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"First order of business: Cultivate urban prosperity"

This article was published in The Toronto Star on July 17, 2007.
Written by Don Drummond.

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The Greater Toronto Area's stature as an economic powerhouse is in decline. To be sure, this region's share of the national economy is substantial, close to 17 per cent. However, a growing body of evidence points to its diminishing position against competing jurisdictions in Canada and abroad. The pace of growth is below the national average, the unemployment rate above. Our incomes are slipping relative to major North American cities.

This prosperity gap makes it much harder to sustain the city that's earned an international reputation for its quality of life. Urgent action is required to reverse these disturbing, downward trends. We need to redouble our efforts to sustain the region's competitive advantage, and remain a preferred destination for new investments and jobs.

A report published today by TD Economics calls on the co-ordinated and concerted efforts of government to address this challenge. Indeed, all three levels of government have made significant steps to enhance our position in recent years. However, their efforts don't diminish the important role the private sector must play. Indeed, success relies on the business community's ability to address pressing commercial and civic concerns.

Let's begin with commercial affairs. More than 80 per cent of Ontario's prosperity gap relative to competing jurisdictions reflects lower labour productivity, according to the Institute of Competitiveness and Prosperity. A fundamental challenge is to generate greater value - bigger bang for the buck.

One such way is through investments in new machinery and equipment (M&E). Given the soaring value of the loonie, the timing could not be better. Its appreciation against the U.S. dollar has lowered the price of M&E imports.

Unfortunately, businesses have yet to exploit this advantage. Total business spending in Ontario for M&E rose by just over 2 per cent per year since 2002. That pales in comparison to the growth rates of corporate profits (7 per cent). Even in real (price-adjusted) terms, growth in M&E outlays was surprisingly lacklustre at 6.2 per cent, well below the 10 per cent registered in Canada as a whole.

All this to say the GTA will be hard pressed to address its productivity challenge without more investments and applications of innovative technologies in the production process.
In addition, the private sector must ramp up activities to enhance employee-training programs, research and development capabilities, and international expansion strategies. It must also ensure the region's talent pool remains engaged and strong. This last point relates to an increasingly important role the private sector must play in civic affairs. There is no greater challenge for the GTA - and responsibility among its stakeholders - than the seamless transition of newcomers into the labour force.

The GTA depends on the flow of immigrants to the region. In a short time, new Canadians will be our sole source of population growth and in turn of our future workforce. While newcomers today are better educated and skilled than previous generations, current patterns suggest more are falling into poverty and staying there longer.

This problem is compounded by the nature of poverty. It can have an isolating effect on individuals. For those who feel "cutoff" from opportunity, there is a greater propensity to leave school and turn to violence. This despair is portable, able to appear anywhere in a single flash. The city cannot contain poverty. Poverty contains the city.

The private sector has been part of some recent initiatives that address the systemic barriers to poverty in Toronto's hardest hit communities, including Pathways to Education, Strong Neighbourhood Task Force, Toronto Region Immigrant Employment, and Youth Challenge. These efforts have taken a holistic approach, focusing on educational outcomes and economic opportunities.

The investments are paying off. The Pathways to Education program, developed by the Regent Park Community Health Centre, has lowered the youth dropout rate, increased college and university enrolment and decreased the incidence of violence in the area.

Boston Consulting Group estimates this program generates a net value of $50,000 per student, based on the gross benefits derived, such as the lower government transfer payments and increased tax revenues from higher labour force participation rate.

This program will expand into two other Toronto neighbourhoods in the coming year, which require additional funding and support from stakeholders including the private sector. The challenge remains acute. Our national unemployment level is about 6.2 per cent. But it's four times higher for newly arrived immigrants, and remains above the national average even after living 10 years in Canada. Given that this region settles almost half of all newcomers annually, this is a matter of extreme urgency.

Now is the time for the local business community to expand its scope and accelerate its efforts to ensure the region remains prosperous. Business must help sustain the city we all want.


Executive Headshot :  Don Drummond
Don Drummond
Former Senior Vice President and Chief Economist
TD Bank Financial Group

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