Ontario could boost struggling manufacturing sector by following Michigan's example
To revive Ontario’s battered manufacturing sector, policymakers could learn a lesson from Michigan where manufacturing employment and output have rebounded strongly following the recession eight years ago, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
“Michigan and Ontario have a lot in common, but while Michigan has revived its manufacturing sector since the recession, Ontario’s manufacturing sector has struggled.” said Ben Eisen, the Fraser Institute’s director of provincial prosperity studies and co-author of Ontario vs. Michigan: Policy Lessons from the Wolverine State.
For much of the early part of this century, Michigan – home of the Detroit automakers – lagged behind both Ontario and the rest of the United States in terms of employment and economic growth. The Wolverine State was especially hard hit during the recession of 2008 when its economy contracted by almost three per cent and its population declined as residents left.
Starting in 2011, Michigan’s state government introduced a suite of significant policy reforms designed to reverse the state’s decline. These reforms included: 1) replacing the complex and onerous Michigan Business Tax (MBT) with a simpler and flatter corporate income tax of six per cent, 2) implementing sharp budget cuts followed by a period of limited spending growth in order to balance its budget, and 3) the introduction of “right-to-work” legislation.
The study shows that these reforms coincided with a remarkable economic turnaround, during which Michigan’s economy outperformed Ontario’s.
One of the most important dimensions of Michigan’s economic turnaround has been the resurgence of its manufacturing sector. From 2011 to 2014, manufacturing employment in Michigan grew at an average annual rate of 6.1 per cent while it actually shrank at an average annual rate of 0.5 per cent in Ontario.
Michigan has also done a better job at balancing their books than policymakers at Queen’s Park. While Ontario has experienced a dramatic and economically harmful run-up in public debt since 2011, Michigan has seen a slight decline in net public debt.
“In the face of daunting challenges, Michigan took charge of its economic future by implementing an ambitious reform package that has coincided with job growth and a lower debt burden,” said study co-author Robert Murphy.
“Although there are some factors beyond direct provincial control that influence economic performance, policy choices matter and Ontario should take note of Michigan’s reforms and its economic turnaround”