The high cost of doing business in Ontario is keeping its manufacturing sector shackled – and recent moves by the provincial government to cut hydro rates is not enough to fix the problem, according to Philip Cross, Senior Fellow at the Macdonald-Laurier Institute.

“The number one source of weakness in Ontario’s economy is the failure of manufacturing sector to respond to the lower dollar,” Cross told BNN in an interview Monday. “(Ontario has) done a number of things that have raised the cost of doing business, raised the cost of regulation in Ontario… I don’t think it’s as easy saying let’s just cut hydro rates and it will all fix itself. “

Last week Ontario moved to slash the province’s soaring electricity rates by about 25 per cent. That will help, but the province has already said it wants to reform provincial pension rules, overhaul labor regulations and hike the minimum wage – initiatives that will hurt business, Cross said.

“There [are] a number of measures that have sent the message out that it’s costly to do business in Ontario,” he said. “Until we start changing that message, I think the Ontario economy – and especially its manufacturing sector – is going to continue to sputter.”

Ontario’s economy continues to fall short of the rest other provincial economies, most notably Quebec, Cross said. Retail sales growth has been slow, employment growth has been sluggish, and Ontario is the only province where the manufacturing sector is still below its pre-2008 recession level.

Quebec has done much to improve how it does business, and Ontario needs to take heed, according to Cross. “We think of Quebec as the interventionist state in Confederation,” he said. “But it’s really quite surprising that people have to start thinking in terms of Ontario as being the most interventionist state.”