New paper explores why Ontario’s strong clusters fail generate higher productivity

Institute for Competitiveness and Prosperity

The future success of Ontario as an innovative and competitive economy and society will ultimately depend upon its ability to grow and sustain vibrant clusters, according to an major new study from the Institute for Competitiveness and Prosperity (ICP). Despite the presence of several powerful clusters in Toronto, Ottawa and elsewhere, the province is not an economic leader in North America and its clusters lag behind its US counterparts.

The ICP is working on the assumption that gross domestic product (GDP) per capita is a key indicator of economic progress and a higher standard of living, and that its growth needs to be closely monitored.

The working paper — entitled A View of Ontario: Ontario’s Clusters of Innovation — is the first in a planned series of papers the ICP intends to produce in its primary role as the research arm of the Task Force on Competitiveness, Productivity and Economic Progress. It demonstrates that Ontario already has several clusters that are both strong and diverse, yet productivity and income levels should be higher. It compares the province’s top 10 clusters and compares them to jurisdictions such as Alberta and Michigan, and profiles several key clusters. (The complete paper can be obtained at www.competeprosper.ca).

The Task Force on Competitiveness, Productivity and Economic Progress was formed by the provincial government last October with Roger Martin as its chairman. Martin is the dean of the Joseph L Rotman School of Management at the Univ of Toronto and a collaborator with Michael Porter, the economic policy guru at Harvard Business School. The working paper builds on the work conducted by Porter’s Institute for Strategy and Competititveness and marks the first time his approach has been applied to Canadian data.

The paper points to three probable causes for the province’s lacklustre performance: low productivity, an inadequate number of people working in high productivity jobs, and weak innovation and upgrading by industry. The report contends that Ontario’s relatively low productivity can be improved through process and product innovation, which can be maximized through the upgrading of skills and knowledge. Competitiveness, on the other hand, can be improved with increased innovation and upgrading.

“Initial evidence suggests that Ontario does not provide a sufficiently good environment for upgrading to underpin a high and rising standard of living,” states the report.

Ontario’s clusters are examined using methodology developed by the US Cluster Mapping Project and using 2000 data. It shows that the province’s share of employment in traded clusters stands at 41%. Traded clusters contain firms that are concentrated in specific geographical markets and sell to markets beyond their local region.

The paper also argues that high-density urban areas are more prone to cluster development and notes that the blending of economy and society makes these neighbourhoods more conducive to economic growth.

“Ontario’s cities, with their high rates of immigration and cultural diversity are ripe for this growth that fosters innovation,” states the report.

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