We need to focus on comparative advantage.

AuthorCirtwill, Charles
PositionThink Tank

At what point did we forget about comparative advantage? The idea that because of the unique characteristics of our communities (geographic, demographic, environmental, physical), we have a global advantage in producing certain goods. That by producing those goods, we create an opportunity to trade them with others in exchange for things we can't produce so easily and efficiently. Creating, as a result, economic value for ourselves and for our trading partners.

This was how the mining cluster in Sudbury was built. We realized that, because of our unique global position (our proximity to vast mineral wealth), we had an advantage over our competitors. We could produce raw natural resources as well as marketable skills and expertise at a much lower cost and higher efficiency than other communities could. We could test new technology on a more frequent basis (and at lower marginal costs than others) and sell it at a better price while still making a healthy profit.

This is sound economic theory, proven over and over in practice. Aside from Sudbury's mining cluster, think culture: boating and tourism in Kenora, or logistics and remote service and supply in Sioux Lookout, or assaying and associated testing services in the Timmins area. One of our biggest challenges in relation to government "innovation" or "economic development" policy, however, is that we focus not on comparative, but on competitive, advantage.

Can Company A sell this widget at a cheaper price than Company B? That is a very different question than whether Company A should even be making widgets in the first place. Or rather, whether they should be making those widgets here in Northern Ontario. Into the competitive advantage equation goes very different factors. The price of land, the cost of labour, construction costs, overall tax burden. These things are much easier to measure and much easier for government to manipulate.

Yes, we could produce oranges in Red Lake, or build cars in Chapleau. With a large enough subsidy, the firms involved could even make a profit. The challenge is that when you try to overcome a lack of comparative advantage by enhancing an individual firm's competitive advantage, the subsidies can never end. The firm's location will always be a disadvantage.

In defence of policymakers, it is easy to get confused. Policy related to both comparative and competitive advantage...

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