Restructuring and its drivers
The restructuring of the GGH economy has been under way for several decades. Between 2006 and 2016, the region lost 130,000 jobs in the manufacturing sector. At the same time, about 47,000 jobs in finance were added.
Restructuring is not a one-time event; it is a continuous process. The regional economy's makeup of industries, firms, and jobs will continue to shift and evolve in response to key drivers of change. This restructuring takes place not only between industries (for example, the growth of finance and the decline of manufacturing employment) but also within industries. For example, within the finance sector, activities such as investment analysis have grown, while clerical functions in banking and insurance have declined.
With a horizon of 25 years for many land use plans, planners need to estimate the demand for non-residential land uses in the context of long-term, structural economic change. This approach differs from common planning methods and rationalizations that rely on short-term market analyses to establish only that demand currently exists for a given use. Moreover, it is no longer sufficient simply to extrapolate past trends forward in a linear fashion, without regard to the dynamics of change. In the current context of rapid, disruptive technological change, such an approach is a less informed and potentially risky basis for land use planning.
There are several ways to look at the regional economy from a long-term perspective. One approach suggests that since the late 1700s, there have been not one but several industrial revolutions. The first was based on the invention of water and steam power, and brought about the initial mechanization of production. The second began in the late 1800s, founded on electric power, and was associated with the move to mass production in factories. The third began in the 1950s with the invention and then wide diffusion of digital technologies, the computer, new communications technologies, and the Internet. Some argue that we are now entering a fourth industrial revolution. This one is characterized by the fusion of different advanced technologies, such as artificial intelligence, robotics, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.
Another long-term, structural perspective is that of the long-wave economic cycle. Nicolai Kondratieff identified waves of economic growth and decline, each lasting about 50 years, starting with the first industrial revolution of the late 1700s. Each wave is characterized by a rise and fall, consisting of prosperity, recession, depression, and improvement. According to this theory, we are now in a fifth Kondratieff wave that began in the 1990s, based on new information technologies.
The "fourth industrial revolution" and Kondratieff frameworks both identify technology as a key driver of change. The role of foundational technologies (steam power, electric power, and digital technologies) is seen as central to explaining long phases of economic growth, change, and restructuring. Today, technological innovation is seen in tandem with globalization as the two main drivers of economic restructuring. Understanding these drivers is essential to understanding the changing makeup of the GGH economy and the region's evolving economic landscape from a long-term perspective. Technology and globalization are themselves evolving within the broader context of our economic system, which has its own drivers and dynamics.
Technological innovation and globalization occur within the context of the economy, and an enduring dynamic of our economic system that is key to restructuring is the tendency for capital to concentrate. This has long been recognized, most recently by Thomas Piketty, who has provided strong evidence of this in 21st-century economies. Piketty argues that this concentration happens because wealth (that is, capital) grows faster than economic output.
Concentration also occurs as markets get bigger with globalization, and firms get bigger to compete in these markets. As we have seen in the GGH, corporate consolidations, acquisitions, and mergers are often accompanied by rationalizations - in which the different components of the production process are moved around, consolidated, or eliminated altogether. A recent example is the announced closure of the 87-year-old Campbell Soup plant in Etobicoke, as global food producers consolidate production in larger, modern factories, in this case in the United States.
The tendency of capital to concentrate is mentioned here because it is a structural driver of urban change. It is implicated in increasing social and income polarization within cities, for example. It also shapes the economic landscape. In the GGH we have seen the geographic concentration of certain types of economic activities in recent years. Previous Neptis Foundation research highlighted the way in which knowledge-based activities focused on a limited number of locations in the region - Downtown Toronto and several suburban knowledge-intensive districts.
In the five years since that research, geographic concentration has intensified, with high levels of knowledge-intensive growth focused heavily on Downtown Toronto. The City of Toronto estimates that employment in the downtown grew by close to 100,000 jobs between 2012 and 2017 - including the addition of over 30,000 jobs in 2017 alone. This concentrated growth pattern has important regional and land use planning implications, both for the places that are attracting massive growth and for those that are not.
The tendency for capital to concentrate is a key driver of economic and urban change.
Globalization has several basic elements. The globalization of trade takes the form of expanding markets for goods and services. The reduction of trade barriers through agreements like the Free Trade Agreement in 1989, followed by NAFTA in 1994, provides freer access to U.S. and Mexican markets. The general trend has been for Canada to seek additional trade agreements, such as those with the European Union and Pacific Rim countries.
Freer trade has led the GGH economy to focus on activities in which it has a comparative advantage, while it loses activities to other jurisdictions that can do them more efficiently or competitively. Being part of a larger market goes hand-in-hand with specialization in the regional economy in the kinds of tradable activities in which we are most competitive.Freer trade has had a dramatic impact on the structure of the national and GGH economy. The reduction of trade barriers also removed the need for U.S. branch plants to be located in Canada to access Canadian markets. Many factories and jobs moved to the southern U.S., Asia, Mexico, and other regions where labour costs are lower.
Capital has become geographically mobile. Computers, the Internet, and other communications technologies made it possible to establish global supply chains, decoupling the co-location of head office and production functions that was previously the norm. Production functions could now locate wherever it was most competitive, often in regions where labour costs are lower.
Financial capital can move around the globe instantaneously in electronic form. Along with the deregulation of the finance sector in many countries, this has led to the explosive growth of financial industries. In the GGH, employment in the finance sector expanded at 2.6 times the economy as a whole between 2006 and 2016.
Labour is arguably less mobile than some forms of capital, but we have seen increasing levels of immigration to Canada in recent years, and further increases are projected. The GGH remains a strong magnet, attracting a significant share of immigrants.
The globalization of markets, production, capital, and labour is a key driver that continues to reshape the GGH economy.
Historically, each major phase of capitalism (or each industrial revolution) was driven by a particular set of technologies. Each phase also had a distinct economic and urban geography closely associated with the dominant technologies, production systems, and markets. For example, in the early 1900s, key drivers of urbanization included access to rivers, ports, and railways for the transport of goods, and proximity to coal as a source of power. Today, the creation and sharing of information and ideas drives urbanization.
Most recently, new digital and communications technologies have played a central role in changes to multinational corporations and supply chains, prompting the spatial reorganization of production on a global scale, and with it the restructuring of economies on regional scale, including that of the GGH. Many of the tasks and jobs that were "off-shored" to low-cost locations were of a relatively simple, routine, and repetitive nature.
In addition to enabling production to be organized and reorganized across the globe, new technologies have a second, far-reaching impact on the makeup of regional economies: the potential for automation of tasks or occupations. This process has been under way since the "first" industrial revolution. More recently, the computer, software, and robotics have led to the automation of many routine tasks, especially in manufacturing, and administrative tasks, such as bookkeeping (Figure 1). In the GGH, the regional economy has been restructuring as certain routine tasks or occupations are automated.
Figure 1: Change in employment for occupations with most significant losses, GGH, 2001-2014
The restructuring of the GGH economy that has been unfolding for the last several decades is often described as a shift from manufacturing to services. While that shift is certainly observable, this categorization does not capture the essence of the change taking place. Underlying the shift are off-shoring and automation, primarily of routine, lower-skilled tasks. It so happened that there was a concentration of these types of tasks in manufacturing, although jobs in other sectors were also lost, as GGH data suggest (see Figure 1).
This is not fundamentally a shift from manufacturing to services, but a restructuring resulting from the automation and off-shoring of certain types of productive tasks.
This is especially true today and in the coming years, as ongoing and rapid technological advances are expanding the potential for automation beyond the realm of routine, repetitive tasks to both higher- and lower-skilled types of work. Until now, jobs at both the high and low ends of the skills spectrum have been more difficult to automate. This is changing quickly.
On the higher skilled end, we are already witnessing the automation of tasks such as financial advising with "robo-advisors" like Wealthsimple. The automation of some forms of legal work, including basic contracts, is imminent. On the lower-skilled end we have automated or eliminated bank tellers', travel agents', and retail check-out clerks' work.
What the GGH economy has been experiencing and will likely continue to experience is a shift to an economy driven by knowledge-intensive activities, as Figure 2 shows.
Figure 2: Change in employment by skill level, GGH, 2001-2014
The expanding potential for automation at both the high and low ends of the skills spectrum is a key driver shaping the structure of the GGH economy.
Of course, technology has the potential not only to replace existing types of economic activities, but also to create entirely new ones. Many significant sectors in the economy simply did not exist a few decades ago, such as website and app designers.
The demand for different types of economic activities and land uses will evolve and change as the GGH economy continues to restructure - as some industries and activities expand and others contract in response to evolving technology and markets.
This restructuring in and of itself transforms the region's economic landscape. As finance grows, for example, demand for development in the high-density, corporate setting of Downtown Toronto also grows. We are seeing this demand today, with an expanded downtown headquarters for CIBC and the consolidation of BMO activities in the converted former Sears store in the Eaton Centre.
 Statistics Canada, Place of Work data for the Greater Golden Horseshoe. These figures are for the "archetype" industry groupings used in this report.
 Analysis of Statistics Canada Labour Force Survey data, 2001-2014.
 Klaus Schwab, The Fourth Industrial Revolution, Geneva: World Economic Forum, 2016.
 Ibid. Some argue that the fourth industrial revolution is not fundamentally distinct from the third. See for example, Jeremy Rifkin, "The third industrial revolution: Toward a new economic paradigm," Huffington Post, September 25, 2011.
 Schwab, The Fourth Industrial Revolution, 2016.
 An English version was published as Nikolai Kondratieff, Long Wave Cycle, Dutton, 1984.
 Brennan Doherty, "Campbell Soup factory in Toronto to close," Toronto Star, January 24, 2018.
 Pamela Blais, Planning for Prosperity, Toronto: Neptis Foundation, 2015.
 Figures from the Toronto Employment Survey, 2017.
 For data on employment in the Finance Archetype, see Chapter 3.
 Paul Swinney and Elli Thomas, A century of cities: Urban economic change since 1911, UK: Centre for Cities, 2015, p. 7.
 Statistics Canada, Labour Force Survey.
 Deloitte, Developing legal talent: stepping into the future law firm, February 2016.
 Analysis of Statistics Canada Labour Force Survey data for the nine CMAs that make up the GGH.
 Christina Pellegrini and James Bradshaw, "CIBC to move 15,000 staff to new downtown Toronto headquarters," Globe and Mail, April 12, 2017.
 Tara Deschamps, "Bank of Montreal to open tech 'campus' in old Sears HQ at the Toronto Eaton Centre," Financial Post, March 1, 2018.