Ontario, we’re told, is Canada’s new rust belt. The high dollar is pummelling the province’s exports. Big manufacturers are fleeing. The Liberal government is slashing spending to maintain the province’s credit rating. And to top it off, it’s wasting money promoting green energy. There’s just one problem with this pop wisdom: It’s largely nonsense.
Ontario certainly faces huge challenges. Its main trading partner – the United States – is only now emerging from the economic doldrums that followed the 2008-09 financial crisis. And since that crisis, the world economy has been struggling with depressed consumer demand, wary investors and aggressive deleveraging by households, businesses and governments.
Ontario wasn’t ready for this new reality. From the early 1990s to the mid-2000s, a weak loonie made Ontario’s products artificially competitive outside Canada, so companies deferred investment in new factories and technologies. Then the dollar soared, partly because of Canada’s relative fiscal probity and partly because the world wanted Western Canada’s resources. Ontario’s manufacturers were caught in a low-productivity trap.
Add in an aging population with rising health costs, the flight of talent and capital to the West, and a decline in the skills of immigrants, and who wouldn’t be gloomy about Ontario’s prospects.
But hold on. Isn’t it possible that this challenge is exactly what Ontario needs? Societies and economies never undergo deep change without powerful incentives, and powerful incentives usually come in the guise of crisis.
Ontario has formidable assets. Its population is big, diverse and well-educated. Most of its people live in a relatively compact region that has very good, albeit sometimes tired, infrastructure. This region thrusts downward into the United States, providing close geographic proximity to the giant economic hubs of the U.S. Midwest and Northeast. And the city of Toronto has a phenomenal concentration of business acumen and financial capital. In fact, as a financial centre, it ranks third in North America and ties with Sydney, Australia, for 10th place globally, just behind Zurich and ahead of Frankfurt and Paris.
But in a world in economic turmoil, Ontario’s most important asset – its network of excellent public universities and public colleges – is often overlooked. The province has one of the planet’s densest concentrations of institutions of higher education. If effectively employed, it could help Ontario pivot to confront the global economy’s long-term trends.
The most important of these trends is a multi-decade shift from fossil fuels to carbon-free energy. The shift will accelerate as oil becomes harder to produce and climate change worsens. Once climate change really starts affecting people’s lives – when it cuts world grain production, for instance – people will demand action. The action will come in the form of regulations and taxes that raise the price of carbon fuels.
The shift to carbon-free energy will be akin to what economists call a “general purpose technology” transition. The modern world has seen half a dozen or so transitions in the past 200 years, including those following the introduction of railways, electricity, the internal combustion engine and the computer microchip. Each produced staggering economic upheaval: companies, jobs and whole industries vanished, while new ones exploded onto the scene. These were periods of startling innovation, rapid economic growth and enormous opportunity for entrepreneurial individuals and communities.
The coming energy shift will dwarf all these earlier transitions combined. It won’t arise from just one disruptive technology but from an integrated suite of many, such as advanced batteries, building reskinning, smart grids, cheap super-thin photovoltaic materials, ultra-deep geothermal power, and perhaps thorium nuclear power. It will spur the invention and delivery of a torrent of new technologies, goods and services in every sector of the global economy.
Since the middle of the last century, the communities that have generated such rapid and disruptive innovation have almost always developed around hubs of higher education. In the U.S., Stanford played a key role in the rise of Silicon Valley, MIT and Harvard seeded the biotech industries in Boston, and the University of Texas helped make Austin a high-tech powerhouse. Ontario can build innovation clusters around its universities with a particular focus on inventing, developing and marketing the new energy technologies the world needs.
Commentators on the political right often slam the economics of green energy. They say that renewables are inefficient, that they create jobs in China, not in Canada, that Europe is cutting green-energy subsidies and that, in any case, the world and especially Canada are hopelessly hooked on carbon. Many of these criticisms are factually wrong, and they’re all shortsighted.
Ontario should focus on the long game. While Alberta and the federal Conservatives double down on carbon, Ontario can be in the vanguard of one of the biggest technological revolutions humanity will ever experience. The future is green, not black.
Thomas Homer-Dixon is director of the Waterloo Institute for Complexity and Innovation and CIGI Chair of Global Systems at the Balsillie School of International Affairs in Waterloo, Ont.