Doing Development Better

CAMBRIDGE – Jim Yong Kim’s appointment as World Bank president may have been predictable, given the long-standing tradition that renders the selection an American prerogative. But even the appearance of competition between Kim and the other candidates, Ngozi Okonjo-Iweala and José Antonio Ocampo, served to expose a deep fissure within the field of development policy, because Kim and his two rivals represented dramatically different approaches.
The vision for which Kim stands is bottom-up. It focuses directly on the poor, and on delivering services – for example, education, health care, and microcredit – to their communities. This tradition’s motto could be, “Development is accomplished one project at a time.”

CommentsThe other approach, represented by Okonjo-Iweala and Ocampo, takes an economy-wide approach. It emphasizes broad reforms that affect the overall economic environment, and thus focuses on areas such as international trade, finance, macroeconomics, and governance.

CommentsPractitioners in the first group idolize NGO leaders like Mohammad Yunus, whose Grameen Bank pioneered microfinance, and Ela Bhatt, a founder of India’s Self-Employment Women’s Association (SEWA). The heroes of the second group are reformist finance or economy ministers such as India’s Manmohan Singh or Brazil’s Fernando Henrique Cardoso.

CommentsAt first sight, this might seem like another dispute between economists and non-economists, but the rift runs within, rather than between, disciplinary boundaries. For example, recent work with field experiments and randomized controlled trials (RCTs), which has caught on like wildfire among development economists, lies strictly in the tradition of bottom-up development.

CommentsThe relative effectiveness of the two visions is not easy to determine. Proponents of the macro approach point out that the greatest development successes have typically been the product of economy-wide reforms. The dramatic reductions in poverty achieved by China over the span of a few decades, as well as by other East Asian countries like South Korea and Taiwan, resulted largely from improved economic management (as much as earlier investments in education and health may have played a role). Reforms in incentives and property-rights arrangements, not anti-poverty programs, enabled these economies to take off.

CommentsThe trouble is that these experiences have not proved as informative for other countries as one might have wished. Asian-style reforms do not travel well, and, in any case, there is significant controversy about the role of specific policies. In particular, was the key to the Asian miracle economic liberalization or the limits that were placed on it?

CommentsMoreover, the macro tradition vacillates between specific recommendations (“set low and uniform tariffs,” “remove interest-rate ceilings on banks,” “improve your ‘doing business’ ranking”) that find limited support in cross-country evidence, and broad recommendations that lack operational content (“integrate into world economy,” “achieve macroeconomic stability,” “improve contract enforcement”).

CommentsDevelopment specialists in the bottom-up tradition, for their part, can deservedly claim success in demonstrating the effectiveness of education, public health, or microcredit projects in specific contexts. But, too often, such projects treat poverty’s symptoms rather than its causes.

CommentsPoverty is often best addressed not by helping the poor to be better at what they are already doing, but by getting them to do something altogether different. This calls for diversification of production, urbanization, and industrialization, which in turn require policy interventions that may lie at considerable distance from the poor (such as fixing regulations or targeting the value of the currency).

CommentsMoreover, as with macro-level economic reforms, there are limits to what can be learned from individual projects. An RCT conducted under specific conditions does not generate usable hard evidence for policymakers in other settings. Learning requires some degree of extrapolation, converting randomized evaluations from hard evidence into soft evidence.

The good news is that there has been real progress in development policy, and, beneath the doctrinal differences, is a certain convergence – not on what works, but on how we should think about and do development policy. The best of the recent work in the two traditions shares common predilections. Both Conventional development policy has been prone to fads, moving from one big fix to another. Development is held back by too little government, too much government, too little credit, the absence of property rights, and so on. The remedy is planning, the Washington Consensus, microcredit, or distributing land titles to the poor.

By contrast, the new approaches are agnostic. They acknowledge that we do not know what works, and that the binding constraints to development tend to be context-specific. Policy experimentation is a central part of discovery, coupled with monitoring and evaluation to close the learning loop. Experiments do not need to be of the RCT type; China certainly learned from its policy experiments without a proper control group.

Reformers in this mold are suspicious of “best practices” and universal blueprints. They look instead for policy innovations, small and large, that are tailored to local economic circumstances and political complications.

The field of development policy can and should be reunified around these shared diagnostic, contextual approaches. Macro-development economists need to recognize the advantages of the experimental approach and adopt the policy mindset of enthusiasts of randomized evaluation. Micro-development economists need to recognize that one can learn from diverse types of evidence, and that, while randomized evaluations are tremendously useful, the utility of their results is often restricted by the narrow scope of their application.

In the end, both camps should show greater humility: macro-development practitioners about what they already know, and micro-development practitioners about what they can learn.

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the psychology of debt

Financial Post Article
It is an everyday dilemma – whether to plunk down cash or plastic for a new outfit or a car, a washing machine, a dinner out, perhaps a holiday. Plastic postpones the moment of reckoning until the bill comes due. But the dilemma is more than the rational one of whether you really need the new appliance or a meal somebody else cooks.
It is about splurging to buy an outfit that confirms or changes your identity or hoarding old clothes for fear of not being able to buy other things in future. The problem is that it is hard and often impossible to detach the emotion from the purpose of spending and to separate the rational part of spending on genuine needs such a home from the anticipated pleasure of a holiday. The former is a durable good that will provide service for decades. The latter lasts not much longer than a tan.
Scott Hannah sees the wreckage of wrong decisions.  President of the Credit Counseling Society, a national non-profit organization based in Vancouver that helps people find solutions to their financial problems, he sees the spend or save dilemma as a reflection of two problems – omnipresent marketing and low interest rates.  One, marketing and the manipulation of buyer psychology by advertising, appeals to emotions. The other, the fact that money saved in cash returns little before inflation and less than nothing after, is an incentive to spend.
“We live in a society so heavily marketed in the media that there is a rush to keep up with everyone else,” Mr. Hannah explains. “Then add in the fact that the one asset that people can buy and use well that may appreciate – a home – is often out of reach and it becomes rational in a way to spend money on what one can afford.”

Add in the fact that money held in fixed-income accounts such as guaranteed investment certificates earns little and cash in bank accounts almost nothing and there is an incentive to spend before inflation, which is not insignificant and which compounds price increases, prices things out of reach. “Low interest rates punish thrift,” Mr. Hannah notes. As well, he adds, when people elect to finance consumer purchases with low-interest home-equity lines of credit, they borrow for transitory needs against the most durable of their assets. That is a decision that they would not make as readily if interest rates were higher, making saving worthwhile and showing the true cost of spending.”

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What’s new in Canada’s consumer boom is the easing of guilt about spending.
Of course, a core of consumers remain wedded to an older feeling that thrift is good and spending is bad. Those on fixed incomes may fear running out of money and so tumble into a vortex of hoarding cash and old products for fear of poverty. It is distinctly if not uniquely a problem of the elderly, says Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C. “My mother and father get a feeling of discomfort from shopping. They are traditionalists who find it hard to reverse the belief that one should always spend less than one earns.”

The problem is cash myopia – insecurity and a desire for liquidity often go together

The spend or save, splurge or hoard decision really comes down to confidence about the future or fear of it, says Ivan Bilash, a clinical psychologist who practices in Winnipeg. “The problem is cash myopia – insecurity and a desire for liquidity often go together,” he explains. “If people fear the future, then most of the time they want to maintain cash balances and not squander money on transitory pleasures. On the other hand, people who are secure may be more willing to spend on the pleasures of the moment.”
There are rational ways to allocate money and to exclude most of emotion from the process.  Setting up a budget and living within it means that, down the road, there won’t be a surprise when payments for pleasures bought long ago come due to be paid.  “You want to avoid buyer’s remorse,” Mr. Hannah says.  The solution, of course, is to practice anticipation – the essence and the purpose of budgeting.

Issue: With profit margins in the transportation industry growing increasingly thin and more scrutiny on the environmental impact of the industry, transport providers are under increased pressure to find cost-effective and eco-friendly means of transporting goods
Shift: Collaboration between the transport sector, government and safety groups is resulting in more transport operators doubling up loads and reducing the number of engines on the road
It might be a rare sight in Ontario, but at certain times of the day, motorists may catch a glimpse of an LCV travelling the 400 network of highways.
What is an LCV, you ask? It’s a term used in the transportation industry for Longer Combination Vehicles. A more common sight outside of Ontario, these extended units interconnect two fullsize trailers. The idea behind the approach is to reduce the environmental impact of over-the-road truck traffic.
While double trailers have been commonly used in a smaller format (maximum 25 metres per trailer), these extended-length combinations (35 metres per trailer) are another thing altogether.

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LCVs have been traversing roads in the Prairie provinces and Quebec for some time, with New Brunswick and Nova Scotia coming to the table more recently, reports David Bradley, president and CEO of the Ontario Trucking Association in Toronto. “Ontario was the odd man out. It really became a case of political will at a time when we’re seeing manufacturing leaving the province.”
There’s a reason why Ontario only recently came on board with LCVs, Mr. Bradley notes. “Government was rightfully concerned about how the public will receive LCVs despite the fact there’s no question they offer both economic and environmental benefits. It was really more of a perceptual issue since there are no real questions in terms of their safety.”
Ontario also has infrastructure challenges that other jurisdictions don’t. Traffic and population density have presented a major stumbling block.
“The 400 series is the most congested highway network in North America,” says Brian Patterson, president and CEO of the Ontario Safety League in Mississauga. “Obviously there’s a considerable amount of testing and requirements to get approval. If you live in Alberta, once you’re 15 minutes outside of the city you can keep driving.”
What finally tipped the scales for LCV approval in Ontario? Despite the perceived resistance, the trucking companies and shipper community have been on board with the idea for some time, as have provincial governments for the most part, says Robert Ballantyne, president of the Canadian Industrial Transportation Association in Ottawa. “It’s not only efficiency issues driving this. It’s a means to minimize fuel and congestion, as well as to address an imminent driver shortage.”
Anything that improves the productivity of a supply chain is of value to the people who produce and ship the goods and, in the long run, to the consumers that buy them, he adds. “Transportation is a big producer of greenhouse gas emissions, so reducing fuel consumption helps in terms of commercial operations and productivity.”
Even though safety groups and railway players have tended to oppose the use of LCVs, in Ontario, the collaborative effort on the part of government and industry went a long way to allay any concerns. Through its co-operative approach, Ontario has in fact managed to establish the most stringent safety guidelines in North America, Mr. Ballantyne reports.
“No one is fussing about it too much now. Everyone involved understands that they really have to do this right.”
The initial LCV permits were issued in the summer of 2009 to a select few carriers. Canadian Tire was the first out of the gate in August 2009. Currently there are 54 participating carriers operating 150 vehicles in Ontario that can travel on routes covering the Oshawa-to-Windsor corridor. (The government dictates a four-permit-per-carrier limit.)
Qualifying for these sparsely distributed permits is a significant feat. There is a long list of stipulations, including the times of day they can run (not during rush hour); what highways they can operate on (only the 400 series where there are hard shoulders); tractor horsepower and model year; weight limitations (lightweight cargo only); maximum speeds (90 km per hour); emissions compliance; available rest stops and access ramps; weather conditions; and time of year they can be used.
In addition, only the most experienced drivers with a spotless record can operate the vehicles. The same goes for the trucking company. “Not just anyone is qualified to do this,” Mr. Bradley says. “They have raised the bar very, very high.”
The Ontario Trucking Association reports that since 2009, there have been more than 45,500 LCV trips in the province covering 14.8 million kilometres, without any major incidents or violations. The metrics are showing a 40% productivity enhancement over conventional vehicles.
Neil McKenna, vice-president of transportation for Canadian Tire Corp. notes that while rail is a less expensive conveyance, destination points are an issue.
“There are not a lot of rail terminals between Toronto and Montreal. Besides, over-the-road is still more suited to time-sensitive travel.”
He estimates that LCVs save the company about 30% in delivery costs over conventional modes, and each LCV permit reduces greenhouse gas emissions by 136,000 pounds each year.
However, LCVs are unlikely ever to be commonplace, mainly because they are strictly cut out for direct runs on multi-lane highways.
“They’re really, really good in a straight-line operation with minimal turns,” says Mr. McKenna. “You don’t want to be going up and down mountains with these.”
Given that turning must be minimized, carriers also have to work closely with engineering analysts and municipal authorities to ensure the trucks can be safely negotiated when arriving at terminals.
In fact LCVs are only a smart part of a much broader spectrum of approaches to reducing fuel consumption and emissions. These include more aerodynamic truck designs to reduce air drag, speed limiters, engine improvements and route-optimization software.
What really makes Ontario’s LCV story unique, however, is its collaborative history. Initially, the Ontario Safety League was opposed to the idea and demanded a number of changes from the Ministry in the interest of public safety.
“But they agreed to every single one, and there have been no issues since,” says Mr. Patterson.
“When all safety requirements we asked for were taken, obviously the industry had to step up and do their part to meet them. And they did,” he says.
As far as the future of LCVs is concerned, rumour has it that Saskatchewan is piloting three-trailer “road trains” to travel between Regina and Saskatoon and selected northern runs. But Ontario and its counterparts to the east needn’t worry, says Mr. Ballantyne.
“The chances for that happening anywhere between Ontario and the east coast are virtually nil.”

Coyne: Work still needed on Canada's perplexing productivity gap

Government in Canada having reached the summit of efficiency, politicians have lately taken to scolding the private sector for failing to do the same. In language reminiscent of war-bond drives, businesses find themselves increasingly exhorted to raise productivity, as if they were letting down the side.
"Governments are doing their part," Tony Clement, then the industry minister, complained, in a typical outburst. "Where's business? When is business going to do its part?" Often this takes the form of a sporty metaphor. Government has been investing, according to the finance minister, Jim Flaherty: "We have to now ask the private sector to step up to the plate."
Now, sticklers may point out that the economy is not, in fact, a baseball team, and that businesses are under no actual obligation to raise productivity, except as and so far as it is of benefit to their shareholders. They will make the required investments if it is in their interests to do so, and only then.
Nevertheless, there is a germ of truth somewhere in this rhetorical Petri dish. Policy-makers have got a lot of things right over the last 20 years. They've freed trade, cut corporate tax rates, beat inflation down to near zero. Yet productivity growth in Canada has lagged behind that of most other developed countries. As recently as 2000, Canadian workers were roughly 85 per cent as productive as those in the U.S. Since then that ratio has fallen to 70 per cent.
So baffling is this "productivity puzzle" that some economists have all but given up trying to understand it. Notable among these is Don Drummond, the former Finance Department economist lately observed redesigning the government of Ontario. Yet even he declares himself stumped. In a recent paper he confesses that "everything I have ever done on productivity" is a failure, to the point that "if asked today what policy changes should be implemented to promote productivity growth I would need to say I do not know."
Steady on. Even if governments have made some progress in unwinding past policy failures, they still have plenty of work to do. All of the literature on productivity stresses the vital role of competition as a driver of productivity. Yet important sectors of the Canadian economy, for example transportation and telecommunications, remain protected, over-regulated backwaters, sheltered from foreign or domestic competition. Governments at every level continue to hand out billions in subsidies to businesses of all kinds, rewarding inefficiency and distorting investment; billions more are dispensed out the back door, via tax preferences. Income tax rates have been slashed for corporations, but remain as high as ever for individuals. And so on.
It's possible, moreover, that the productivity problem has been overstated: that, to the extent Canadian business has failed to invest or innovate, it may not be on account of an inexplicable failure to exploit opportunities to improve efficiency, but rather has more rational causes. There are three ways in which this might be true.
The first has to do with the rapid rise in prices over the last decade for the commodities Canada exports, such as oil: as economists say, there has been an improvement in Canada's "terms of trade." One way to raise living standards is to increase productivity: if you can make each thing for less cost, you get more things. But another way is by charging other people more for the things you make. So part of our productivity problem may simply be a reflection of our good fortune as a nation in possessing resources that are in high demand around the world.
The flip side of that, second, is the decline in manufacturing, driven in part by the rising "petrodollar" of which the Ontario premier has recently complained. Until about 2000, Canada's productivity growth tracked fairly closely with that of the United States, only falling off after then. Delve into that overall productivity performance, and you find it is largely driven by sharp declines in the manufacturing sector. Why is that? A recent Statistics Canada study finds that factory production has fallen so far below capacity that firms are using capital less efficiently, giving up economies of scale they would previously have enjoyed.
A third factor may be the rapid growth in Canada's labour force in recent decades, a combination of the baby boom and the increasing numbers of women in paid work. Notwithstanding the best efforts of government, Canada's labour market managed successfully to absorb these newcomers; on the brink of the financial crisis, in 2008, the employment rate hit an all-time record 63 per cent. With so much labour on hand, firms had less need to invest in new machinery: it was cheaper to just take on more workers.
But over the next few decades, the labour force is projected to grow much more slowly, if at all. That's concerning: if productivity growth does not rebound, living standards will take a hit. But it's possible that we will see our recent experience reversed: that businesses will respond to the relative shortage of labour by investing in more machinery, thus raising productivity. In other words, it's possible the problem will fix itself.
Still, I wouldn't want to bet the farm on it. Drummond figures governments have put in place about 70 per cent of the reforms he would advise. Rather than casting about for entirely new prescriptions, how about we get cracking on the 30 per cent that remain?

Loblaw to increase focus on new Canadians and online sales as Target enters market

The president of Loblaw Cos. Ltd. is vowing to put a renewed focus on the customer as the grocery chain gets ready to do battle against U.S. discount juggernaut Target Corp.
“It’s about bringing more customers into our stores,” Vicente Trius told analysts during a conference call Tuesday.
Loblaw lost some competitive momentum in late 2010 and early 2011, executives said, but the company been working hard to regain that ground, and has recently seen increased customer counts.
“It doesn’t happen overnight. It’s about building a more solid customer proposition,’ Trius said. “This is about bringing better service to build our business. I like the traction that I see.”
Trius said the chain also plans to add more ethnic fare, introduce a new loyalty card in 2013 and sell Joe Fresh merchandise online.
Trius and other executives assured analysts and investors that a years-long overhaul of the grocery store operator’s supply chain is finally paying off, with almost 99 per cent of the grocery store operator’s products available on the shelves for customers.
“Product availability is 98.8 per cent,” Trius said. “The product is there.”
Loblaw has said it’s still not done with the overhaul. It will spend $70 million this year to bolster its information technology and supply chain and $40 million to continue developing its marketing efforts.
The Toronto company doesn’t expect profits from operations to be able to cover the expenses it will book in 2012 and as a result expects net earnings per share to be down year-over-year, with more pressure in the first half of the year.
That supply chain overhaul will be crucial as Target launches its first stores in Canada next spring, analysts say.
“The food and grocery sector in Canada is already pretty darn tight with the incumbents and Wal-Mart expanding,” said Ed Strapagiel, executive vice president of KubasPrimedia, a retail consulting and research firm.
Last year was difficult for supermarkets and food stores across Canada. Sales were up just 0.4 per cent for the industry sector.
Budget-conscious consumers traded down to cheaper brands rather than spending on premium names. They also used more coupons to reduce their grocery bills.
“It’s pretty challenging all around in the food business,” Strapagiel said.
Trius talked about the importance of customer connection, the supply chain, and getting fresh offerings to the shelves.
“Fresh is about the quality, it’s about the experience, it’s about what really brings the loyalty. It’s about how you source, how fast you deliver at the right speed to ensure freshness. We call it field-to-fork. Sometimes I call it field-to-stomach.”
The grocery chain, which operates across Canada under numerous banners including Loblaw, Real Canadian Superstore, Zehrs, Provigo, No Frills and Atlantic Superstore, launched the revamp in 2007 in an attempt to resolve supply difficulties that had resulted in stock not reaching stores efficiently.
Loblaw wants to lead in offering products to new Canadians, Trius said, adding that $1 out of every $3 going forward will be spent by new Canadians.
“This is a country that’s a mosaic and this is a huge opportunity when I look at the market. What an opportunity with new Canadians and what an opportunity with all Canadians,” he said.
He also said Loblaw wants to build on its success of the Joe Fresh clothing brand in other categories such as children’s goods, home essentials and beauty products.
Loblaw will grow by adding more square feet yearly but also by looking opportunities for smaller stores as more Canadians opt for condominiums, he said.
Loblaw also wants to grow e-commerce through its Joe Fresh brand by 2013 and have a “best-in-class loyalty card.”
“I want to know our customers better. I want to be able to communicate to them better.”

You start dying slowly - Pablo Neruda

You start dying slowly
if you do not travel,
if you do not read,
If you do not listen to the sounds of life,
If you do not appreciate yourself.

You start dying slowly
When you kill your self-esteem;
When you do not let others help you.

You start dying slowly
If you become a slave of your habits,
Walking everyday on the same paths…
If you do not change your routine,
If you do not wear different colours
Or you do not speak to those you don’t know.

You start dying slowly
If you avoid to feel passion
And their turbulent emotions;
Those which make your eyes glisten
And your heart beat fast.

You start dying slowly
If you do not change your life when you are not satisfied with your job, or with your love,
If you do not risk what is safe for the uncertain,
If you do not go after a dream,
If you do not allow yourself,
At least once in your lifetime,
To run away from sensible advice…

The Toronto that will be

Reprinted from Toronto Life, January 2000 pp. 84-90.
In the year 2021, the population will be 6.4 million, pedestrians will have rights, garbage pickup will cost you and bingo will be big. These and other surprising predictions from the University of Toronto's celebrated demographer. By David Foot with Daniel Stoffman
Here's a little quiz. What percentage of Torontonians will be 65 or over in the census year 2021? a) 58 per cent, b) 40 per cent, c) 29 per cent, d) 16 per cent.
Given the flow of newspaper articles and TV shows about population aging and its consequences, people assume we're rapidly becoming a society dominated by seniors. But if you guessed anything other than d), you guessed wrong.
It's true that our city, like the rest of the western world, is getting older -- but Toronto's population is not old now, and it won't be old two decades from now, when only 16 per cent of its residents will be 65 or over. That's a significant increase from the current 12 per cent, but not nearly enough to make seniors the dominant group.
Throughout the western industrialized world, young people are having fewer babies than their parents did and old people are living longer than their parents did. That demographic combination is the basis for the phenomenon of population aging, which means simply that the average age is increasing. But this process takes place gradually, so forecasts of dramatic change are usually off base.
It's easy to confuse old with older which is why some writers make false assumptions about population aging. In 1996, The Globe and Mail launched its hypothetical "Boomer Portfolio," a collection of stocks that seemed well positioned to benefit from the changing needs of aging boomers, the huge group born between 1947 and 1966 that comprises almost a third of the Canadian population. It was an interesting concept, but there was a flaw in the portfolio: it contained two companies, one in the nursing home business and another in the funeral business, that were decades away from attracting much business from boomers. In 1996, the boomers were aged 30 to 49, hardly prime candidates to become residents of nursing homes or cemeteries. Even in 2021, aged 55 to 74, not many boomers will be ready to move into nursing homes. And given that average life expectancy is now about 79, the funeral business won't take off until around 2030.
That said, it's a fact that the older boomers are nearing the stage of life when heart attacks, strokes, cancer, and other serious illnesses become more prevalent. Many boomers will die between now and 2021, while at the same time their children, the echo generation, will produce a mini-baby boom of their own. As a result of those demographic changes, Toronto two decades hence will no longer be boomer city.
The dwindling of the power of the boomers will probably be the most important demographic phenomenon Toronto will experience over the next two decades. Since the 1970s, the city has been a magnet for ambitious boomers from all over the country -- a cohort that, because it has so many members, has wielded tremendous power. Boomers triggered rent controls during the 1970s as they flooded into the housing market for the first time. In the 1980s, they sent real estate prices soaring. Then, during the 1990s, they discovered mutual funds and stocks, prompting the greatest bull market ever.
As we approach 2000, the boom is at the height of its influence. Boomers in their 40s and 50s are running the large corporations, governments and universities. To the chagrin of younger boomers (those in their 30s) and the baby busters (now in their 20s), older boomers are still clogging the hierarchies of all these organizations.
Yet the beginning of the end of the big generation's dominance is already evident. Companies are instructing their recruiters to give preference to younger people. Complaints of ageism are already being heard from boomers in their 40s and 50s who find themselves in the job market.
By 2021, all of that will be ancient history. Nobody will talk much about the baby boom any more. According to the projections of economist Tom McCormack of Strategic Projections Inc., people born after the boom in the GTA will outnumber boomers and those born before them by the year 2004. And by 2021, of the 6.4 million people in the GTA, 4.4 million will be post-boomers, 54 or younger; only two million will be boomers or pre-boomers. More significant, among those of voting and working age, the boomers and their elders will be outnumbered by younger Torontonians after 2013.
Let's take a closer look at how the dwindling of the boom and other demographic shifts will affect life in the city two decades in the future.
Real estate
The front half of the boom, people born between 1947 and about 1957, have been lucky in real estate. In the late 1960s and early 1970s, when the first of them hit the rental market, a spacious apartment -- one floor of a house in the Annex, for example -- could be had for less than $200 a month. And when those same people were ready to buy, a solid Victorian house in a good downtown Toronto neighbourhood sold for $100,000 or less. House prices moved up during the 1970s, but it wasn't until most of the boom had flooded onto the real estate market in the 1980s that they really took off. At the same time, in response to boomer demand, the suburbs burgeoned. Toronto house prices peaked in 1989 and then plunged 25 per cent over the next two years, because most of the boomers who could afford a house had already bought one. Prices recovered moderately through the latter half of the 1990s after the recession ended and younger boomers, those born in the 1960s, could afford to move into the market.
The real estate frenzy of the 1980s already seems a distant memory, and demographics offer no reason to expect it to be repeated. In fact, the decade about to begin will be fairly quiet, because the bust, the group entering its house-buying period, is only about half the size of the boom.
A growing number of boomers will choose early retirement during the first decade of the millennium, but that doesn't mean they will want to sell their houses. Less than 20 per cent of retirees move out of their homes when they stop work; the other 80 per cent stay put, partly because they know the extra space freed up when the kids move out will come in handy when future grandchildren come to visit. Most people don't trade in their houses for more compact accommodation until they are in their 70s.
The real estate market will pick up during the second decade of the new century when the echo generation, which is larger than the bust, starts house hunting. For boomers who want to cash out of real estate, the arrival of their offspring in the real estate market will offer a window of opportunity that will last until about 2025. After that, the market will go soft again, because the following wave of house buyers, today's preschoolers, are a comparatively small cohort.
Boomers who play their real estate cards right, and enjoy a bit of luck as well, should be able to sell their house to a member of the echo for enough to buy a condo in the city and perhaps a country place as well. The trend toward splitting time between the city and semi-rural areas such as Collingwood and Kingston, will gather momentum as more of the boomer generation moves into its 50s. Some of those who move into exurbia will opt for communities built around golf courses. These will be adults-only communities, many with security gates that visitors have to pass through.
Gated communities are never going to be cool, and the aging boomers who decide to move into them are probably going to be a bit embarrassed about it. But boomers, as they age, won't be much different from earlier generations; older people have always been security conscious for two reasons -- they are more vulnerable physically then when they were young, and they have accumulated some things worth stealing. Besides, rental apartments and condos have had restricted entry systems for decades. Gated communities merely offer people who prefer to live in a house the extra security that apartment dwellers take for granted.
On the commercial side, the impact of the large echo generation will trigger new construction during the first decade of the new century, earlier than in the housing sector. That's because young people join the workforce about 10 years before they look for their first house. By 2021, the echo generation's workplace needs will have been accommodated. Then it will be the turn of the millennium bust, the group now emerging from the maternity wards, to enter the workforce, but that group will be too small to drive a great deal of new office construction.
Meanwhile, we can expect the trend toward renewal of old office structures and factories in the core to continue, partly because aging Torontonians will want to retain parts of the city that remind them of their youth. The late William Kilbourn, historian and city politician, liked to say -- only partly in jest -- that the Toronto-Dominion Centre, a work of the famous modernist architect Mies van der Rohe, should be designated a historic site so that it would not be destroyed in the name of redevelopment like so many other great Toronto buildings. By 2021, this set of towers, which dates from the 1960s when the boomers were very young, will be so designated.
Health care
The most remarkable thing about Canada's health care system at the end of the 1990s is that it is perceived to be in crisis and underfunded at a time when Canada still has a relatively young and healthy population. Our population is younger than that of the western European countries, most of which, on a per capita basis, spend less on health care than we do.
The boomers make up about a third of Toronto's population, and most of them haven't gotten sick yet; their health won't start to deteriorate for another decade. The need for health care services increases sharply among those over 60 and doubles after the age of 70. Even by 2021, less than half the boomers will be seniors, so they won't have hit the health care system in full force yet.
When they do, however, they are going to put major pressure on hospitals and home care services. During the 1990s, the Ontario government has reduced reliance on hospitals, which are the most expensive part of the health care system. Some hospitals have been closed, and patient stays have been reduced. To take up the slack, an increasing amount of health care is being delivered in the home. Home care will continue to grow and develop over the next decade. But a home care system, no matter how efficient, is not much use to someone who has just suffered a stroke.
When large numbers of boomers start having strokes and heart attacks, in the second decade of the new century, hospitals will take on new importance. Existing ones will be expanded and new ones will have to be built. Because a lot of semi-retired people will be living in nearby semi-rural areas, the focus will be on hospitals located on major traffic arteries on the outskirts of the GTA. These hospitals will be accessible both to the expanding exurban population and the 6.4 million GTA residents.
Governments prefer to ignore demographics if they can, but even before 2021 the significance for the health care system of the aging of the boom will be too great to ignore. Even though the over-65 segment of the population will, as mentioned, be small as a percentage of the total population, there will be almost twice as many people over 65 in 2021 than there are now. That means demands on the health care system will be twice as great. This is a daunting prospect, given that our system is already under unprecedented stress and is the fourth costliest, per capita, in the world, behind those of the U.S., Germany, and France.
The provincial government, regardless of which party is in power, will have no choice but to undertake major restructuring. The key to reform is integration of all aspects of health care -- hospitals, home care, drugs, doctors and other health care workers -- under one budget.
Integration is crucial because separate budgets for different aspects of health care are the reason the current system is so inflexible and expensive. For example, an expensive drug might be able to keep a patient out of hospital, saving the overall health care system huge sums. But there is no budget in the existing system to pay for the drug, so the patient winds up in hospital instead. An integrated organization would have every incentive to opt for the drug because doing so would be best for the patient and would save money as well.
Experience in other countries indicates that integrated systems are most successful when they cover about 100,000 people. The health care organization would get a fixed amount per year for each patient, based on the patient's age, gender, and health status. Known as "rostering" or "capitation," this system gives doctors and other staff an incentive to keep patients healthy through such means as counselling on fitness and nutrition, and it gives them a disincentive to encourage unnecessary visits or to perform unnecessary procedures.
Work
The restructuring of the workforce that has continued unabated since the 1980s will keep going into the new century. Fewer and fewer people will work in salaried jobs. Companies will maintain a key group of core workers on staff, supplementing them with a virtual organization of freelance specialists brought together for different projects. Many of today's late-boomers (Generation X) and busters have never been in a staff job and don't particularly want one. Just as employers value the flexibility of contract labor, freelancers place a premium on their independence. The integrated health systems described above will, if implemented properly, cover drugs and dental care -- among the most important fringe benefits of staff jobs.
Older demographic groups, including the boomers, will also be part of the growing ranks of freelancers. Many of these people will be semi-retired professionals in their 50s and 60s who find that working part time increases their quality of life in several ways: it keeps them alert, it gets them out of the house and meeting new people, and it raises their incomes.
Worried about whether they will have enough money to finance a lengthy old age, the semi-retired boomers are likely to be inventive in finding ways to minimize the taxman's cut of their income. As a result, a sophisticated barter system will be in place as the first decade of the new century draws to a close. For example, a semi-retired lawyer might draw up an estate plan for the manager of a health club. The health club manager might pay him by extending the club membership of a mutual acquaintance who runs an antique store patronized by the lawyer, who would get a credit at the store.
The coming retirement, or in many cases non-retirement, of the boomers, will bring a tremendous surge of creativity to the commercial life of Toronto and the surrounding region. The retirees will have energy, experience and organizational skills. Many of them will also know something about raising capital and marketing.
The prototype for this new generation of mature entrepreneurs is a pre-boomer named John Wiggins, who closed down a flourishing Toronto advertising business in 1977 because he wanted to escape the rat race. He moved into a 140-year-old farmhouse in Creemore, an hour and a half north of Toronto. After a period as an independent marketing consultant, he began his second career, at age 54, as a beer manufacturer.
Wiggins' new career has been a roaring success. Creemore Springs, praised by beer expert Michael Jackson as one of the two best lagers in North America, is served in some of Toronto's best restaurants and bars. And by turning a handsome former hardware store on Creemore's main street into a picturesque brewery, Wiggins has helped turn the town into a tourist attraction. Several other entrepreneurs with a creative bent have followed the trail he broke.
The case of Wiggins is suggestive in many ways. As a mature consumer himself, he understood the needs of other mature consumers. One of these was for quality and purity in the food and drink they consume. That's why they're ready to pay a premium for a beer made from the best ingredients, including pure spring water. He's his own boss, he's got fresh air to breathe, an outlet for his considerable energies, and a profitable business into the bargain. It's called having your beer and drinking it, too. A lot of mature boomers will be trying to find ways to do the same in the years to come.
Shopping
By 2021, discounts for those 65 and over will be gone. These discounts -- for such things as banking, bus rides, and movie admissions -- are already out of date, because the 1930s generation now beginning to take advantage of them is richer than many of the younger people who have to pay full price. When the early boomers start turning 65 in 2012, discounts for 65-year-olds will seem ludicrous, and the age of eligibility will be raised to 75 or 80. No doubt there will be a debate about the issue, but it will be won by younger Canadians, many of whom feel the boomers have had things their way for too long.
The front-end boomers will continue to be regarded fondly by retailers because they are a large and relatively affluent group. One way to their hearts will be via smaller stores. Big box retailers are already experimenting with smaller boxes aimed at an older clientele that doesn't want to roam through miles of aisles to get what they need. By 2021, smaller stores will have regained some of the market share they lost with the arrival of the big boxes in the 1990s.
Small is also increasingly important in another sense for stores selling food. Older consumers eat less, so prepackaged foods need to be available in small portions. And older people, strongly aware of their mortality, are more health conscious. By 2021, natural foods will be big business, and the major supermarket companies will have set up chains specializing in natural foods.
One of the hot trends in food retailing today is high-quality takeout. Supermarkets compete with restaurants to provide busy families with full-course ready-to-eat meals for people who are too busy to cook, yet want a meal that tastes home cooked. As the boomers start to retire, sales of prepared meals will fall off, because there won't be as many time-pressed workers to buy them. The boomers will rediscover home cooking, and cooking courses will be packed with students in their 60s.
Retiring boomers will also have an important impact on the car market, one that will please consumers and displease the automakers. When they quit working full time, boomers will do what retirees have always done: get rid of their second cars. Retired couples don't need a second car as much as they once did, and because older people tend to be frugal, they want to save on insurance. As the wave of boomer retirement picks up steam after 2010, a huge number of good-quality used cars will flow onto the market. As a result, demand for new cars will plummet, driving some of Toronto's new car dealers out of business.
In other ways, the retail environment in 2021 will resemble what we have now. Currently, the echo generation is moving through its teens, and, because it is a large cohort, teen culture is bigger than at any time since the 1960s and 1970s, when the boomers were young. In 2010, the smaller millennium-busters cohort (those born from 1996 to 2010) will begin to replace the echo kids in the teen years. There are fewer of them, so teen culture will go underground, just as it did during the 1980s when the parents of these millennium busters -- the small baby-bust generation -- were teens. By 2021, the aging of the second echo, which will get under way about 2010 when the echo starts reproducing, will once again mark a rebirth of teen influence. Then, as now, the most successful retailers will be those who know how to please both young and older population cohorts.
Transportation
When the boomers begin shedding cars, pedestrian rights will finally become a major issue in Toronto. By 2021, there will be more cars than ever but the ranks of pedestrians will also be increasing. Local politicians will have to pay attention to their needs. One likely innovation will be the stopping of all traffic intermittently during the day at busy intersections such as Yonge and Queen and Yonge and Eglinton. This will allow pedestrians to cross in all directions. Not only can people on foot cross more quickly by walking diagonally across the intersection; they will no longer have to worry about being sideswiped by right-turning vehicles.
Such pedestrian-friendly innovations will be part of a growing trend toward restricting the rights of private vehicles; the speed bumps currently sprouting on streets all over the city are an early manifestation of this trend, which has been prompted partly by an increase in the numbers of cars on the roads and partly by the growing recklessness of drivers. The deterioration of driving ability has been evident since the early part of the 1990s, when a significant percentage of Toronto drivers collectively decided that the yellow light that used to mean "come to a stop" now meant "floor it," and that the turn signals on their cars were purely decorative. Bad driving combined with increasing numbers of older, less agile pedestrians will create a lethal combination. Once fatalities begin to soar, we will finally get serious about more rigorous enforcement of traffic regulations, cameras to catch red-light runners, and steep fines for violations. By 2010, the streets will be safer.
As for the public transit system, it too will undergo major change, partly for financial, and partly for demographic reasons. The Toronto Transit Commission has fallen on hard financial times. The Sheppard subway, a $1-billion line from nowhere to nowhere that was forced on a reluctant TTC by Mel Lastman and other suburban politicians (egged on by The Toronto Star), will attract almost no riders and will be closed down after operating for only a couple of years. While this white elephant was still under construction, the Harris government eliminated provincial subsidies for the TTC. The local politicians rightly complained, but because of the Sheppard debacle they have lost all credibility in transit matters.
By the second decade of the new century, things will start to turn around for public transit. A new generation of local politicians, untainted by the bad decisions of the 1990s, will be able to fight for transit more effectively than the current members of Toronto city council.
An obvious solution, one that other jurisdictions have already taken, is a gas tax earmarked for transit. This would allow the existing system to be upgraded and refurbished, including increased frequencies on bus, streetcar, and subway routes. By 2010, demographics will favour transit, because the large second echo generation will be moving into its mobile years and the boomers will be using transit more than they did before they sold their second cars.
Just as changing demographics will encourage a new attitude toward pedestrians, it will also prompt some new thinking about transit. The TTC's strength is in providing high-capacity services along densely populated corridors. It's not good at providing transit service in less densely populated suburban areas, and what service it does provide in those areas loses money.
The obvious solution is to find a way to let smaller vehicles provide cost-effective service outside the high-traffic corridors. This is an area where Third World cities, with their private jitneys and colectivos, are way ahead of us. By 2021, this old-new form of transit will be proliferating in Toronto. Perhaps private companies will provide it, either independently or in partnership with the TTC. Perhaps the TTC will set up a subsidiary. The important thing is not who owns the new jitney service, but the manner in which it is operated. Customers should be able to call for a ride from home or hail a vehicle on the street.
A lot of the drivers will be semi-retired boomers. A natural market for them will be people who want to attend the Stratford and Shaw Festivals but can't face the long drive. Theatre attendance will increase in the years to come, because it is a form of entertainment that appeals to the over-50 crowd. By 2010, fleets of luxury vans will ferry theatre-goers from their doors to Stratford and Niagara-on-the-Lake and back again.
Leisure
By 2021, the restaurant industry will look back at the turn of the century era as a golden age. That's because the boom is now in its peak restaurant years. Middle-aged people, the ones in the busiest time of their lives, are the ones who spend the most money in restaurants. Restaurant spending plummets after age 60, and the boomers will begin turning 60 in 2007. That year will mark the beginning of a shake-out that will see many restaurants close.
While the aging of the boom is bad news for Toronto's restaurants, the aging of the echo isn't much better for the movie houses. As the echo moves into its 30s, after 2010, movie attendance will decline. Some of the lavish megaplexes sprouting up all over town will close. By 2021, however, the second echo will be into its prime movie-going years and movie attendance will again recover.
Gardening, one of the favourite activities of middle-aged and older folks, will continue to grow in popularity, so much so that many empty-nesters who might otherwise have been lured into condos will stay where they are because they don't want to give up their gardens. Another leisure pastime popular among older folks is bingo. With a million seniors in the Greater Toronto Area in 2021, bingo will be booming. Expect bingo operators to take their cue from the movie exhibitors and install luxury seating, good food, and classy cocktail lounges where musicians will perform "Bridge Over Troubled Water" and other golden oldies.
However, the aging phenomenon that benefits bingo and gardening is bad news for professional sports, because older people attend fewer games than younger ones. During the first decade of the new century, the Leafs, Argos, Blue Jays, and Raptors will benefit from the progress of the relatively large echo generation through its teens and 20s, the prime sports attendance years. But by 2021, many of that cohort will be too busy with jobs and families to attend as many games as they once did. And the burden of mortgages and other debts will make tickets less affordable than they were in more carefree days. The echo generation's own offspring will be pre-teens in 2021 and not yet into their big sports attendance period, so there won't be many sellouts.
The successful transfer of the Montreal Alouettes to a smaller stadium befitting their minor league status is a model for the future of the Canadian Football League. The Argos will still be in business in 2021, but in some more intimate locale than the SkyDome. As for the Leafs, Blue Jays and Raptors, despite the downward pressure on attendance caused by population aging, the GTA and surrounding area have more than enough people to keep them in business. However, the future of these teams is endangered by a non-demographic factor, the still struggling Canadian dollar that makes it difficult for them to compete with U.S. teams for the best players. The Leafs and Raptors, with strong ownership and an attractive arena, will survive. But major league baseball, lacking a salary cap and revenue sharing among the teams, is a mess. The chances of it cleaning up its act are slim, which means the prognosis for baseball in Toronto is poor. The Blue Jays will still be playing ball in 2021 but, sadly, not in Toronto.
Investing
Investment counselling is already a growth industry. By 2021 it will be huge. Money management is crucial for retired people, because they want to live well -- but not so well that their savings expire before they do. They might also like to leave something for their children and grandchildren. Achieving all of this is no easy matter, given persistent low interest rates and the riskiness of equities. Retired people can't afford to rely on interest income, but they also can't afford to take big risks with their money.
So what to do? Accept that money is always at risk and find ways to minimize risk or, even better, insure against it. Just as great fortunes were made in the late 1990s by the pioneers of Internet commerce, other great fortunes will be created in the first two decades of the new millennium in the rapidly advancing field of risk management. The trend announced itself in 1999, when mutual fund companies found that some of their clients were becoming more risk-averse as they got older. They responded by borrowing an idea from the insurance industry and offering segregated funds, mutual funds with built-in insurance policies. But these products had high fees that cut deeply into investment returns.
By 2010, the ever increasing power of computers combined with rising sophistication in the use of derivatives will make it possible to insure any individual investment portfolio at a reasonable cost. These insurance policies will be readily available on the Internet. By 2021, an serious investor will no more think of leaving his investment portfolio uninsured than he would his house or condo.
What of the cottage, the favourite investment of those who own one because it gives so much more enjoyment than a stock or bond? Continued population growth, and its attendant congestion and pollution, will make the appeal of cottage country all the greater, and demand for second homes will be steady through the first two decades of the new millennium. By 2021, however, all the boomers who want cottages will have them. And some will be tired of cottage upkeep and will want to unload, so a temporary buyer's market will emerge. By 2025, however, the echo generation will be looking for rural retreats, and demand for country properties will pick up again. Many boomers want to leave their cottages to their children, and that raises tax problems: unlike a principal residence that can be sold tax free, the increase in value of a cottage after purchase is taxable as a capital gain even if the cottage is given away. The boomers will still wield a lot of political power in 2021, and they can be counted on to mount a strong campaign to get the same tax status for second homes as for principal residences.
People
In the 1996 census, Toronto had 1.3 million people classified as belonging to visible minorities, or 32 per cent of the total population. In one area, the former municipality of Scarborough, visible minorities were a majority: 52 per cent. By 2021, according to Tom McCormack's projections, visible minorities in the city of Toronto will represent 40 per cent of the population.
The collective response of Torontonians to the increasing prevalence of non-white faces will be "So what?" Most people understand that it makes no more sense to judge people on the basis of complexion than on the basis of blood type. And while the many cultural communities of Toronto will continue to flourish, federal programs promoting multiculturalism will die before the first decade of the new millennium is over. There won't be -- there never has been -- any need for them. Immigrants to Canada have always by definition brought cultural diversity with them, and their offspring have always integrated rapidly into the mainstream. They will continue to do so, oblivious to the efforts of federal bureaucrats to slow down the integration process in the name of multiculturalism.
Almost all new Canadians, in 2021 as in 1921, will want to be unhyphenated Canadians. Proof is found in the data on language retention among immigrant families who arrived speaking foreign languages. In 2021, as now, second-generation Canadians will retain only a smattering of their parents' native languages and third-generation Canadians will have none at all.
What sort of city will Toronto be in 2021? That will, of course, depend on what sort of city its residents want it to be and whether the senior levels of government want Canada's largest metropolis to be a place all Canadians can be proud of. As the new millennium begins, there is work to be done. Tourists have stopped praising Toronto for its cleanliness, because it's not especially clean anymore. Back in the 1980s, the city basked in its self-image as "New York run by the Swiss." In 1999, that clever phrase would draw blank faces from residents and visitors alike; New York is looking spiffier these days than Toronto.
In the U.S., federal funds are paying for revitalization projects such as Boston's removal of a waterfront expressway. Toronto gets no federal funds, and the province has also withdrawn support. Who will pay for removal of the Gardiner Expressway, or will it still be there in 2021?
Increasingly, the burden of maintaining the city and its services is falling on the local taxpayer. Partly for demographic reasons, taxpayers will become more and more restive about it. A major reason is that public education represents about 40 per cent of the municipal tax bill, and by the end of the first decade of the new century, most of the boomers' kids will have graduated from high school. As a result, a smaller percentage of the population will be using the public schools. While most people, including those who send their children to private schools, want a healthy public education system, many will protest paying more property taxes, almost half of which support a service they no longer use, at a time when other civic services are in dire need.
The obvious solution is for the province, which seems intent on centralizing control over the schools, to take over financing them as well. That would allow the city to use its property tax revenues to restore such services as garbage collection to pre-amalgamation levels. At the same time, a proliferation of user fees is inevitable. Already, many Torontonians are used to getting another bill in the mail, along with those for phone, hydro, and gas, for their trips on Highway 407, the electronic toll road. Additional toll roads will make traffic in the Toronto region run more smoothly. And if those who drive more pay more, why shouldn't those who produce more garbage pay more? Many municipalities already levy per-bag charges for garbage collection.
As the city strains to provide the services its residents want, it will have to become more aggressive in raising money. If we are going to run the city on the basis of property taxes, why should real estate be the only property taxed? Some jurisdictions tax other forms of wealth, such as cars and boats. Given the key importance of transportation to the healthy functioning of a huge city like Toronto, a municipal vehicle tax would make sense.
It would also make the tax system more just. Currently, many older people with low incomes pay high property taxes because their houses have become valuable. At the same time, some younger people with higher incomes prefer to put their wealth into expensive cars rather than housing. A vehicle tax would be a way of ensuring that everyone pays their fair share.
Of course, the 905ers and other non-residents would also have to pay if they wanted to use our roads. Any Ontario-licensed car parked in Toronto, whether on the street or in a public or private lot, would have to display a sticker showing it had paid the tax or risk a fine. The imposition of such a vehicle tax will not cause cheering among Toronto's motorists, but it's the sort of innovative measure Torontonians will have to consider if the city is to renew itself.
Toronto has renewed itself before and can be relied on to do so again. For all its problems, it's a vibrant and dynamic city that will still be vibrant and dynamic two decades hence. Its population will not be especially old, as many people imagine, but it will be more mature -- mature enough that no one will bother boasting about their city being world class. Like Londoners, New Yorkers and Parisians, Torontonians in 2021 will take that for granted.
David K. Foot is a professor of economics at the University of Toronto, and co-author of the Boom, Bust & Echo books.