Looking beyond GDP: Measuring prosperity in Ontario

Christal Huang

Ontario, how well are we doing?

The Institute for Competitiveness and Prosperity (ICP) launched its Working Paper, Looking Beyond GDP: Measuring Prosperity in Ontario on October 13, 2016, to explore this question. As the title of the Working Paper suggests, ICP sought to use broader measures given the limits of what the GDP captures. One critique of using GDP to measure prosperity is that it reflects economic well-being, but does not capture other contributors to well-being, such as civic engagement and sense of community belonging.

Tiff Macklem (Chair of Ontario’s Panel on Economic Growth & Prosperity) and Jamison Steeve (Executive Director of the Institute for Competitiveness & Prosperity) presented the findings of the Working Paper at the launch event. They revealed that, while Ontario’s GDP rates quite low when compared to its peer jurisdictions, Ontario fares much higher when using measures of prosperity that consider both economic and social aspects of welfare. The ICP uses the Organisation for Economic Co-operation and Development (OECD)’s 11 indices of Regional Well-Being as an alternative measure of prosperity: Health; Civic Engagement; Income; Jobs; Community; Life Satisfaction; Housing; Access to Services; Safety; Environment; and Education.

fog-79456Using these 11 indices, the ICP reveals that Ontario is actually doing quite well, landing in the 5th place. When looking at GDP alone, however, Ontario scores almost last. At the event, Steeve further explained that Ontario is doing particularly well in the social aspects of prosperity, but lagging in economic areas such as living income and employment opportunities. In this regard, Steeve maintained, “While the report suggests the drawbacks of GDP, it’s still a useful measure.” GDP still serves as an important measure of Ontario’s economic success and could help set the direction for improvement. However, the well-being of Ontario and Ontarians cannot be appropriately represented by GDP alone, especially since it does not capture the social contributors to well-being within which Ontario appears to excel.

Both ICP’s paper and the OECD highlight that the OECD’s Regional Well-Being indices better illustrate regional well-being because they focus on the individual and environmental factors that shape the way one feels about their life conditions, opportunities, and well-being. Compared to GDP, these broader indices work together to place greater responsibility on governments and institutions, encouraging them to play a bigger role, and work cooperatively to improve the overall well-being of citizens in a region.

ICP’s working paper outlines four key recommendations for improving Ontario’s economic prosperity:

  1. Phase out the small business deduction to incentivize firm growth.

The small business deduction in Ontario allows businesses’ active business income (ABI) to be taxed at a lower rate of 4.5% if their ABI is less than $500,000. If greater than $500,000, these businesses must pay the Ontario basic income tax rate of 11.5%. This jump in income tax rate is thought to discourage small businesses from growing and therefore stunts the generation of new jobs. Therefore, the ICP recommends a corporate income tax structure reform.

  1. Increase the availability and affordability of child care to increase the female labour force participation rate.

The median cost of child care in Ontario is between $760 and $1,736 per month per child. The location and the age of the child create the large range in the median cost. Meanwhile, in Quebec where they have a universal child daycare program and daycare subsidies, the average cost per month per child is $174. The ICP recommends increasing the availability and affordability of child care in order to help “increase employment, economic growth, and families’ disposable income.”

  1. Strengthen the alignment between employers and post-secondary institutions to close the skills gap and improve R&D performance.

The skills gap refers to the skills that new graduates and job applicants have, and the skills that employers need. A closing of this skills gap would increase the productivity of the province and ensure that production is not moved outside of the province or the country. This is a collaborative effort between post-secondary institutions and employers. Post-secondary institutions need to work towards better preparing their students for employment. Employers need to invest in their employees and support the skills training they might need to enhance work performance and productivity. The ICP notes that this also applies to employees during mid-career transition periods. In addition to investments in skills training, investments in knowledge production and research, primarily centred at educational institutions, can also ultimately create jobs and drive productivity.

  1. Increase ICT adoption by SMEs to enhance productivity.

The ICP recommends that Ontario “promote information and communications technology (ICT), particularly among small- and medium-sized enterprises (SMEs)” as a means to drive productivity. It does so by facilitating and supporting the knowledge and data exchange required for producing products and services.

Three panelists were invited to speak about the findings and elaborate on these recommendations: Rosalyn J. Morrison, Vice President of Community Initiatives at Toronto Foundation; Dr. Bryan Smale, Director of the Canadian Index of Well-Being and Professor at University of Waterloo; and Dr. Claire Tsai, Associate Professor of Marketing and Co-Founder of the Behavioural Economics in Action Research Cluster at Rotman School of Management. Given the large number of government staff in attendance, Macklem invited the panelists to give recommendations for improvement in the policy sphere. Somewhat different from the ICP’s recommendations, the panelists’ recommendations shared a common theme of how economic prosperity can be improved by focusing on social policy.

“When measures of well-being are poor but GDP is high, [this] illustrates some kind of inequality [happening]. So when [we’re] looking at opportunities for increasing GDP, we need to consider what this [will do] for measures of inequality.”

ttc-1256723Smale explained that higher education leads to greater well-being, in part because education is an “opportunity of access.” Participation in higher education is an opportunity to build a social network; people can make personal connections that bring them closer to the resources they need to fulfill the necessities of well-being. Smale also highlighted the importance of encouraging female participation in the labour force by increasing the availability and affordability of child care, in order to address Ontario’s poor performance in income and jobs indicators. In addition to a comparison of regions’ pension systems, the ICP’s working paper also explores the jobs indicator in the context of gender and participation in the workforce and child care. Lastly, Smale recommended improving the affordability of public transportation, which is a factor that is not represented by any of the OECD’s Regional Well-Being indices. He explained that affordable public transportation creates better access, for example, to grocery stores that people need in order to purchase healthy food. Improved public transportation could also help people access the nooks and crannies of their neighbourhoods with greater ease which would, in turn, help build that social network and sense of community belonging that is so crucial to well-being. With convenient and affordable public transportation, people would experience fewer limitations in terms of job opportunities, and would enjoy an increase in their purchasing power for other necessities.

Morrison cautioned, “When measures of well-being are poor but GDP is high, [this] illustrates some kind of inequality [happening]. So when [we’re] looking at opportunities for increasing GDP, we need to consider what this [will do] for measures of inequality.”

“[The findings of the paper] testify to the statement that money can’t buy happiness,” Tsai noted. “There’s a threshold for income when it doesn’t improve our life anymore.”

For example, it appears that the solution to Ontario’s poor performance on income and jobs indicators is not to solely work on increasing living income or employment rates. The cumulative effect of improving or implementing policies from the other areas, such as education and child care, may even contribute to ultimately increasing performance on those poorer indicators.

Smale’s last piece of advice was: “Put well-being at the heart of policy, not economics.” Any future direction must not neglect the interrelatedness of the aspects of well-being. Education, environment, housing, health, safety, and others all work together to contribute to how one feels about their well-being, life conditions, opportunities, and place in the community. And policymakers cannot tinker with these important and diverse factors at the expense of toying with uncomprehensive numbers.

Christal is a Master of Public Policy candidate at the University of Toronto’s School of Public Policy and Governance. She holds a Bachelor of Science in Biology from Western University, and most recently worked at the London Intercommunity Health Centre. Her policy interests are in health policy, especially as it pertains to health equity, mental health, and women’s health. When she isn’t binging on Youtube videos and finding herself in the weird corners of that platform, she likes to cook, go on walks or hikes, and plan potential vacations.

2 Comments Add yours

  1. Juliarose says:

    Hey, thanks for writing about this! I work at ICP. 🙂 Let us know if you ever need any information! Happy to speak more about the paper!

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