Canada can do better

Posted on December 29, 2012 in Debates – Full Comment
Dec 28, 2012.    Conrad Black

Examined perceptively, the world is in better long-term economic condition than it has ever been. The developing countries appear to have overtaken the G7 (U.S., Japan, Germany, France, U.K., Italy and Canada), in combined output in 2009 and are pulling steadily ahead, with a growth rate about three times as fast. During the last 30 years, over 700 million people, 10% of the current world population, have been pulled upwards out of poverty by growth in developing countries. China is the well-publicized leader of this group, but India, Brazil and Indonesia are among the largest participants. They are now joined, heartwarmingly, by most of sub-Saharan Africa.

This rising force should be a rapidly growing market for the natural resources of rich, advanced countries such as Canada and Australia, and also the sophisticated manufacturing of all the G7, including French and Italian luxury goods and German and Japanese engineered products. But the G7 must face its notorious obstacle of chronic debt before it can fully enjoy this unprecedented prospect of world-wide economic growth. Canada, despite its glittering prospects and relatively prudent fiscal performance, is not immune from the requirements of this boot camp initiation process that the West and Japan will have to endure before entering the new golden age that awaits.

As I have mentioned here before, it is a good thing that Canada’s trade with the United States has declined from 85% of the country’s total trade to about 76%, on its way down into the mid-sixties by all accounts, and to under 30% of GDP. There will always be a heavy reliance on one market, but at times, Canada was more integrated economically into the U.S. than was California, a hazardous condition for the country’s sovereignty and credibility. Foreign direct investment in Canada has fallen fairly steadily as a percentage of the world total for 40 years, but, as long as the trend levels off, I have not been too concerned by this. A reverse trend could mean an alarming level of foreign ownership of the Canadian private sector.

More worrisome is that Canada’s productivity growth is the lowest it has been in five years. It has fallen from 9th place in national economic competitiveness to 16th in less than 10 years, according to the (not completely reliable) World Economic Forum, and has only 75% of U.S. business sector productivity. Canada’s output per worker is only 17th in the OECD. In the same period, Canada’s average productivity growth fell by about 60%. Secondary school graduation rates are about 5% below the OECD average, and there is too great a concentration for Canada’s economic good on university degrees in the social sciences and law, chronically unproductive occupations beyond a threshold this country surpassed long ago. Canadians work longer hours than the OECD average, so the problem is in organization, targeting and technical systems. These trends must not continue, and competitive pressures can normally be relied upon to end them. Canada’s peers appear to be more advanced in electronic commerce, but this should not be difficult to reverse.

While Canada’s federal government has been fiscally sensible, most of the provinces have been irresponsibly managed, especially Ontario in the McGuinty era, and Quebec under all governments in the last 35 years — something that will accelerate under the new regime. (Quebec has been almost deliberately seduced by the federal government to become dependently addicted to federal largesse, for legitimate national interest reasons). Provincial and territorial debt represent 42% of Canada’s public debt, and these debt issuers have no way of servicing any continuation of their profligacy. Ontario’s debt is $215-billion, and is expected to grow to $411-billion in five years. Quebec’s position is significantly worse and the fiscal position of both provinces will require drastic surgery. So will the other provinces except the three western ones and possibly Newfoundland if oil revenues come in quickly enough to liberate it from 400 years of economic disadvantage (it is so right artistically, the economics must eventually follow). There is no sign of the necessary resolve to tackle these issues in the provincial capitals.

Canada’s public debt as a percentage of GDP, at 82%, is about the same as Portugal’s and higher than that of Spain. Canada’s per capita debt is greater than that of Greece, Portugal, Spain, Italy or the U.S., though it is, of course a richer country than those, except for the U.S. But Canadian household debt is rising and the use of such debt to pay for expenses, as opposed to investments, such as in housing, is also rising.

Equalization payments are an ever-growing corrupt placebo, used according to the whim of the provinces. They must be ended.

As in the dysfunctional American political cauldron, the right can only rail against taxes and the left against any reduction in social benefit. What is needed is a return of the radical and creative centre. A good place to start would be in tossing out equalization payments. These were devised by the St. Laurent government in 1955 when Quebec’s premier Maurice Duplessis finally invaded the shared jurisdiction of direct taxes. He imposed a provincial income tax and made it clear that if St. Laurent did not permit Quebecers to deduct that tax from their federal income tax, he would cause the federal Liberals to pay for it at the polls in Quebec. Faced with Duplessis’ insuperable domination of political opinion in Quebec, the federal Liberals retreated. The other provinces, in a pattern that would become dismally familiar, made the usual pan-Canadian noises and then got in line behind Quebec.

No one could foresee where it would lead, but it has to stop now. Equalization payments have become a corrupt placebo, growing automatically and used according to the whim of the provincial recipients. This is the logical culmination of the desperate fatuity that Canada’s national distinctiveness was tied to its generous social programs, that resources would move to people and not the other way round. The dispute over the federal-provincial distribution of powers has delayed a radical reform of entitlements, taxing and spending. We do not have the same excuse for paralysis as the Americans, (inadequate though it is, and even more dangerous the consequences).

I have written here before that the idolatrous claque of the China cult overlook the facts that the People’s Republic is a corrupt dictatorship that still has 600 million people who live as they did 3,000 years ago. It remains largely a command economy and does not publish a statement or statistic that can be believed and has a severely aging population, because of the one-child policy. But withal, China has a steel production 11 times greater than that of the United States and produces more motor vehicles. China is not taking over the world, but it is leading the under-developed world to an unprecedented and probably constructive rivalry with the West (and its Eastern emulators).

The most uplifting development has been the rise of most of sub-Saharan Africa, where the economic growth rate is 6% (triple the G7), and 22 countries have crossed the (admittedly low) World Bank threshold into “middle income,” ($1,000 per capita annual income). In most of these countries, the population growth is due to longer lives for smaller families. Governance is improving from the appalling post-independence levels, and urbanization and technology are raising productivity — in 10 years, cellphones have driven phone access from less than 1% of people to over 70% in that vast area, larger than North America.

If the West, including Canada and led by Germany, spend a few years getting its debt under control, it will join in almost universal economic growth, a nirvana beyond the dreams of all but the most imperishably idealistic and visionary statesmen of earlier times. A happy New Year to all.

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