Social Policy in Ontario

In Canada, unlike the U.S., the American dream lives on

Posted on January 17, 2012 in Equality Delivery System

Source: Globe & Mail — Authors: Barrie McKenna

TheGlobeandMail.com – report-on-business/commentary
Published Sunday, Jan. 15, 2012. Last updated Monday, Jan. 16, 2012.   Barrie Mckenna

We know the gap between rich and poor in Canada is large and growing.

One need look no further than Attawapiskat and other northern communities for evidence that not all Canadians are living the dream.

But income disparity shouldn’t be confused with equality of opportunity.

And guess what? Canada is a world leader in economic mobility, right up there with Denmark, Norway and other Scandinavian countries.

A recent front-page story in The New York Times highlighted new research that “turns conventional wisdom on its head” – namely, that Americans enjoy less economic mobility than their peers in, gasp, Canada.

Yes, the U.S. is richer, but it’s also significantly more unequal, and a lot less mobile. Inequality is inherited, much like hair and eye colour.

The conclusion is based partly on the work of University of Ottawa professor Miles Corak, a social policy economist and former director of family and labour research at Statistics Canada.

Prof. Corak has quantified the opportunity divide between the two countries and his conclusions are startling. Canadians are up to three times more economically mobile than Americans, and it’s almost entirely due to the conditions faced by those living at the very top and bottom of society, according to a new study he co-authored: Economic Mobility, Family Background, and the Well-Being of Children in the United States and Canada.

“What distinguishes the two countries is what’s happening at the tails,” Prof. Corak explained in an interview. “Rich kids grow up to be rich adults and poor kids stay poor. In Canada, that’s not so much the case.”

The American dream that anyone can rise from humble beginnings to vast wealth has become a myth. And as the gap between rich and poor widens, the middle class is shrinking.

For now, at least, the dream of upward mobility in Canada is still alive. Canadians can thank a legacy of sound public policy and a more progressive tax system.

Even the poorest of Canadian children have access to good schools, quality health care and decent homes (Attawapiskat notwithstanding).

A new Finance Department analysis found that seven million mainly low-income Canadians out of 24 million tax filers got a net cash transfer from the federal income tax regime in 2008. The Child Tax Credit, for example, has successfully mitigated poverty by shifting federal tax dollars to poor families.

The labour market, thanks partly to the paid parental leave benefits of Employment Insurance, likewise encourages parents to be parents. Canadian children are also more likely to grow up in two-parent homes and in homes where at least one parent works part-time to provide home care.

Compare that to the United States, where schools are financed primarily by wildly variable local property taxes rather than state income taxes. Neighbourhoods with low home values and marginal businesses have underfunded and failing schools, which become magnets for perpetual failure.

But it’s a country of extremes, and life is good if you’re at the top in the United States. A child’s chance of staying at the wealth pinnacle is much greater than in Canada.

The divergence of opportunity in the U.S. grows even more pronounced with higher education. Tuition fees, which can easily run into the tens of thousands of dollars per year, essentially put the best schools out of reach for many Americans. Wealthy Americans, on the other hand, can literally buy opportunity for their children, paying their way through the best colleges, hiring tutors and providing access to family connections.

“It’s not that the fathers are getting their sons jobs, but they are getting them into the right college and networks, and that pays off a lot more in the U.S.,” Prof. Corak said.

Canadians shouldn’t be complacent. Ottawa and most of the provinces are running large budget deficits, and education and health care are already targets as governments hunt for savings.

There’s another cause for concern. Rising income inequality is chipping away at the opportunities of future generations. Prof. Corak worries that wealthy Canadians may be forming exclusionary institutions in a drift toward Americanization. It’s reflected in increasingly polarized cities such as Toronto, where neighbourhoods are becoming more sharply divided along income and ethnic lines, he said.

The dream of upward mobility may be alive for the current crop of young Canadians.

That dream is an essential component of a healthy economy, and policy makers should ensure it’s passed on to future generations.

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Tags: economy, ideology, participation, standard of living, tax

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