We're Still Free... Sort of...

An interesting article on the differences that exist between ties to the United States economically and the lack of similarity in social programming and attitudes. Give it a go! it is interesting to note particularly for those interested in the debate over what separates Canadians from Americans.

Canada still autonomous despite U.S. links

Jacqueline Thorpe
Financial Post

September 8, 2004

Canada may be more closely tied to the U.S. economy than ever but there is little evidence it has lost any of its political, social or fiscal independence, a study released yesterday by a Wall Street financial institution concludes.

The bilateral trading arrangement between Canada and the United States -- the world's largest -- could in fact be held up as a model for globalization, New York-based rating agency Standard & Poor's Inc. says.

"The relationship between the U.S. and Canada offers an insight into the nature of globalization," Joydeep Mukherji, an S&P analyst, said in a 20-page report. "It indicates that good economic management and strong public institutions allow smaller countries to retain considerable autonomy in designing policies while enjoying the prosperity that comes from integrating with the outside world."

Mr. Mukherji said the key to Canada having held its own against an economy 10 times its size was its drive 10 years ago to get its fiscal house in order, a policy Mexico would be wise to note.

"The point is if you don't get your house in order and you have a rich neighbour and you try to achieve prosperity by latching onto that rich neighbour ... then you have to conform more to what the other guy does," Mr. Mukherji said in an interview.

Trade between Canada and the United States has exploded since the introduction of the North American Free Trade Agreement. The average flow of goods and services across the Canada-U.S. border exceeds US$1.2-billion a day, having soared by more than 50% between 1994 and 2001. Canada's exports to the United States have risen to 80% of total Canadian exports from 71% in 1990, while imports rose to 72% from 68%.

S&P also notes: Canada buys more U.S. goods than the rest of the Western hemisphere combined; U.S.-owned firms employ more than one million Canadians and produce about 10% of Canada's GDP; and the average import content of Canadian exports is 33%, compared with 27% in 1990.

The list goes on but despite this increasing economic symbiosis, Canada has maintained distinctive policies toward education, health and social welfare. "Not only are they separate ... but I don't see any convergence," Mr. Mukherji said.

For example, despite several exhaustive reviews during the past few years Canada has maintained its commitment to public health care; 70% of health-care spending comes from the government, compared with 45% in the United States. Studies have advocated even more public funding.

A political commitment to contain social disparity can also be seen in Canada's system of interregional transfers, which distributes tax revenue from richer to poorer provinces. According to the International Monetary Fund, this has resulted in a greater convergence in real per capita disposable income across provinces than their level of output. The United States has no such system.

Income distribution is also less skewed toward the wealthy in Canada than the United States. The richest 10% of the population have a 24% share of total national income, compared with 30% in the United States. The percentage of elderly people with an income below half the median level of disposable income is just 2.5% in Canada, compared with 20.3% in the United States.

Canada is more in line with European than U.S. attitudes on other social issues: church attendance has fallen in Canada since the 1950s but remained at a higher level in the United States, and a survey found 82% of Canadians believed the government should protect the environment even it it slows economic growth, compared with 69% in the United States.

Maude Barlow, chairwoman of the Council of Canadians, which describes itself as a citizens' watchdog and has long opposed free trade, agrees Canadians have maintained separate social values but they are being undermined by government policies. "I think they [S&P] are far too optimistic in their description of this strong social safety net," Ms. Barlow said. "Tons of studies show the growing gap between rich and poor in Canada ... we've had a strong rise in child poverty since 1989, which just happens to be the year we signed the first free trade agreement."