Ontario businesses carry too much “dead cash”, report finds

The prosperity gap between Ontario and its peers will widen unless businesses start spending, says Professor Roger Martin of the Task Force on Competitiveness, Productivity and Economic Progress.

Businesses need to start investing in people and technology, improving management and pushing for growth, said Martin, Dean of U of T’s Rotman School of Management and Chair of the task force.

“Ontario’s prosperity gap with peer jurisdictions persists,” Martin said. “The time to push for the economic growth Ontario needs is now.”

Martin released the 11th annual report of the task force Nov. 29. The group called on all Ontarians to help boost growth but it singled out what it called the “dead cash” on the balance sheets of Ontario businesses as a crucial opportunity to enhance the province’s prosperity.

“That money can be used to invest in the physical and human capital we need to increase our productivity and close the prosperity gap,” said Martin.

The task force is independent from the government and reports directly to the public. Its members, leaders in business and research, volunteer their time and expertise to investigate Ontario’s competitiveness.

“We have so many economic advantages in Ontario – a sound banking system, a strong housing market, a robust dollar, a tradition of building great infrastructure, and a talented and diverse workforce,” Martin said. “But the gap in GDP per capita with North American peers shows that Ontario needs to move now to push for more growth.”

A new status quo of slow or stagnant economic growth for Ontario’s economy is developing, Martin warned.

“If economic growth languishes at less than two per cent annually, everything from government funding and programs to private sector competitiveness and employment will be affected,” he said. “The challenge is to take advantage of Ontario’s relative strength and stability now and push for the growth that can be achieved.”

In its report, the task force reaffirmed that Ontario’s economy is one of the world’s most successful when compared to similar regions outside North America. Ontario’s Gross Domestic Product (GDP) per capita ranks fifth among a peer group of 13 prosperous international regions. But among a set of 16 North American peer jurisdictions, Ontario continues to lag. The task force reports that Ontario’s GDP per capita ranked 14th among those peers and lagged the median of the 16 North American peer jurisdictions by $7,500. When the task force began measuring Ontario’s ranking in 2001, the province was 14th among the same peers. This continued lagging performance mediocrity represents lost prosperity, which negatively affects Ontarians at all income levels, and needs to be addressed now.

The report commends Ontario’s corporate leaders for providing stability through turbulent economic times. But Martin said those leaders now need to invest in information and communication technology (ICT), as well as in efforts to improve the skills of their work force. Companies also need to improve their management capability and find ways to scale up operations in Ontario.

Governments of all levels have made great strides in areas of public policy related to productivity, Martin said, citing examples such as tax reform and post-secondary education investment. However, he urged them to now concentrate efforts on tackling deficits in a balanced way, providing appropriate incentives for business to invest, and improving the literacy and skills of the work force in a way that nurtures long-term productivity.

The complete report can be downloaded here.