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Whig Standard Dec 14 2006

Economic guru preaches patience

Reid Southwick
Local News - Thursday, December 14, 2006 Updated @ 10:44:54 PM

Economic and political leaders of Kingston must "stay the course" if the city is going to compete with other regional economies in the long term, warns economics professor Ken Wong.

"It’s going to take a fair bit of courage and patience," the award-winning Queen’s marketing leader said yesterday during the university’s economic forecast luncheon at the Four Points Sheraton. "If we take our foot off the accelerator, then we are going to pay the price for not having that patience and for not having that courage."

Wong said economic and political leaders need to stay focused on major upcoming public projects such as the new entertainment centre, which he said would attract increasing volumes of out-of-town investment to the city in the next year.

But he warned the city’s economy is facing significant challenges imposed by its stagnant population growth, which is less than half the national average; variability in employment; and the fact that residential taxpayers provide 75 per cent of the tax base.

Wong said social problems, including increasing levels of poverty and crime, and a gap in social assistance and affordable housing, will also weigh heavily on Kingston’s economic future.

During his presentation, the professor outlined what he called "a tale of two cities." He said that when Kingston’s performance in 2006 is compared to recent years, the city is doing reasonably well.

"It’s not a bad story," he said.

A "reasonable" level of overall growth, some employment gains, decent growth of retail sales and a growth of housing starts by more than 100 per cent are all good signs, he said.

But when the city’s economic growth is compared to that of other cities, the story isn’t nearly as good, Wong said.

"Relative to other cities, we are losing ground," he said.

When the steady increase of employment in Kingston over the past three years is compared with other census metropolitan areas, Wong said this city "sits, at best, in the middle of the pack.

"We are losing to places like the greater Barrie area, Saskatoon, Sherbrooke and St. John’s."

Wong noted that Canadian Business magazine recently ranked Kingston 39th out of 40 Canadian cities as a good place to do business.

"What is particularly disheartening of their rating is that two of the five areas that they look at are areas that I think Kingstontonians have taken some pride in, which are the crime rate and the cost of living," Wong said in an interview before his presentation.

He said the magazine’s study found that Kingston has a higher relative crime rate than Toronto. The cost of living in Kingston was also ranked ninth out of 16 cities in Ontario, he said.

The City of Kingston, said Wong, must place equal focus on social policy and economic development over the coming year if it is going to compete with other regional economies.

"City council this year is going to have a difficult time with balancing what are the known needs of social assistance, affordable housing and increased policing with the need to encourage economic development," Wong said in an interview.

Wong said the gap between Kingston’s performance relative to other areas will increase, especially given that housing starts are expected to decline by 50 per cent.

"That’s a complete reversal of last year’s growth," he said.

On the national front, Queen’s economics professor John McHale said productivity in Canada is increasingly falling short of that in the United States. In the second and third quarters of 2006, McHale said, Canada has reported negative productivity growth.

"And that’s really a cause for concern given that improvements in living standards are due to productivity growth," he said. "It means that we might not be able to fund improvements in things like health care and federal and provincial living standards."

McHale said over the next year, he’ll be looking at the influence that a wide range of public policies will have on Canadian productivity.

"I don’t think there is one magic bullet that’s going to solve the productivity problem," he said. "It’s going to take a concerted effort across a range of policies to improve the underlying growth rate."

He pointed to the need for government to increase spending on university education and to develop a corporate tax regime that’s more competitive with the United States as two key policy areas that he’ll be looking at.

McHale said he also expects energy prices in the coming year to be volatile.

"On the whole, I don’t see energy prices dropping dramatically, and I don’t see them increasing too much," he said in an interview. "But we could see big swings from week to week in energy prices."

Queen’s finance professor Lew Johnson, meanwhile, projected that interest rates will largely stay the same next year, but will likely go down in the near future.

"There is really good evidence that suggests short-term interest rates will go down," he said.

southwickr@thewhig.com