Economic History of Ottawa - Case Study Example

Running Head: ECONOMIC HISTORY OF OTTAWA Economic History of Ottawa, Canada Introduction Mercantilism was a European economic philosophy and system that encouraged administrative control of a nation’s economy with the intention of enhancing government power to the detriment of competing national powers. The practice dominated Europe between the 15th and 18th centuries. It comprised a domestic economic policy focused on the accumulation of financial reserves by means of a subjective balance of trade mainly for finished products. The policy promoted colonial expansion and a likelihood of wars just like many other European policies that motivated the building of overseas colonies and undermined their right to trade with other nations. Economic development in Canada during the colonial era was based on the mercantilism school of thought. The Europeans maximized material gains for their home economy while little was invested in the colony. The philosophy was propagated in ‘New France’ through various monopolies such as the ‘La Compagnie des Marchands and the Compagnie de Montmorency’ that were the first companies established in Canada (Knight, 2014). This paper highlights the economic history of Ottawa, which is the capital city of Canada. It discusses the economic growth and development as well as the major industries of the city and the prospects for long term growth. The paper also discusses how Ottawa city fares during recessions. Economic History of Ottawa City The economic history of Ottawa can be traced back in the early 17th century when the first Europeans began exploration of Ottawa River that served as a major transport route for fur from Montreal. The explorers also used the river to access regions further inside Canada. The Aboriginal populations that lived in Ottawa were shattered by disease epidemics such as smallpox that were introduced to the nation by explorers and traders. French settlements were only concentrated in few fur trade bases as the business did not encourage settlement. In the early 19th century, English agriculturists and lumber traders led by Philemon Wright created the first lasting settlement in Lower Canada at Hull and later in Upper Canada. In 1818, a large group of English settler families established a settlement at Richmond. The town of Ottawa emerged from a construction camp developed by British Royal Engineers. The camp attracted business people and labourers and professionals leading to the development of a sizeable town called ‘Bytown’ (Reisman, 2005). There was significant extraction of timber for export to Britain in the 1830s, which became the major economic activity in the region with ‘Bytown’ being used as the central collection point and the provisioning hub for lumber workers. The town developed in to the major valley township. ‘Bytown’ was renamed Ottawa after it was incorporated as a city in 1855. It remained the largest lumbering city in the region and housed one of the major milling operations worldwide. The city of Ottawa was linked to the Grand Trunk and the American railways. These railway connections raised its potential for consideration as the capital of Canada province, which was pronounced in late 1857 by colonial officials. This event opened up the city’s growth and the population tripled in 20 years period. It became the centre of colonial authority hence government and residential buildings for civil servants sprung up. In 1867, Ottawa was declared the capital of the New Dominion of Canada (Knight, 2014). Hydroelectric power generation began in 1890, which boosted the growth of pulp and paper industry. The 20th century saw a significant decline in lumber industry due to the depletion of valley forests. Creation of a federal government in 1940 counterbalanced the deterioration of the lumber industry as former lumber professionals and labourers began seeking government employment (Owram & Emery, 2008). The Canadian government has played a significant role in the growth of Ottawa’s economy through the establishment of state institutions such as the Central Experimental Farm developed in 1886 to boost agricultural research, the Federal Green Belt, National Research Council and the Defence Research Board in the mid-20th century, which formed a foundation for development of the technological sector in 1961. They resulted in the manufacture of computerised devices and other hi-tech products such as Leigh Instruments that were the forerunners of the black box used in contemporary aeronautics. In 1961, Bell Northern Research, the precursor of Nortel established a laboratory in Ottawa which marked a major milestone in the city’s growth. Other corporations that boosted Ottawa’s growth in the 1980s include JDS Uniphase and Corel. These earned Ottawa the name ‘silicon Valley North’. Presently, the technology sector still dominates the economy of Ottawa. National buildings and institutions such as University of Ottawa and Carleton are monumental and give Ottawa City a world class status (Reisman, 2005). Majority of residents in Ottawa are employed by the federal government and the high technology sectors, which together account for over 35% of Ottawa’s GDP. These sectors have attracted the most educated people in Canada comprising 25% of the country’s population that holds a bachelor’s degree and above. The healthcare sector and social care also employ a significant number of residents as well as other sectors such as retail trade, consultancy, technical and scientific services as well as education. The hotel and hospitality services also play a major role in employment creation. The Knowledge Based sector comprises over 1,900 companies that employ more than 75,000 Ottawa residents engaged in cutting-edge technology production (Grady, 2010). The city is also considered the easiest to start and develop a Knowledge Based Business. 570 enterprises in Ottawa are offering Knowledge Based Support Services while 362 are dealing with software business. Other high-tech Knowledge Based enterprises in the city include aerospace and defence, which together with software development employ over 23,000 knowledge workers, e-commerce, telecom and ‘Cleantech’ industries. The city has a dynamic tourism sector that is maintained by a robust professional services group. The sector employs over 110,000 public servants. The federal government funding on research and development is highest in Ottawa, making it one of the progressive centres of innovation in the world. The city is a middle income economy, which is attributed to the high levels of education (Owram & Emery, 2008). There are significant prospects for economic growth in Ottawa especially in the vast Knowledge based sector. The highly educated public with significant federal support in research and development presents Ottawa with robust human capital for economic growth. Technological advancements in aerospace, security and defence present a significant opportunity for innovations for export markets especially now that economies world over are faced with security challenges (Bradford & Bramwell, 2014). ‘Cleantech’ industries also present a significant opportunity for inventions in clean energy especially presently when global leaders have been compelled to adopt environmental friendly energy to combat climate change. Digital media is also a sector that has a great and unexploited potential. Ottawa has a remarkable progressive learning and research infrastructure for digital media innovations. The premium film and television production companies in Ottawa can increase productivity with incentives from the federal and provincial government. Wireless and telecom are among the leading technological sectors globally and the desire to own innovative products by consumers seems endless. Global companies owning 74% of the telecom and wireless are established in Ottawa where a significant number of scientists and engineers are based. Software development also presents a sizeable opportunity for investment (Grady, 2010). Despite Ottawa’s great economic progress, there are a number of challenges that hamper the attainment of the city’s full economic potential. Firstly, there is a high financial dependence on the federal government such that the current economic restraint that resulted in federal budget cuts since 2013 has adversely affected economic growth in the city. Federal job cuts have also had a negative influence on Ottawa’s economic growth especially due to the fact that majority of the city’s residents are public servants. Moreover, few large companies dominate local high-tech companies hence the risk of massive job losses in case of economic crises. Federal government’s massive presence in Ottawa is viewed as a discouragement for private sector establishment in the city. Most of the potential areas for offices are occupied by government departments leaving a few expensive ones vacant. Private investors have the alternative of establishing in other areas such as Kanata but many opt to establish in the central business districts of other cities as they cannot enjoy the privileges of Ottawa’s downtown (Leblond, 2011). With regards to remuneration and minimum wage, federal employees earn 17% more than in equivalent positions within the private sector. This presents a major setback to private investment as it raises the cost of labour. Currently, the city is facing the challenge of increasing unemployment, which stood at 6.9% in June 2014, 0.1% higher than it was in May 2014, while the city of Regina maintained a relatively low unemployment rate of 3.6 and Saskatoon 4.1% in the same period. Nevertheless, there was a national increase in unemployment rate of 0.1% standing at 7.1% in 2014. There was also an influx in the number of job seekers in Ottawa. The city’s GDP is expected to grow at a rate of 1.8% in 2015, which is a 1.1% increase from 0.7% in 2014 (Bradford & Bramwell, 2014). The city of Ottawa is shielded from adverse effects of economic shocks by virtue of it being a ‘government city’. For example, other cities were affected by reduced occupancy of rental space as companies closed down during the global economic recession of 2008 while in Ottawa the occupancy almost remained unchanged as 75% of office space is occupied by government departments. Moreover, while the private sector in other major cities embarked on massive layoffs thereby affecting the consumer goods market, government employees who are the majority in Ottawa continued to receive salaries and hence business was fundamentally close to normal apart from reduced lending by banks (Leblond, 2011). Conclusion The city of Ottawa has undergone a series of events in its economic growth history dating back in the 17th century’s fur trade and the English agricultural settler communities. Lumbering and fur trade were among the pioneer enterprises in the ancient ‘Bytown’ that later developed in to the current Ottawa city. Progressive innovations have led to the development of a modern city that is among the globally renowned centres of high-tech industries. Knowledge Based sector is among the most resourceful in the world providing solutions through innovations in aerospace, defence, security, software development, telecommunication, clean energy and digital media among other high-tech products. Federal government’s influence on the economy is significant with 75% of office rental space occupied by public officers. Majority of residents in the city are federal government employees. Ottawa has been able to resist economic shocks as a result of relatively high number of government establishments compared to other Canadian cities. There is high dependence on federal government financing, with policies that discourage private investment, which present a challenge for private investment thereby hampering the attainment of the city’s full economic growth potential. References Bradford, N. & Bramwell, A. (2014), Governing Urban Economies: Innovation and Inclusion in Canadian City Regions, Ontario: University of Toronto Press. Grady, P. (2010), The State of Economics in Canada: Festschrift in Honour of David Slate, Montreal: McGill-Queen’s University Press. Knight, D. B. (2014), Choosing Canadas Capital - Conflict Resolution in a Parliamentary System, Montreal: McGill-Queens University Press. Leblond, P. (2011), A Canadian Perspective on the EUs Financial Architecture and the Crisis: Europe, Canada and the Comprehensive Economic Partnership, London: Routledge. Owram, D. & Emery, H. (2008), A History of the Canadian Economy, 4th Ed., Toronto: Thomson Nelson. Reisman, G. (2005), Capitalism: A Treatise on Economics, Ottawa: Jameson Books Read More