Canada and the U.S.

Trading places

JOHN GEDDES September 29 2003

Canada and the U.S.

Trading places

JOHN GEDDES September 29 2003

Canada and the U.S.

Trading places

Consider a study in contrasts. In the United States these days, the economic news is dominated by George W. Bush’s plea for more money from Congress, as his warand-tax-cuts policy pumps up Washington’s deficit. Last week, the U.S. Federal Reserve held interest rates to extraordinarily low levels to shore up an iffy economy. In Canada, federal red ink is a memory and the economic outlook is solid, if unspectacular. Jean Chrétien felt secure enough last week to give a speech to the Canadian Chamber of Commerce touting his economic successes as prime minister. A day later his undoubted successor, Paul Martin— who used to fret mostly about Canada’s dubious economic fundamentals—had the luxury of delivering a lofty talk about technology. A look at what’s changed: m The fiscal positions of Ottawa and Washington have reversed. Bush’s recent US$87-billion Iraq request would increase the 2004 deficit to US$535 billion. Dale Orr, managing director of the forecasting firm Global Insight, says the American budget bind should remind Canadians of their own recent past. “Those deficits go to the debt,” Orr says, “and debt charges squeeze out either programspending or tax cuts.” Meanwhile, Ottawa plans to pay down debt by posting small surpluses this year and next, with room for new strategic spending.

■ Americans may not be so much richer than us as we thought. Orr points to a 1998 Statistics Canada study showing that the 40 per cent of Canadian families at the low end of the income scale had more disposable income than their U.S. counterparts. In the middle of the pack between the poorest and the richest, U.S. families had seven per cent more purchasing power. The U.S.

Lexus set, meanwhile, is a lot richer than welloff Canadians, which gave rise to our “brain drain” fears. But in its latest report on Canada, the Organisation for Economic Co-operation and Development dismissed that worry as “overstated.” H On productivity, our economy may not be losing ground the way naysayers often claim. U.S. companies have long been credited with being more efficient. But last month, Statistics Canada published a report show-

ing that the main difference between Canadian and U.S. productivity growth is mostly accounted for by the self-employed. Remove them from the data (for some reason, the efficiency of Canada’s self-employed lags behind their U.S. counterparts’) and the gap in productivity gains between the two countries “virtually disappears.” So much for the notion that U.S. corporations leave timid Canadian rivals in the dust.

Does this justify Canadian smugness? Of course not. As old worries fade, new ones arise. Immigration, education and health care are all files with huge economic consequences. And while the budget-squeezed U.S. is turning away from high-cost social priorities, like establishing a federal prescription-drug plan for the elderly, Canada may now have the flexibility to tackle its own concerns—on its own terms. JOHN GEDDES