How Global Is Ottawa?

Globalization and its concomitant concepts of global cities, control-and-command centres, and city mega-regions are much in vogue these days. Globalization has been identified as being the cause (blame?) for many of the challenges faced by larger Canadian cities ranging from governance (e.g. amalgamation) to economic competitiveness to investment in municipal infrastructure. The rationale commonly presented by municipal representatives is that, in the face of powerful social, political and economic globalization forces, metropolitan cities throughout Canada must strengthen their competitiveness in the world economy in order to maintain and sustain local prosperity and high quality of life.  The Conference Board of Canada stated that “in the 21st century’s knowledge global economy, cities and city-regions are increasingly recognized world-wide as drivers of national and international prosperity… [Global] cities are at the leading edge of regional and international integration. Major city-regions rather than nations, now compete against each other as centres of economic growth” (Conference Board of Canada, “Mission Possible: Successful Canadian Cities”, 2007). The Board has also published other reports looking at the economic importance of large Canadian cities (see for example: Canada’s Hub Cities: A Driving Force of the National Economy, 2006, and; The Role of Canada’s Major Cities in Attracting Foreign Direct Investment, 2012).

The City of Ottawa’s 5-year economic strategy titled “Partnerships For Prosperity” has as its overall vision to have the City recognized as “a competitive global hub for innovative, knowledge-based talent, businesses and organizations”. Under the strategic objective of International Competitiveness, the Strategy adds “the City … will take greater advantage of the opportunities inherent in the knowledge economy and address both the opportunities and the threats created by economic globalization”. The urgency of maintaining Ottawa’s global competitive economic position is then used to justify “considerably more” investment in economic development initiatives. Strengthening Ottawa’s global economic competitiveness is also seen as being critical to the diversification of the local economy in the face of federal government spending cuts and downsizing, which, according to Partnerships for Prosperity, has placed the City in “imminent peril” economically.

Toronto, Montreal, Vancouver, Calgary, and Edmonton have very similar economic development policy statements as well as similar strategic priorities focusing on strategies related to enhancing the local quality of life, attracting skilled workers and the “creative” class, supporting innovation and entrepreneurship and strengthening local industry clusters typically composed of advanced technology firms.

What makes a City Global?

The analysis of global cities suggests that the links between a city and other parts of the global economy (i.e. global connectivity) are a key determinant of economic performance. Global connectivity refers to knowledge and information exchanges that take place between particular locations which may be manifested via a variety of different mechanisms such as corporate headquarter functions and decision-making linkages, human capital mobility patterns, trade linkages, transport linkages, and financial flows. The growth of international or transnational corporations is a defining feature of contemporary globalization. The evolution of the global economy has been increasingly driven by the emergence of global production networks (i.e., complex organizational and geographical networks of production, distribution and consumption), led by transnational corporations. The world’s largest multinational corporations account for over 90% of the world’s stock of foreign direct investment and over half of the world trade (Rugman, A.M. (2005) The Regional Multinationals. Cambridge University Press: Cambridge).

This then provides the conceptual framework for measuring the global economic competitiveness and connectivity of cities.

The concept of global cities is not really a new one and is often attributed to Peter Hall’s 1966 publication of “The World Cities”. Hall described two main criteria for identifying world cities: 1) cities possessing political power as locales of national government and attracting international political organizations, and; 2) cities with economic power being national centres of trade, banking and finance.

Saskia Sassen has also been seen as an early researcher in global cities with her 1991 work published in “The Global City”. Her central argument was that leading global cities are characterized by the presence of advanced producer service industries such as banking, finance, insurance and accounting and leading multinational corporations engaged in ‘command and control’ activities of economic globalization.

The Global and World Cities Research Network (GaWC) has recently undertaken extensive quantitative research on world city networks which are available online.

A joint initiative between The Brookings Institution and J P Morgan Chase identified 10 traits that are considered to be particularly important determinants of a metropolitan area’s ability co compete in global markets and better secure its desired economic future. These traits are as follows,

  1. Local leadership with a world view
  2. Legacy of global orientation (cities oriented toward global interaction early in their history giving them a first mover advantage)
  3. Distinct economic specializations with global reach
  4. Adaptability to global dynamics
  5. Culture of knowledge and innovation
  6. Opportunity and appeal to the world (opportunity rich that are attractive to people and firms around the world)
  7. International infrastructure connectivity
  8. Ability to secure investment for strategic priorities
  9. Government (federal, state and local) as global enablers
  10. Compelling global identity (ability to not only market the city globally but also to shape and build the city region around a common purpose)

The most successful cities are those some level of integration across several (but not necessarily all) of the core traits.

According to the Organisation for Economic Co-operation and Development (OECD), successful cities attract talented young highly skilled workers, are centres of innovation and entrepreneurship and are competitive locations for global and regional headquarters. The proximity of universities to research and production facilities means cities are where new products are developed and commercialized.

The Conference Board of Canada’s Mission Possible report referenced above identified four building blocks that are the cornerstones for successful city-regions and cities in today’s competitive global economy: 1) a strong knowledge economy; 2) connective physical infrastructure linking people, goods and ideas; 3) environmentally sound growth, and; 4) socially cohesive communities.

Assessing the Global Competitiveness of Ottawa

As the Nation’s Capital, Ottawa would seem to be a viable candidate for being a global city according to Hall’s one of two criteria listed earlier as the presence of the federal government plus international embassies and consulates can be taken as a proxy for the city’s geopolitical importance. Ottawa’s dynamic technology clusters would also suggest the city would satisfy the requirements of having a culture of innovation and knowledge attracting skilled workers in order to qualify as a competitive global city as stated in the City’s economic strategy.

Many different concepts and approaches have been developed to measure the global competitiveness of cities. Most methodologies come from a predominantly economic perspective as measured by economic success over time in terms of outputs or results (e.g. GDP, employment, income) or input factors (e.g. productivity, innovation, infrastructure, connectivity). City competitiveness takes it roots in the competitiveness of the local industry mix. Others have emphasized non-economic attributes of city competitiveness such as quality of life, urban amenities, creativity, social cohesion and environmental sustainability.

The following sections compare specific indicators of global economic competitiveness between Ottawa and other selected Canadian metropolitan areas. Washington D.C. is again included where comparable data are available. The selection of indicators is based on often-used measurements that reflect that different dimensions in the conceptual framework described earlier.

Global City Rankings

The following table summarizes results of global city rankings that are widely recognized or referenced in studies on city competitiveness. These rankings are most often based on multiple standardized economic and non-economic benchmarks, which are also combined in some composite index. The table lists the results for Canadian cities included in the data. Washington D.C. is also included as a benchmark to illustrate the competitive position of a government dominated economy similar to Ottawa.

Toronto consistently appears as Canada’s premier global city with Montreal and Vancouver also performing relatively strongly. Perhaps surprisingly, when Ottawa does make the list, it does not show a particularly strong standing. In the widely referenced Global Urban Competitiveness Index from the Center for City and Competitiveness, Ottawa’s ranking is well below in the list of Canadian cities falling behind Quebec City, Calgary, Hamilton and Edmonton and is more closely grouped with Winnipeg, Windsor and Halifax. The GaWC rankings place Ottawa behind Edmonton in the fourth tier of global cities labeled as High Sufficiency or cities that are not world cities but have a sufficient degree of services so as not to be obviously dependent on world cities. World cities display a high degree of connectivity to the global network. Montreal, Vancouver and Calgary are Beta class world cities that are instrumental in linking their region into the world economy. Toronto is the only Canadian city in the Alpha group comprised of very important world cities that link major economic regions into the world economy.

Ottawa’s U.S. counterpart, Washington D.C., most often ranks high in global economic performance comparable to and sometimes exceeding Toronto’s ranking.

Perhaps the most surprising result on the part of Ottawa is the city’s poor showing in the Innovation Cities Index published by 2ThinkNow. Ottawa, which is grouped into the 3rd tier of innovation cities or “Node” cities that have “broad performance across many innovation segments, with key imbalances”. The Node group also includes Winnipeg, Halifax, Hamilton and equally surprising, Kitchener and the last ranked Canadian city. Quebec City, Calgary and Edmonton scored will above Ottawa falling into the 2nd tier Hub cities. In contrast, Ottawa comes on top at number 1 in the Global Cities Index published by the Toronto-based Martin Prosperity Institute. The Institute is also the home base for Richard Florida, who has been credited as being the founder and leading proponent of the “creative class” school of thought.

table 1

 

Ottawa does fare better generally in the quality of life rankings (where Martin Prosperity Institute’s Global Cities Index best fits). The city, however, did not make the top 140 list produced by the U.K. based The Economist while the top 5 impressively included 3 Canadian cities – Vancouver, Toronto and Calgary, with Montreal coming in at the 16th spot.

Location of Corporate and Multinational Head Offices and Advanced Producer Services

The importance of global cities /city regions is reflected in their Command and Control functions as measured by the presence of head offices of international companies and higher order producer services. The following table summarizes the distribution of head offices and advance producer services by city. I used the Forbes 2000 list of the world’s largest publicly traded corporations to determine the distribution of multinational corporations in terms of their head office locations. I also show the distribution of the 2014 Financial Post 500 (FP 500) listing of Canada’s largest public and private corporations including crown corporations and government enterprises. The Canadian corporations making the Forbes 2000 (totaling 57 in the 2014 listing) will of course by also found in the Financial Post 500.

The GaWC data set consists of the 2000 distribution of offices for the 46 global advanced producer services firms in accounting, advertising, banking and finance, and law. Unfortunately the data has not been updated but still provides some indication of the distribution of higher specialized services in Canada.

Head Office Table

The table clearly shows that the distribution of head offices is concentrated in the four Canadian metropolitan centres – Toronto, Montreal, Vancouver and Calgary. Whereas the first three cities have historically functioned as the primary nodes of head office activity, Calgary’s entry into the upper tier reflects the more recent energy driven economic boom in Alberta. Indeed, Calgary ranks very close to Toronto in terms of multinational corporations with the majority being in the energy sector. On the other hand, Toronto dominates the head office landscape when it comes to Canada’s biggest corporations and has the lion’s share of financial businesses (banks, investment companies etc.).

Ottawa comes out as a second tier location for head offices comparable to Winnipeg, Edmonton, Regina, Quebec City and Halifax. In fact, Ottawa’s importance as a head office location would be further reduced if government crown corporations were removed from its total. Out of the total 14 head offices from the FP 500, 8 are government crown corporations or business enterprises. Furthermore, Ottawa’s ranking has also dropped since 2008 when the city was the home 18 of Canada’s largest corporations including the same 8 crown corporations and 10 sector private companies. The companies dropping from the list include several high tech firms: Cognos, MBNA Canada, Computer Sciences Group, BreconRidge Manufacturing, Bradley Air Services, Corel Corp., Calian Technologies and Zarlink Semiconductors (Telesat and Alcatel-Lucent were added to Ottawa’s list since 2008).

The distribution in advanced producer services follows the same general pattern as head office locations. Calgary would likely have a significantly higher number of services today in light of the boom in the energy sector that has occurred since 2000 and the present day concentration of head offices.

International Air Travel

Air connectivity is probably the measure that most easily reflects the connection of a city with the rest of the world. International air traffic tends to be concentrated by airlines into a limited number of hub airports. Global cities with hub airports also tend to comprise most transnational head offices of corporations.

Air Travel Table

 

While one cannot expect that the level of international travel at Macdonald-Cartier would compare with the much busier Pierre Elliot Trudeau and Pearson airports or Washington’s Dulles International Airport, Ottawa still comes up as a relatively minor destination point for international travellers.

International Migration

International migration is considered to be a vitally important factor influencing the ability of metropolitan areas to sustain economic prosperity and growth in the future. First, with the aging baby boomer population entering the retirement years, companies will be facing severe labour shortages in skilled occupations. Immigration is seen as an important source of skilled labour to meet this demand. Second, immigration is also viewed as being important to sustaining innovation and entrepreneurship. For example, it is estimated that immigrants comprised 20% of the high tech workforce and 17% of high-tech entrepreneurs between 2007 and 2011 in the United States (Source: Kauffman Foundation). Foreign-born entrepreneurs founded about 50% of the high tech companies in the Silicon Valley. Ottawa’s early growth in high technology was fuelled by a “British Invasion” of entrepreneurs that included, for example, Michael Cowpland and Terry Matthews (Mitel, Corel, Newbridge Networks).

According to the 2011 National Household Survey (Census), 19.4% of the population of the Ottawa-Carleton CMA were foreign-born or immigrants. Of the immigrants living in the CMA, 17.2% migrated to Canada between 2006 and 2011. When compared to other major Canadian metropolitan areas, Ottawa-Gatineau ranks the lowest in terms of the representation of immigrants in the total population.

Immigration Table

The 3 largest metropolitan areas in Canada accounted for the lion’s share of the total number of immigrants moving to Canada since 2006/07. Toronto was the most attractive destination immigrants attracting one in three immigrants to Canada. Ottawa-Gatineau, on the other hand, stands out as a minor destination for immigrants compared to other large Canadian metropolitan areas with the exception of Quebec. The city’s share did increase slightly during the post ‘Great Recession’ years.

Innovation and International Collaboration

Innovation is considered to be the primary driver of sustainable economic growth. In parallel, international networks are increasingly important for innovation and the exchange of knowledge, mainly due to the growing complexity of current knowledge production processes, increased mobility of skilled workers and researchers and communications technology.

In an earlier blog, I looked at patent statistics published by the Organisation for Economic Co-operation and Development (OECD) to measure Ottawa’s performance in innovation activity. The OECD patent database includes patents issued under the Patent Cooperation Treaty (PCT) administered by the World Intellectual Property Organization. The PCT allows applicants/inventors to simultaneously apply for patent protection in a large number of countries. The PCT data includes information co-patent applications where PCT patents involve international collaboration. As such, the PCT co-patent applications provide a useful measure of openness or connectivity of local innovation ecosystem to the international knowledge network.

The following table compares total PCT patent and co-patent applications between 2005 and 2010 for selected metropolitan areas. Co-patent applications include 2 or more inventors and the counts are based on the place of residence/work of the inventor(s). The co-patent data are further broken down according to three geographic categories: co-inventors are from the same metropolitan area; at least one co-inventor is from outside the area but within Canada, and; at least one co-inventor lives in another country.

PCT Apps Table

The interesting points that come out of the above table are:

  • Ottawa does emerge as an important innovation centre for PCT patents compared to other Canadian cities taking into consideration differences in population size. The Toronto region still dominates the Canadian landscape.
  • Almost 2/3 of the co-patent applications include only inventors from the Ottawa region, which is higher than other Canadian cities with the exception of Vancouver.
  • Co-inventors in Western Canadian cities tend to display a greater tendency to either come from the same city or collaborate with inventors in other countries whereas co-inventors in Central Canada, including Ottawa show a lower propensity to collaborate with foreign inventors.
  • The Washington-Baltimore metropolitan area stands out as a significantly more important centre of innovation activity as measured by PCT patent applications compared to Canadian cities including the Toronto region. This may reflect the overall weakness of Canada in terms of R&D in the private sector compared to other industrialized countries. However, the level of collaboration between Washington-Baltimore inventors and foreign inventors is significantly below that found in Canada.

Inter-City Commodity Trade Flows: North America

A recent study from Brookings Institute found that the GTA was the largest trading hub in North America and ranked first in terms of the total amount of exports and imports traded with the United States. The inter-city trading flows between Toronto and New York-Northern New Jersey, Detroit and Chicago were the three largest in North America. The largest trading relationships in key advanced industries (automotive, electronics and aerospace trade) involve Detroit and Toronto in automotive, and Seattle and Montreal in electronics.

Ottawa-Gatineau ranked only 18th in Canada in terms of exports of commodities. The absence of a significant manufacturing base limits the city’s trade in commodities. Imports were about three times larger than exports to the metro region. Ottawa is also a net importer of electronics products.

Trade Flows Table Trade Flows Map

Strategic Implications

Based on the above results, it seems clear that Ottawa falls short of being the global Canadian city list despite being the centre of national political power. Indeed, Ottawa would be better described as a third tier city in the national urban hierarchy with Toronto (GTA) representing the primary global city-region and the metropolitan cities of Montreal, Calgary and Vancouver comprising the second tier of global cities. Future economic growth will likely continue to be concentrated in these top 4 metropolitan areas / global cities. Calgary has become Toronto’s main challenger for corporate headquarters in Canada, a shift sparked by oil wealth. Vancouver is major gateway for trade with the Pacific Rim countries like the burgeoning economic giant, China.

Toronto has evolved into Canada’s only true global mega-region. Its zone of economic influence now extends beyond the Greater Toronto Region drawing in places like Kitchener-Waterloo, Hamilton and Niagara into its economic gravity pull. Although Montreal has only experienced modest population growth over recent years, the metropolitan area is widely recognized internationally as a cosmopolitan city and Montreal boasts several strong leading technology clusters focused on aerospace and life sciences / health.

While Ottawa has not achieved the same global status, the metropolitan area still offers some impressive community based assets including one of Canada’s most dynamic entrepreneurial eco-systems, a high quality of life, and a highly educated, skilled labour force supply. The city has historically and continues to have the highest per capita income in Canada although it now shares that status with Calgary.

The question then arises as to why the City of Ottawa wants to become a “competitive global hub”? It is first important to note that Ottawa as the nation’s capital and the geographic seat of national government is then, by default, a global city at least politically. Ottawa’s linkages with the international community are best measured not so much by economic variables, which tend to dominate global competitiveness research described above, but by political interactions. In this regard, Ottawa (and Gatineau) has an absolute and complete competitive advantage, as there can be no other Canadian capital city. The federal government may, over the long term, ‘decentralize’ some front-end government services, but Ottawa will always remain as the main head office location of government administration. Unlike some manufacturing economies like Hamilton, Windsor or Detroit and other U.S. ‘Rust Belt’ cities that have experienced economic slumps in recent years due to technological change and globalization (e.g. outsourcing), the federal government will remain a critical part of the national economy. Ottawa’s political global connection is further reinforced by the concentration of foreign embassies and diplomatic missions in the city.

Moreover, as Canada becomes more engaged in international affairs, Ottawa’s political linkages to the global economy will also strengthen. Government contractors, legal firms, media, lobbyists, non-profit and business associations, consultants etc. will increasingly want to be in Ottawa close to key government decision makers and influential players in the global economy.

One reason why Ottawa wants to be a competitive global city is based on the viewpoint that the federal government will no longer be the economic growth engine in the future and will not be able, therefore, to sustain local economic prosperity. In order not to become “a shadow of its former self”, Mayor Watson statedwe will construct a new economic engine … an engine that is more diverse – that runs on more than just one industry.” In order to be able to diversify the economy, Ottawa must compete with other Canadian and international cities in the global economy.

The findings from the review of global economic performance indicators, Ottawa faces major obstacles on the road to economic diversification through global competition. My argument here is to rebuke two pervasive notions in the City’s pathway to economic diversification and global competitiveness. First, Ottawa’s economy is not in “imminent peril” because of federal government contraction, which further threatens the long-term sustainability of economic prosperity. I expanded on this theme in greater detail in a previous blog and will not repeat it here. The main point is that the federal government and all the positive assets associated with its presence should be the centrepiece of any economic strategy, not something that needs to be replaced. Indeed, private industry relationships with the federal government will likely strengthen in the face of globalization and increasing social-economic-political uncertainty in the international arena.

Therein lays the paradox. For Ottawa to have success in diversifying its economy, the city must leverage its unique specialized role as a centre of political power. It is interesting to point out that one of the key themes arising from the National Capital Commission’s (NCC) consultation with Canadians on planning for the future of the Capital was the creation of a “Window on the Country and the World”. NCC’s 2012 Plan For Canada’s Capital states “the idea of the Capital acting as a global centre for dialogue and exchange was frequently mentioned, including the need to attract more international organizations to the Capital, and to ensure that diplomatic missions present in the Capital feel welcome” (p.14). A 2002 study completed for the National Capital Planning Commission in Washington D.C. found that international business was D.C.’s second only to the federal government as the most important source of economic activity, with the hospitality industry ranking third.

This notion that the City’s must build upon its existing role as the Nation’s Capital in order to create new economic development opportunities and to enhance distinctive local capabilities is similar to ‘smart specialization’ strategies that have come to dominate place-based economic policy thinking within the European Union. According to the Joint Research Centre of the European Commission, “regional diversification is a crucial process in order to develop new growth paths. It is understood as an emerging process through which new activities develop out of existing ones, but the scope and outcome of this process are fundamentally affected by technological and cognitive constraints.” The Research Centre added that, “the objective is to aim for specialised diversification into related technologies which generates new economic activities that are rooted in the region and that can draw on local related resources.”

Second, the importance of inter-city economic competitiveness to future economic prosperity is overrated. This is particularly true for Ottawa because, as stated earlier, there can only be one capital city for Canada. Calgary’s emergence as a global and major head office city has more to do with the rising price of crude oil than it does with inter-urban/regional competition. It is true that some head offices of energy based corporations left Toronto for Calgary but that has not deterred from Toronto’s continued evolution as a major global city-region.

Ottawa’s emergence as one of Canada’s prime high technology growth centre was not the result of its competitiveness vis-à-vis other cities. Instead, the reasons for Ottawa’s success as an entrepreneurial city lie in its unique assets and social-economic resources that are present within the community. Ben Spigel looked at how regional culture influences entrepreneurs’ decisions to start technology firms in Ottawa, Waterloo and Calgary. The results of his PHD thesis research did show that there were statistically significant differences between the three regions. The reasons were associated with the regions’ unique entrepreneurial fields, which create the social and economic structures that promote different entrepreneurial practices related to the startup process.

It may be true that the rise of global cities and supranational corporations are closely tied to globalization, but the role of capital cities like Ottawa will also prevail. In this context, Ottawa can be viewed not as a “competitor” for business investment with other, more global cities like Toronto and Montreal but as a complementary component to a network of communities. Ottawa may have more to gain by looking at Montreal as a strategic partner in economic development not as a competitor. There may also be merit in examining the relationship of Ottawa as a leading regional centre with other communities in Eastern Ontario, where the regional economy is relatively fractured with many smaller cities struggling economically with the closing of traditional manufacturing companies, in order to build up economic linkages and supply chains.

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s