Canada's uncertain road

By John Rapley

After spending this past winter lecturing in Canada, I returned to England in time for the funeral of Margaret Thatcher and the news that in my absence, the UK recession only worsened. So what did I learn during my Canadian sojourn?

Well, first off, not to spend another winter in Canada. I grew up in the Great White North, but left for warmer climes long ago, and had forgotten just how hard its winters could be. But then, it is not only my memory that has changed. So, too, has the country.

Not long ago, Canada was pretty much a white man's land, its population comprising largely European immigrants and their descendants. Today, with global demographics changing, Canada has turned to immigrants from around the world to maintain its population growth, giving itself a richer blend.

Ironically, however, this has also provided the base for a nativist politics. Whereas Liberals long ruled Canada, today a Conservative government, which draws much of its support from among immigrants, holds power in Ottawa. It has been gradually turning the country's back on its traditional multilateralism. The federal government has shown a greater willingness to go it alone, and swim against global opinion on many matters.

swimming against current

Perhaps this reflects the ways of its economy. For a country whose well-being rises and sinks on an American tide, Canada has curiously taken to swimming against the current these last two decades. In the 1990s, when the US economy was booming, Canada wrestled its budget deficit to the ground, but the consequent austerity ensured that the country missed the happy ride.

But Americans who, back then, made fun of its sluggish economy by deriding the 'Canadian peso' sure regretted the jokes come this century. Canada's fiscal prudence and regulated banking sector had given it a cushion to weather the financial storm that battered the US. The Canadian government could afford to load up on debt to stimulate the economy, and the low interest rates of the crisis enabled citizens to go on a spending spree.

But when I arrived in Canada at the start of the winter, I had the same ominous feeling I did when back in 2000, I landed in Washington, DC, to start a fellowship at Georgetown University. Back then, the US was at the peak of its stock-market bubble and Americans were racking up debts like the party would never end. But the data pointed to rough days ahead. Sure enough, the crash came, and the US has been struggling with one crisis after another ever since.

CANADIAN complacency

Earlier this winter, I noticed the same sort of complacency among Canadians. When I looked at the figures of such things as home prices, debts or exports, it was clear to me the party wouldn't last. But Canadians had the same hubris Americans had had back in the '90s. Watching as the British pilfered their bank governor to run the Bank of England, they had seemingly persuaded themselves that they had found the trick of clever economic management that would enable them to swim outside the sinking Western tide.

Still, that tide continues to ebb. Growth in the US remains tepid, and Europe - well, let's not go there. Of course, the developing world is surging, with countries like India, China, Mexico and Brazil all growing much faster than the Western economies. That won't do Canada much good: almost all of its exports go to developed markets. It isn't penetrating emerging markets, and seems satisfied with the status quo. It will pay for that.

The federal government seems to get it, and is trying to curb its spending, while jawboning Canadians into curbing theirs. But it is having more success with its own books than with those of its citizens. Since the 2007-2008 global financial crisis, Western countries have been cutting their private debt burdens.

Not Canada. It has swum against the tide once more. And when this reality catches up to Canadians, it may hit hard.

John Rapley, a political economist at the University of Cambridge, is currently on a visiting professorship at Queen's University in Canada. Email feedback to columns@gleanerjm.com and jr603@cam.ac.uk.