Ontario should learn from Michigan reforms

Ontario has experienced its share of economic hardship over the past 15 years, with generally weak economic growth, sluggish job creation in most parts of the province, and a ballooning government debt. The province’s long-term slump has been so severe that one 2018 study concluded Ontario has suffered a “lost economic decade.”

The pain has been particularly acute in regions that have historically relied on a strong manufacturing base to drive growth, including major urban centres in southwestern Ontario. Consider that between 2008 and 2016, 98.6 per cent of all new net jobs in Ontario were created in Toronto and Ottawa. In other words, outside the two biggest cities there was almost no net job creation during this period.

Some analysts suggest Ontario’s economic problems have been the unavoidable result of global restructuring and, specifically, the movement of manufacturing to other countries. But in reality, some nearby jurisdictions with large manufacturing sectors have actually prospered in recent years—and seen their manufacturing sectors grow.

For example, a Fraser Institute study published last week looked at Ontario’s economic performance compared to Michigan, a close neighbour with a large manufacturing sector. It found that on indicator after indicator, Michigan has outperformed Ontario almost every year since 2011.

Let’s take a closer look. Since 2011, Michigan has averaged annual real GDP growth (per person) of 1.7 per cent compared to Ontario’s 1.2 per cent. In Michigan, private-sector employment has averaged 1.9 per cent annual growth, significantly higher than Ontario’s 1.4 per cent.

If we zero in on the manufacturing sector we see similar results. Michigan has rebounded from the painful recession of 2008/09 and seen its sector thrive. In 2017, there were 47,000 more manufacturing jobs in Michigan than in 2007, before the recession hit. In Ontario, we shed 170,000 manufacturing jobs during the same period.

So it’s crystal clear that Michigan’s economy is outperforming Ontario’s. But why? There’s no simple answer to this question, as many different factors influence a jurisdiction’s economic performance at any point in time.

It’s worth noting, however, that Michigan’s sharp economic turnaround happened almost simultaneously with the introduction of a significant comprehensive economic reform package in the state. Starting in 2011, Michigan reduced and simplified its corporate tax system, embraced a smaller and smarter government by reducing expenditures, and implemented labour law reforms that made the state more attractive for investment.

Meanwhile, Ontario was going in the other direction, raising personal income taxes, cancelling a planned reduction to the corporate income tax, continuing to increase spending and grow the province’s debt, and introducing new labour laws including a large increase to the minimum wage.

Michigan’s story shows that manufacturing-driven economies are not doomed to economic stagnation. As such, it’s economic turnaround, and the policy choices implemented since 2011, deserve careful attention from policymakers here at home. The Ford government should consider Michigan’s reforms to determine how the Michigan model of large-scale, comprehensive policy growth—explicitly aimed at encouraging economic growth—might be a useful model for Ontario.