Why Canada has avoided an anti-trade, anti-immigration backlash

Posted on November 1, 2016 in Inclusion History

NationalPost.com – Full Comment
October 31, 2016.   Stephen Gordon

Canada, it would seem, is different. As The Economist notes in its lead editorial this week, there are few governments that are willing to make the case for freer trade, and even fewer who are willing to spend political capital on concluding new trade agreements. Canada’s attitudes to globalization seem to set us apart, but the strongest evidence for arriving at this conclusion isn’t our experience of the last 10 or 15 years.

After some last-minute theatrics, the Comprehensive Economic and Trade Agreement between Canada and the European Union ended up being signed after all. But the Walloon backlash was more than a temporary setback; it was part of a deepening global trend. Middle-class resentment of the dislocating effects of trade and immigration is providing fuel for Donald Trump in the U.S., Brexit in the U.K., the National Front in France and more besides. Even if Hillary Clinton is elected U.S. president, the outlook for international trade looks bleak.

When you’re trying to understand a trend, it’s a good idea to look at the common factors in similar data points, but it’s an even better idea to look at the outliers. It’s already been pointed out that Canada is one of the few industrialized countries where anti-globalization has not (yet) become a major political force. Immigration and freer trade enjoy broad cross-party support, and economic nationalism is not the cause it once was. Why is Canada different?

The obvious answer is that the Canadian economy has been performing relatively well over the past 10 or 15 years, and the benefits have been broadly shared. Inflation-adjusted incomes in the top one per cent have been falling since their peak in 2006, even as real median incomes increased. Middle-class resentment is more difficult to sustain when elite incomes are falling and median incomes are rising.

Things are different elsewhere. In United States, household incomes have been falling since 2000, and especially men’s incomes: this is likely one of the factors contributing to Trump’s relatively strong support among men. In contrast, in Canada median real men’s incomes have been increasing during this time.

In this light, Canada isn’t really different so much as it is lucky. If declining incomes fuel anti-globalization — or if they just help create an environment in which anti-globalization sentiment can take root — then what sets Canada apart is its recent income gains. But indications for the next few years don’t look promising: the combination of population aging, low resource prices and a weak global economy could result in an extended period in which Canadian incomes grow slowly or not at all. Canada may end up joining the anti-globalization cause in a few years’ time.

Or maybe not. If declining incomes lead to resentment of elites and disengagement with the rest of the world, then the Canadian experience of the final decades of the last century is difficult to understand. Why did the stagnation between the mid-1970s and the late 1990s not produce in Canada the sort of electoral revolts we’re currently seeing in other countries?

The memories of those decades have faded, to the point where Liberal campaign messaging referred to them as the “good old days” of economic promise, in contrast with the anxious times of 2015. But those years were far from pleasant, particularly for men. Men’s real median incomes fell by more than 20 per cent in 1976-97, and men also found themselves becoming increasingly unemployable. More than 70 per cent of men aged 55 to 64 had full-time jobs in 1976; 20 years later, that ratio had fallen to less than 50 per cent.

The only bright spot was provided by women. Even though their incomes were (and are) still less than men’s, they did see some income growth. Among what Statistics Canada calls “economic families,” women’s gains were enough to offset men’s losses, but that still meant a lost generation in which Canadian families saw no increases in their purchasing power. Worse, this was a time of widening inequality and increased concentration of income among elite earners.

Perhaps the most surprising thing about those years is that Canadians continued to accept large flows of new immigrants. More than three million of them arrived during those decades, even as income growth stalled and labour markets remained weak. If there was ever a time when one might have expected anti-immigrant sentiment to wield power in Canada, it was in the 1980s and 1990s.

But it didn’t happen. And instead of withdrawing into economic isolationism, Canada signed free trade agreements with first the U.S., then Mexico. These decisions were, of course, not uncontroversial, but anti-trade forces were never strong enough to block or reverse them.

If you’re looking for a convincing demonstration of Canada’s commitment to the freer flow of people, goods and capital between countries, it’s not to be found in the last decade when Canadians’ incomes were boosted by trade. The real test took place in the 1980s and 1990s, when the economy sagged and Canadian governments responded by increasing its engagement with the rest of the world.

National Post

Stephen Gordon is a professor of economics at Université Laval.

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