Ottawa and Economic Diversification: Why Do Community Leaders Continue To Deny That We Are The Nation’s Capital?

Ever since the Queen Victoria’s selection of Ottawa as the Capital of the United Province of Canada, economic diversification has appeared as a rallying cry on the part of local public and business representatives. In 1906, Mayor Ellis laid out the challenge that “the time has come when Ottawa must decide whether it is for all time to be simply the seat of Government and a Departmental City, or whether it not become also an industrial centre” with its excellent “rail facilities and unrivalled water power” (City of Ottawa Council Minutes 1906).

Although Ottawa never did become the great industrial centre aspired by Mayor Ellis, reducing the dependency on the federal government through economic diversification has remained a key local strategic goal often gaining more visibility when the federal government is undergoing budget cuts and downsizing. During the late 1970s, for example, the federal government reduced the size of the civil service in the National Capital Region by 12,000 positions resulting in local predictions that Ottawa was to become a ghost town.

Economic diversification became a strategic priority again during the budget cutting years in the 1990s. Indeed, beginning in the 1980s and continuing into the 1990s, there was considerable excitement and optimism in the business community that Ottawa’s economy was finally on a sustained diversification path as a result of its emergence as “Silicon Valley North”. However, this optimism came to a sudden and unpredictable end with the demise of Nortel Networks together with the collapse of the dot-com bubble (also referred to as the Internet or Information Technology bubble) at the turn of the century.

Today, Ottawa finds itself facing another phase of federal government austerity measures as it tries to balance the budget following the “Great Recession” of 2007/08 and the subsequent huge increase economic stimulus spending. In his 2012 State of the Economy address, Mayor Watson stated, “in this new federal government dynamic [of federal government austerity measures], we have the most to lose but we also have the most to gain”. To prevent Ottawa from becoming a “shadow of its former self”, Mayor Watson added that “we can no longer depend on the federal government to shelter us from [economic] storms or drive our economy… instead, we will construct a new economic engine… an engine that is more diverse – that runs on more than just one industry” (Mayor Watson 2012 State of the Economy). Ottawa’s existing 5-Year economic strategy, named Partnerships for Prosperity, adds even more urgency to the need to diversify the city’s economy stating that, because of the federal government’s downsizing and spending cuts, “Ottawa’s economy is, in fact, in imminent peril”. The Strategy further notes that the national and international perception of Ottawa being just a government city acts as an obstacle to attracting investment.

And it’s not just the Mayor who is promoting the diversification of Ottawa’s economy. At the Ottawa Economic Leadership Summit held in December 2014 as part of the larger Ontario Chamber of Commerce’s initiative labeled “Emerging Stronger”, local business leaders declared “it’s time, once and for all, to rein the capital of the moniker government town” (Ottawa Business Journal).

As the Nation’s Capital, Ottawa offers a high quality of life to its residents with its ample green space and recreational opportunities clean air, heritage, numerous festivals and cultural diversity as well as world-class educational and health care institutions. Ottawa consistently ranks at or near the top in terms of having the highest quality of life. Along with Calgary, Ottawa also has the highest average household incomes while housing still remains relatively affordable. Ottawa’s residents are also very smart and highly educated with 34.6% of the total population aged 15 years of age and over having a university degree according to Statistics Canada’s 2011 National Household Survey (14.2% have a Masters or Doctrine degree). In comparison, 28.9% of Calgary’s total population aged 15 years and over, had a university degree (8.8% with a Masters or Doctrine degree).

Indeed, Ottawa’s quality of life measures represent benchmarks that all other Canadian cities strive for in their social and economic development policies. In addition, the role of Ottawa as the Nation’s Capital has also contributed to a dynamic tourism sector while the presence of the federal government represents a critical part of the historical growth of high technology clusters in the region.

So if Ottawa is already such a great city, why does the need to reduce its dependence on the federal government continue to exist today at City Hall and in the local business community? It is useful to first note that the priority on economic diversification is not just limited to Ottawa but is a common policy goal found in other Canadian cities. Economic diversity is viewed as providing communities a greater adaptive capacity and resiliency to respond to economic downturns or “shocks” and economic uncertainty such as federal government spending and employment cuts. Another common perspective is that a diversified economy will also provide more choices for future employment opportunities and allow cities to compete more effectively against increasing economic globalization. Ottawa’s Partnerships for Prosperity states that the City must invest more in economic development initiatives in order to remain competitive with other North American and global cities to attract smart people and skilled knowledge workers

While there is no denying that the strong dependency on the federal government has had serious localized negative impacts during periods of federal spending and job cutbacks, it is an exaggeration to conclude that Ottawa’s economy is in “imminent peril” of becoming a “shadow of its former self”. As I tried to show in an earlier posting, the federal government has gone through several phases of contraction and expansion in the past and there is no reason not expect that this will not continue in the future.

nortelian2

Indeed, despite its dependency on the federal government, Ottawa’s economy has displayed considerable resilience in terms of rebounding from prolonged periods of government austerity as well as from the demise of a major employer such as Nortel Networks. At its peak, Nortel was more than just a company – it was also a catalyst for the spinoff of many high tech companies and was the cornerstone of Ottawa’s vision of a world-renown ‘Silicon Valley North”. In 2000, the company accounted for more than one-third of the total value of the S&P/TSX Index, was the ninth most valuable corporation in the world and had employed more than 94,500 people worldwide including about 17,000 in Ottawa (http://sites.telfer.uottawa.ca/nortelstudy/files/2014/02/nortel-summary-report-and-executive-summary.pdf ). Nortel alone spent $6 billion on R&D in 2000. The loss of Nortel would have been a major shock to any metropolitan economy

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(Library and Archives Canada)

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Whereas many high tech companies like Nortel Networks, JDS Uniphase, Systemhouse, Cognos, Gandalf, SiGe Semiconductor, Newbridge, Bridgewater Systems and others as well as more traditional industries (e,g, E B Eddy / Domtar) have come and gone due to failure or foreign takeovers, the federal government remains and will not be disappearing any time soon. Moreover, Ottawa and Gatineau have an absolute total competitive advantage over other Canadian cities in terms of being the Nation’s Capital. Front-end service operations as well as the occasional national institution/museum or research laboratory may end up being ‘decentralized’ but the Nation’s Capital will be dominant location of federal government departmental head office functions.

Much of the strategic thinking behind Ottawa’s economic future is primarily focused on diversification or reducing the dependency on the federal government for future job growth and general prosperity. To save the City’s economy by pretending the federal government does not exist is a misplaced strategic approach as I will try to explain below.

It was Michael Porter, whose theory of how clusters develop and influence economic competitiveness now dominates city economic development strategic planning including the City of Ottawa’s policies, said, “competitive strategy is about being different…it means deliberately choosing a different set of activities to deliver a unique mix of value” (Michael Porter, “What is Strategy?” Harvard Business Review, November-December 1996. p.4). Porter further added “strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company” (Michael Porter ibid p.1). While originally written to describe strategic planning for corporations, Porter incorporated these principles later into his economic cluster theory. Economic strategies then should be about what cities can do that is unique to them and that is based on their special assets such as their history, culture, values and economic strengths. In the case of Ottawa, the City’s distinctive and special asset is the federal government.

 “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”(Will Durrant but often incorrectly attributed to Aristotle)

This is not to say that Ottawa’s economy cannot diversify but it is more difficult to do so by trying to just turning off the federal government switch and turning on the technology clusters or tourism switches (the two economic sectors that have been the priorities in recent economic strategy formulation). The key to future economic growth is the ability of Ottawa’s economy to reconfigure its special assets, advantages and institutional structures to adapt a new evolutionary growth path. This type of strategic thinking is similar to the approach recently implemented in the European Union labeled as ‘smart specialization’ (see Eurpean Commission http://ec.europa.eu/research/regions/index_en.cfm?pg=smart_specialisation) . In the case of Ottawa, the inclusion of the federal government is a critical part of smart specialization efforts.

In fairness to the City, the Partnerships for Prosperity strategy does acknowledge that “Ottawa’s economic development anchor is the federal government presence that brings talent, the seat of national policy development, cultural assets and international linkages” (p. 4) but the Strategy falls short in incorporating this federal government anchor into strategic action plans. The Strategy does make general statements about the need to collaborate with the federal government in areas like regional funding programs and infrastructure investment. One specific recommendation in the strategy was to work with the federal government to identify opportunities to make Ottawa more attractive to immigrants since jobs in the federal government are inaccessible to new immigrants who are not bilingual in Canada’s two official languages. However, there has been no update if any results have been achieved in this area since City Council approved the Economic Strategy Implementation Plan in 2011.

On the other hand, the federal government provides significant, unique assets and linkages supporting the local growth of technology clusters, entrepreneurship and innovation in the form of R&D facilities, technology transfers, procurement etc. The importance of the federal government role in the tourism industry is also self-evident.

One area that has received little attention in the local discourse on economic development strategy, and one that fits nicely in the concept of an evolutionary growth path for Ottawa is the shifting role of the federal government in international affairs. Globalization has had worldwide far-reaching social, political and economic impacts on all nations. Environmental sustainability, climate change, aging populations, war on terrorism, international security, civil unrest and civil wars, financial crisis and the Great Recession, government debt, disease outbreaks (AIDS, Ebola etc.), technology change and many other global issues have all forcing national governments to redefine their role in the international arena and the way they interact with citizens.

As the Nation’s Capital, Ottawa represents a critical international hub not in terms of the export of natural resources or manufacturing goods or head offices for national and international corporations but instead for its importance as a political decision making and international knowledge centre. Ottawa has always been attractive to lobby groups and national business, non-profit associations and other non-government organizations that want to be close to government policy makers and program funders. One of Ottawa’s most untapped special assets is the fact that it is the home to foreign missions, embassies and consulates representing potential opportunities for international relations in trade as well as the arts and culture exchanges with all nations in the world. This international role is further reinforced by federal government departments and related that are focused on international trade and social development such as Foreign Affairs, Trade and Development Canada (formerly the Department of Foreign Affairs and Trade), Export Development Canada, Canadian International Development Agency and others. Ottawa is the location of numerous multilateral efforts including summits, meetings, and delegations attending Canada as well as less formal events such as luncheon speaker engagements, conferences, workshops and focus groups on international affairs.

While most of the focus on economic clusters in Ottawa has been on the advanced technology sectors, the international “cluster” would likely account for a much larger part of the overall local economic landscape. This cluster would include not only the federal government and its related agencies, business associations and lobby groups and, foreign embassies but also specialized support business ranging from law and accounting services, international marketing to travel and event planning as well as international students and studies associated with Carleton University and the University of Ottawa, the hospitality sector including international festivals, and the multicultural communities in Ottawa’s neighbourhoods. All of these elements represent unique advantages and assets that are associated with being the Nation’s Capital.

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