector.

But if success is to be measured by Martin’s standards of relative competitiveness, productivity or per capita GDP, the whole endeavour has been a failure.

In fact, Martin may actually be responsible for much of the province’s wheel-spinning. Alongside sensible advice on tax rates, lighter government and long-term investment, Martin frequently allows his penchant for biz-school fads to infect the message. Chief among these obsessions are clusters and urban density.

The reports constantly chide Ontario for “cluster underperformance,” a factor apparently responsible for $5,300 of the $7,500 per capita wealth gap between Ontario and its North American peers. Popularized by Harvard business guru Michael Porter, cluster analysis looks maddeningly vague to most serious economists. And even if some geographic locales are associated with higher productivity and growth, that doesn’t mean cluster success can be manufactured by government fiat. Yet Martin’s cluster fixation created political cover for the McGuinty government’s disastrous efforts at creating a renewable energy cluster in the province—a policy that’s fallen afoul of the WTO and blown billions of taxpayer dollars.

The same goes for urban density and the work of “creative class” advocate Richard Florida, who also happens to be director of the Martin Prosperity Institute at U of T. Higher urban density or bohemian values may somehow be associated with higher productivity, but that doesn’t make either a policy tool. Besides, does anyone really consider densely packed New Jersey to be the pinnacle of economic achievement?

After 11 years spent telling Ontario it’s in serious decline, Ontario is still in serious decline. Now, even Martin may have recognized the futility of his efforts. In introducing his latest report, he told the audience he’s switching focus from trying to convince government to improve the provincial investment climate to complaining about corporate cash hoarding. “If Canadian companies insist on keeping too much cash, we’ll have to think of ways to change it,” he warned, refusing to rule out tax measures as a means to liberate all that money. A tax on corporate savings in the name of improving productivity? It may be new and different. But it’s still crazy.

Peter Shawn Taylor is a writer specializing in economic issues