Letters by a modern St. Ferdinand III about cults

Economic mismanagement. That is the basic tenor of the first article reviewing the Canadian mommy-state by the National Post. One fact is obvious in appraising the destructive array of Canadian subsidies; regulations; bureaucracies; taxation and spend policies. Without the US economy as a neighbor, Canada would be either have to reform itself or be even poorer.

Currently Canadian per-capita income is lower than American by $9200. Only Alberta would be able to compete on income and GDP per capita with US states. All other Canadian states would find themselves near the bottom of the US republic in all economic per capita categories. This is reflected by the fact that on average Canadians enjoy a 30% lower living standard than Americans – all costs and incomes included. This means that most Canadian jurisdictions are competitive with the likes of Alabama and Mississippi.

It is only through accessing the US market that Canadians are reasonably wealthy. But compared to the Americans the Canadians are poor cousins. In the 2007 Economist world in figures Canada ranked 23rd in GDP per capita [US is 9th]; 13th in GDP per capita with purchase power parity [US is 4th]; 12th in economic freedom [US is 11th]; and 8th in industrial output [US is 1]. No matter which way you spin the numbers as a Canadian the facts are pretty obvious – you live in a poorer country, with higher taxes and more government.

A cursory glance through political and economic history suggests that the above factors are hardly conducive to wealth creation or the further advancement of civilization.

Nothing rings more hollow than Canadiana’s mommy-state obsession with controlling the economy and regulating all aspects of personal life. The National Post’s report [found at http://www.canada.com/nationalpost/financialpost/printedition/story.html?id=14535d41-4701-4dfb-82b9-96909d3118c5] highlights some obvious failures of big statism. None of the items would surprise those interested in economics or the political-economy of failed systems, but apparently they are part of the Canadian psyche – untouchable and immune to reform.

As the Post reports – and there is no disputing their facts - the Canadian economy is still protected by a panoply of foreign ownership restrictions, corporate subsidies, marketing boards, provincial trade barriers and other regulations that ‘coddle’ domestic companies and raise consumer prices. Canadians imagine themselves as fair-minded free-traders struggling with the giant US economic machine for the spoils of economic war. Hardly. Whilst romantic this image is about as relevant as believing that ice hockey is the world’s most important sport.

The result of the mommy-state obsession to rule and protect? For consumers it means of course higher prices and reduced choice. For businesses it results in lower levels of innovation and lagging productivity growth. As reported by the Post flagging productivity growth is one of the key reasons Canada's per capita income is now $9,200 below the United States, the gap having tripled since the early 1980s, Ontario's Institute for Competitiveness and Prosperity (ICP).

Whole sectors of the economy are walled off from competition. In total they constitute over 50% of the Canadian economy. Health Care [12%]; Telecoms; Transport; Banking; Agriculture; Lumber [very limited market forces allowed]; and Media are off limits to majority foreign ownership and investment. Now of course the Federal government is eyeing the oil sector in Alberta for some sort of nationalization and redistribution [under some lovely name such as ‘Our children’s future, our environmental commitment and save the old people, united worker’s fund’].

In Telecoms foreign ownership restrictions [at 20%] mean that Canadians pay 30-350% more for telecom rates then more competitive markets in the US and Europe. OECD statistics show that a moderate cell phone user in Canada pays a monthly fee of $48 a month. In Denmark it's $9. Imagine the purchasing power that would be unleashed if telecom rates fell.

In agriculture Canadian consumers pay import tariffs on milk of 241% and 299% on butter, 245% on cheese, 237% on yogurt and 238% on eggs. These tariffs are used to price support the marketing boards that are monopolies which sell agricultural product. In effect these price supports are transfers from consumers to politically important lobby groups in agriculture. It is hard to see how this squares with superior Canadian morality and intelligence. The poor of course suffer the most through higher food prices.

As the Post reports the idea that since other countries stupidly subsidize their farmers than Canadians must is laughably ignorant. ‘If the United States wants to subsidize an inordinate amount to cotton growers and if we want to trade for that cotton, then essentially what we're getting is the U.S. taxpayer subsidizing our use of cotton,’ says Jason Clemens [of the Fraser Institute], ‘How is that a bad thing for Canadians, if we're getting cheaper cotton?’

But businesses are also being subsidized. In another article I wrote that Canada spends 2-3 % of its GDP on business and agricultural subsidies. [This is just from the Federal government and ignores other governmental levels of subsidy]. This translates into about $20-30 billion per annum. Lumber consumes $4 billion; agriculture $11 billion; and industry about $5 billion. Add in regional subsidies and targeted subsidy programs and the number is far higher. Again these programs are simply transfers from the average taxpayer to firms, unions and executives with no transparency, no return on investment and no accountability. How is this moral and just?

The Post article references a report by the Canadian Taxpayers Federation [www.taxpayer.com] called ‘On The Dole’. The ‘dole’ or welfare program for Canadian business is extensive and shocking. The CTF calculates that between 1982 and 2005, the Canadian federal government authorized $18.4-billion in grants and loans to various companies and organizations, of which $7.1-billion was repayable. But incredibly, from these large firms, only $1.3-billion has been repaid.

The top recipient was Pratt & Whitney Canada a maker of engines and parts, which was given $1.5-billion, followed by Bombardier Inc., which got $745-million. Both firms make a profit. Both firms are international. Both firms enjoy stock appreciation. It is madness to be giving such firms any support. By cutting all forms of business subsidy the Federal government could realize annual savings of $2-billion to $4-billion, or enough for a two- to three-percentage point cut in corporate income taxes, says the CTF.

And that is the key issue. Taxes need to be cut in Canada. Canada has the worst corporate tax regime of any major economy [save China] and punishingly high marginal and total tax rates on personal and investment incomes. Debt levels and off the balance liability now approaches $175.000 per capita – an unsustainable amount. Only through spending cuts and faster economic growth can this debt be paid off or even paid down.

It is time to stop the appropriation of wealth under the guise of sophomoric rhetoric and puerile angst and insecurity.

The Federal government spends upwards of 19% of GDP. This is comparable to US levels but when you add in all the other levels of Canadian government spend and include regulatory costs then the gap increases to 43% of GDP vs. 32 % in the USA. This gap is enormous and directly impacts consumers and the wealth of individuals including lower productivity and reduced income levels.

As the Post report makes clear Canada has a limited trade regime. It is a mommy-state controlled entity with serious external and internal barriers to the movement of labor, capital and product. It is certainly not superior to the US model and is in fact quite obviously rather inferior.

Yet ironically the dependency on US economic dynamism [and military protection] also gives rise to Canadian populism and anti-Americanism. The Canadian welfare state has demonized the US republic [especially its conservative-republicanism] over 40 years, pronouncing that peace, order, good [and very large] government is moral, just, and better. Of course it isn’t. But it helps to buy votes.

It leads sadly to the inexorable rise of the choking mommy-state.