By Matthew Clark
Canadians have traditionally thought of themselves as a prosperous people. This does not mean that they see themselves, or their ancestors, as having a history devoid of hardship or want. Indeed tales of pioneer Canada abound with the depravations the first Europeans on Canadian soil encountered. Yet these challenges were successfully conquered. Canadians hard work was eventually rewarded with a land of plenty!
Bestowed with an abundance of natural resources Canadians have used this condition to build industry and trade. Massey Harris, Bombardier, Hudson Bay Company, Inco, Noranda Mines, are all once famous entities constructed by entrepreneurial citizens of the Great White North.
Besides a bounty of natural resources the nation has had the good fortune of ideal political alliances. Known in it's initial European stage as New France (Acadia in the Maritimes) Canada was controlled at that time (with some deference to Indigenous peoples) by France, the richest and mightiest military regime in the Western World, if not the entire globe. In 1763 that alliance was transferred ( a polite way of putting it) to Great Britain, the new wealthiest and military strongest nation in the world. Then in 1945 Canadians adroitly switched their alliance once again, on this occasion to the United States, a behemoth which controlled 50% of the earth's riches, while also enjoying (?) a monopoly possession of the atomic bomb.
Such good fortune in her foreign relations meant that in most years Canadians forked out a miminal amount of money for their own armed defence. Some exceptions were The War of 1812, World War I, World War II, later on the Korean War. Nevertheless defense was usually not a pressing issue for the citizens of Canada compared to the importance it held in the lives of people other lands. Predictably the federal government of the Great White North tended to underspend on the country's defence, with no negative consequences for doing so.
Thus with a small population (30 million in 2001 according to Statistics Canada) the nation was still prosperous enough to belong to the pretigious Group of 7 (G7) economic association. Her economic capital, Toronto, rated 14 in financial importance amongst the world cities as of 2015 (City of Toronto Economic Dashboard 2015 Annual Summary).
This happy condition for the Northern Kingdom appears to be about to undergo a noticable shift. Toronto now rates economically at number 23 among the cities of the globe. This statistic follows a general pattern downward for Canada's economy. A March 2023 Organization For Economic Co-Operation And Development (OECD) report found that the nations GDP per capita grew by a paltry 0.8% per annum over the years 2007-2020. This places Canada in the Third Quartile among advanced countries. Third Quartile is definitely back of the class. Furthermore the OECD predicts Canada can at best achieve real per capita economic growth of only 0.7% per annum over 2020-2030. Canada will place dead last among advanced economies.
Much of the reason for this feeble performance is the jurisdictions poor worker productivity. If OECD projections are correct the country's workers will have 1.1-1.2% productivity growth between 2020-2030. Labour utilization (hours worked) will average below +0.3% per annum between 2020-2030. Canada will be dead last in labour productivity among advanced nations. Even more alarming is that the OECD sees this pattern extending for the nation until the year 2060!
This OECD analysis is collaborated by the Royal Bank of Canada (RBC). In a June 2024 report the bank claimed the country's economy was smaller in 2024 than in 2019 when adjusted for inflation and immigration. Back in 2000 the economic output of the average Canadian was on a par with his Australian peer. Currently Australians are 10% more productive than Canadians, while their economy has grown 50% per person faster than Canada's over the last quarter century. According to the report Canada is 30%less productive than the United States, and closer to lower income states like Alabama in economic performance rather than jurisdictions such as wealthy California.There is a productivity gap of $20,000(U.S.) per person a year versus America, placing wages 8% below their United States counterparts.
Capital investment is even more worrying from the perspectives of a Northern Kingdom resident. Presently America enjoys a 35% advantage over their neighbour. Low productivity combined with meagre capital return results in a short fall of investment (real estate excepted). Foreigners do not invest (much) in Canada. Canadians invest much outside the country. Thus there is capital flight.
These trends also mean that large scale immigration presently occurring in Canada is making both citizen and immigrant poorer. The population is growing faster than the increase in production. Loads more people are eating a pie which is expanding ever so slightly.
Flight of Capital is particularly revealing in regards to how investors perceive an economy. Based on recent evidence the perception of Canada as a place of investment is not positive. In A February 9th, 2024 Financial Post article penned by Jack Mintz, the author pointed out that Canada has lost $225 billion U.S. in foreign investment since 2016. During the Trudeau years 2016-2022 Foreign Direct Investment (FDI) fell 15% while outflows rose 16%. The negative FDI balance was U.S. $23.9 billion per year. This in effect lowers the value of the Loonie. Exports are assisted by this circumstance but import prices rise, stoking inflation in Canada. Traditional tactics used to curb these negative situations do not seem to be working. As a December 2024 Vanguard report stated, "We expect Canada's growth to remain below trend in 2025 despite supportive monetary policy" (translated as substantial government spending in the Canadian economy all to no avail).
While these challenging patterns develop within the realm there is a further potential strain on government expenditures which the nations inhabitants have little experience with. The Military! It is obvious the United States led unipolar world is dead. It is being replaced by a multi-polar geopolitical order within which many powerful nations have hostile designs on Canada's interests. The building competition for advantage in the Artic is one example of this circumstance. In a case of bad timing the United States and Western Alliance militaries are displaying increasing weakness. Canada itself has an armed force wholly inadequate to meet any substantial martial challenge. To protect the Kingdoms interests political leaders will need to aggressively expand the armed services budget at a time when the citizens ability to pay into the public coffers is dwindling!
As the nations citizens find themselves getting poorer there is bound to be a political reaction. Voters may well start to cast their ballot for politicians whose outlook on civic life is far different than the historical norm in Canada. Furthering this potential situation is the fact many Canadians loyalty to the country is a mile wide and an inch deep. In times of stress they might well vote for lawmakers with a similar viewpoint. Quebecers will be tempted to cast their ballot for independence candidates. Albertans and Saskatchewanians could want to rid themselves of a problematic equalization fund which is rigged against them by opting for an independent Prairie nation. Other voter blocs might support counter productive economic measures, or political union with the United States. Such political fallout will result in financial consequences, much of it negative.
Unless Canadians can alter the present trajectory of the jurisdictions financial state they are headed for a period of tremendous economic and political decline. Canada in the 21st century could transform into a version of twentieth century Argentina. At the end of the 19th century Argentina was a Western Hemisphere success story. Her people were prosperous, far more so than Canada, while the Argentine government was limited in nature. Foolish economic policies, particularly in the area of public spending, changed that condition. Through most of the 20th century Argentinians became poorer relative to the citizens of other nations. Sadly the national government of Argentina was often authoritarian in outlook and action. This could well become the environment in an impoverished Canada. If, that is, the Great White North manages to stay together as one political entity rather than fracturing into small domains.
Speaking to my children I advise them to look at other places in the world to settle down in. This type of back up plan is as necessary as the insurance they purchase for their car and home. Arguably it is a piece of advice appropriate for the population at large.
References:
Business Council of British Columbia
December 14, 2021
David Williams
RBC The Growth Project: Canada's Growth Challenge: Why the Economy is Stuck in Neutral
June 4, 2024
Vanguard: Our Economic Outlook For Canada
December 5, 2024
Jack Mintz: Canada has lost $225 billion in foreign investment since 2016
Jack Mintz
Financial Post
February 9th, 2024
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