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A while ago, I looked at some of the worst-hit countries from the global financial storm, and concluded that on a scale of bad to deplorable, the US hardly the worst off. No crystal ball can readily foretell which regions will emerge from the crisis unscathed, but I am bullish on Canada in the medium to long term. Here’s why.
Sounds banks, no bailouts
Some say it was the far-sightedness, wisdom and conservatism that prevented the Canadian banks from participating in the madness that was the sub-prime securitization in the US. Many European banks were not so lucky. Financial institutions from Ireland, England, Iceland, to Belgium and Germany bit off more than they could chew from the “financial innovation” engineered by geeky American capitalists.
In actual fact, it was more likely that the one should credit the particularly Canadian combination of inertia, combined with a dose of cynicism and natural repulsion reserved for those overwhelmingly dominant American business machines, for saving taxpayers from burdens now haunting citizens the world over.
In 2009, the World Economic Forum announced that Canada has the soundest banking system in the world. No small feat, given both the US and many of Europe’s finest had put out their hands to respective governments for help. More embarrassingly, IMF bail-outs and their subsequent belt-tightening policies – previously a last-resort set up to help the undisciplined and “underdeveloped” countries of the world, are forced-fed to some that basked in prosperity only a year ago.
Still sustainable health care, and education system
Rosy picture aside, Canada is hardly immune from the global downturn. In 2008, even perennial winners and long-time economic powerhouses – such as Ontario and Alberta, reported deficits. In a bittersweet historical moment, Ontario got its first ever federal equalization payment this month. Bitter, because the check is usually reserved for Canada’s poorest (have-not) provinces. Sweet, because, well, Ontario cannot complain from never getting anything out of the federal government again.
But that one dark blotch aside, the fabrics that make up the social welfare system of Canada faces no immediate threat. The health care system is still universal and free, save for small and income-tested fees in a few provinces, topping out at a few hundred dollars a year. This is very small compared to what most of the world pays, even the European ones.
As an aside, in the Netherlands, where I am residing now, health insurance is universal and government mandated, but NOT picked up by one’s employer. Nor do employers provide generous dental and other health-related benefits enjoyed by even the most entry-level positions in Canada. An average person pays over 1000 euros a year (yes, still laughable compared to what Americans shell out) for a basic package. More often than not, visits to specialists incur fees that require co-payments. Perversely, I think this kind of system encourages entrepreneurship, since the upside of work is much less attractive without the peripheral benefits.
But back to Canada. Last time I checked, good education is still available at relatively affordable rates compared to most private institutions across the border. Subsidized by taxpayers, Canada’s higher education has yet to grow into the madness that is American tuition fees. Unless one is wealthy or smart, then short of robbing a bank, you are sure to graduate with a mountain of debts. In Canada, by exacting a moderate financial commitment from the students (the average hovers around $5,000 CND a year, excluding books, equipment and living expenses), the government and the public demand reasonable academic and financial discipline. This is a justified and balanced approach. Otherwise, you end up with the western European scenario, where graduating from a bachelor’s degree within its mandated four years is more often an exception rather than the rule, where students (I use that term loosely) still wander around campus in their late 20s, oblivious to the ridiculousness of dragging their studies on for 6 to 10 years.
Got what you need – commodities, agriculture
Like many export-oriented economies, prosperity in Canada depends on the goodwill and continued demand of its products from abroad. For the last couple of decades, the economy has grown increasingly two-pronged.
A common Canadian complaint is the mixed blessing of living next to the world’s most powerful nation, where its mood and appetite need to be carefully monitored and catered to. The Canadian manufacturing industries (particularly those in Ontario and Quebec), its film industry (much of Hollywood production is made in Canada, creating thousands of jobs and millions of dollars for the BC and Ontario economies), and the tourism industry, all depend a good chunk of their yearly revenue on the backs of Americans. In some instances, Canadian businesses closely parallel their American counterpart, none more obvious than the auto industry. America has been, and perhaps will stay the number one destination for Canada’s exports for the near future.
On the other hand, what Canada has stored underground, and what Canada is able to grow, has piqued interest the world over. The three prairie provinces that stretch through much of Canada: Manitoba, Saskatchewan, and Alberta, are fertile farmlands. When the prices of agriculture recover, and they inevitably will, those traditionally sleepy provinces may emerge as the real winners in the coming decades. In other parts of the country, forestry products and base metals abound. As China and India continue their industrialization process, aluminum, copper, gold, iron ore, nickel, uranium will fetch a pretty price yet.
Last but not least, there are the “black gold” of Albertan oil sands. Granted, large-scale operations have all but halted due to the precipitous drop in crude price. But most economists concur that the current price level is 1) temporary, and 2) harmful for long-term oil affordability. In fact, the retrenchment of large-scale drilling and exploration projects lead to an untimely delay to secure future resources. When demand roars back, we’ll get smacked around at the gas pump even worse than the last time.
All this reminds me of two quick stories from my time in Calgary. The first one is the widespread belief that “this time around is different”. Not really, it’s never that different. Calgary went through an oil boom in the 70s, followed by two decades of sluggish growth. When oil price resumed its rise in mid-2000s, people cited the insatiable demands of China’s factories and American consumers as proof that oil had nowhere to go but up and up. This was also the rough line of reasoning that supported the astronomical rise of property prices and the subsequent building boom. At one point in 2007, I could see over half a dozen building cranes from my fifth floor balcony in downtown Calgary. The three corners adjacent to my building were prepared for the erection of luxury condos or office building. The city was untouchable. Things have changed since then. Now all’s quiet on the construction and oil rig front: out of province workers left en-mass beginning of the year. Some never came back after Christmas.
The second one makes me more optimistic on the long-term prospects of the oil sands. Also around 2007, a large Chinese delegation visited the city in an attempt to either buy up a large and well-known oil company or to negotiate some kind of long-term delivery deal. Word on the street: as soon as the Chinese left, the Homeland Security Department landed by helicopter. Escorted by secret service, the top dogs marched straight up the executive suite of the unnamed company, and wagged their fingers. The deal never went through.
Obama can say what he likes about green technology and frowns upon the environmental degradation caused by working with the oil sands. But when push comes to shove, he’ll buy from friends first. In the least, he won’t let it go to the competition.
Geographic and demographic sustainability
Did you know that in certain parts of Asia (Japan, Hong Kong), the subway employs “pushers”? Those guys make sure as many people as possible get squeezed into subway cars during rush hours. Not the prettiest picture, is it?
Space affects us in more ways than the obvious. Those living in crowded urban spaces have to put up with a level of stress and claustrophobia (or intimacy, take your pick) not known to the suburban dwellers. Unless they commute, that is. In places that embrace a more collectivist culture and can live with some loss of personal space, geographic limitations may in fact facilitate the cultural norm. Italy, anyone?
But for most parts of the world, individualism is valued at a high cost. For example, property prices and living expenses are consistently the highest in places where land is limited. Japan and parts of Western Europe are in perilous positions. Their limited geography has adverse impacts on everything from their trade dependencies to their immigration policies.
In those parts of the world, demography is not on their side. Their rapidly aging populations run concurrent to declining birth rates, making the sustainability of current taxation and social welfare systems highly questionable. Yet geography (partly) limits immigration. In already crowded places like Japan and the Netherlands, where do you put these new people?
Then I remember that there’s always Canada. With plenty of land, self-sufficient resources, a working immigration policy that ensures the sustainability of social programs and cushions against the damaging effect of an aging population, the future is pretty bright.