Flaherty v. McGuinty: Many cans of whoop-ass later
Hot on the heels of Wednesday’s melancholy post about the rotten economy comes the news that federal finance minister Jim Flaherty and Premier Dalton McGuinty are going toe-to-toe over who is responsible for it. There are many conclusions to draw from this spat. The first is that the economy must be pretty bad for two government leaders to be so eager to pin blame. The second is that a federal election must be just around the corner. The third is that the stakes are high, particularly for the entire automobile industry and, in a roundabout way, my old pal Richard Florida.
I have been blogging about the coming economic slowdown for far too long. No one paid me any mind back then, but I took my cue from Nostradamus: if you stick to your prediction long enough, it will come true in one form or another. There’s not much satisfaction to be had from having my glum forecast made manifest, but there’s lots to be had from watching two heavyweights duke it out over how to solve the problem.
I’d argue that the McGuinty government’s biggest under-the-radar policy initiative has been its economic development strategy, which has involved targeting grants, subsidies and various types of seed money to industries in order to keep jobs here. We all had a good laugh in 2006 when the wooden McGuinty was named worldwide Personality of the Year by Foreign Direct Investment magazine, but that’s only because we didn’t understand the significance of the award. In jargonese: McGuinty believes in partnering with business to stimulate economic growth. In plain language: McGuinty greases wheels in exchange for jobs. Apparently this is all heresy to Flaherty, who believes that, instead of recycling corporate tax dollars back to corporations, you should just lower their taxes to begin with.
The reason I drag Dr. Florida into all this is that McGuinty is a disciple of sorts. Queen’s Park doesn’t offer money for just any jobs: it targets high-technology, research-intensive, knowledge-based, high-paying jobs. Put another way, McGuinty believes in growing Ontario’s creative class by offering the right kinds of subsidies, a tactic more wonkishly known as creating “jurisdictional advantage.” This is just the kind of brainy, philosophical spat that calls for the intervention of a super-duper public intellectual. My best guess is that Dr. Florida thinks Flaherty is terribly short-sighted. Either way, I hope he chimes in.
Meanwhile, to see just how complicated this all can get on the ground, look no further than the province’s automotive industry, which is suffering badly right now. I had a chat with a Bay Street financial type the other day, who mused nonchalantly about the coming (and, in his view, near certain) death of automobile manufacturing in Ontario. The math was just too stark, he said: once the Chinese start manufacturing cars and selling them here, Ontario won’t be able to compete. (The more I hear Buzz Hargrove talk, the more I fear Mr. Bay Street right.) I pointed out to him that Queen’s Park had launched the Next Generation Jobs Fund, which hopes, in part, to help turn Ontario’s auto sector into a world leader in clean-and-green technology. That’s fine, Mr. Bay Street said, but it will still result in a radical downsizing. Even if Ontario invents the perfect emissions-free car of the future within the next 10 years, that car will probably be manufactured in China—and Ontario will lose thousands of assembly-line jobs.
This outcome is simultaneously terrible and not nearly as terrible as it sounds. In fact, it’s how much of the global cellphone industry works. Helsinki-based Nokia is one of the largest employers in Finland, yet the company manufactures cellphones in eight different countries, including China—Finland is largely the brains of the operation, with oodles of R&D jobs. McGuinty believes that Ontario’s auto industry has some sort of future as the brainpower of next-generation auto production and is willing to bet tax money on it. Flaherty probably sees a big sinkhole and is not willing to wager a single tax dollar, not even just to see how deep it goes. Voters will soon get to place their own bets.