2002 October 12 Saturday
More On The Canadian Living Standard Lag

My Canadian friend Dave Ings has alerted me to a couple of Globe And Mail articles about the reasons the Canadian economy is lagging the American one. The first is by Anne Golden, president and chief executive officer of the Conference Board of Canada.

This per capita income gap between our country and the United States -- due largely to our lower productivity -- is on its way to doubling within this decade. And this means not only that individual Canadian incomes will suffer in comparison to American incomes -- but also that our ability to finance existing programs and launch new ones will suffer, too. Expanding public education and health care, addressing the pressing infrastructure needs in our cities, reversing environmental deterioration, or adding national elder care or day care or pharmacare are simply beyond our current financial capacity without significant increases in income per capita.

Note the emphasis here on government spending. If the economy doesn't grow the government can't get a bigger slice to spend. While this is certainly true it demonstrates the sort of emphasis on government as purveyor of so many goods and services and guarantees that caused the Canadian economy to lag in the first place. Later in the article Ms. Golden states something that has now become a widely accepted myth:

We will face labour shortages, especially for skilled workers. At present, about 94 per cent of all jobs in Canada require at least a high-school diploma.

Wrong. Can a high school drop-out drive a truck? Sure. Dig ditches, put roofs on houses, sewer work, or paint houses? Yes, of course. In construction, structure repair, and delivery work there is already more than 6% of an industrial economy's jobs. Then throw in low tech service work: washing dishes or working as a cook or waiting tables in a restaurant, delivering pizza, janitorial work, trash collection, and assorted other ways to clean up and wait on people. At that point we are well beyond the 6% figure for non-high school diploma work.

Why do experts associated with big bureaucracies trot out such inflated figures for the demands that economies have for training for credentials? Simple answer: credential requirements inflation. Bureaucratic organizations that do not want to make personal judgemets about individuals choose instead to up the credentials requirements for many kinds of jobs. This makes it easier to choose people. At the same time those who have credentials who support the rise in credential requirements do so in order to increase the market's demand for themselves and to make their own jobs more secure. Plus, the people who do the training and teaching for credentials (eg see any university's faculty for examples) like the fact that credentials requirements also increase the demand for them as trainers. Plus, there are plenty of occupations which are not in government where governments have created unnecessary credential requirements (eg for cutting hair) partly because they imagine that they are protecting the public and partly in response to organized pressures to restrict supply in order to drive up wages.

The next Globe And Mail article up for consideration by Jeffrey Simpson hits closer to the mark:

A complete consensus obviously did not emerge, but no one bettered the alternative to productivity improvement offered by CAE president Derek Burney: Canada as "North America's cottage country, a place whose physical beauty masks a slowly declining standard of living and quality of life among the locals."

The raw facts, as outlined by Andrew Sharpe of the Centre for the Study of Living Standards? Canada's per capita GDP is 84.7 per cent of the U.S. level. Personal income is 78.6 per cent. Personal disposable income (that is, after taxes) is 70.4 per cent. All of these gaps widened from 1980 until the last year or so.

What is curious here is that not only is a larger percentage of Canadian personal income paid in taxes but for some reason (anyone know why?) a smaller percentage of Canadian per capita GDP is paid out as personal income. But taxes are only part of the story. Canadian rules for hiring and firing and unemployment and welfare benefits make for a less efficient market for labor. So regulatory and welfare systems account for part of Canada's lag.

Dave, being an optimistic sort of guy, sees these articles as promising signs that the issue of productivity has finally arrived on the Canadian political scene as a serious issue. Canadian blogger Colby Cosh tells me in private email that he doesn't share this optimism:

I'm not optimistic that economic productivity is going to suddenly become an issue here after 20, 25 years. What's the reason for hope? If voters east of the Lakehead cared about the economy they'd already have sent Canadian Alliance MPs to Ottawa. If your friend feels optimistic, great. But a lot of us felt optimistic before the 2000 election, before the 1997 election, and before the 1993 election...

Another Canadian friend of mine Bob Badour thinks Canadians are too complacent about the conditions of their lives and he is similarly not optimistic.

Aside: Note in the Jeffrey Simpson article the use of EI as an acronym. That's Employment Insurance which is roughly equivalent to American unemployment insurance. Dave Ings tells me that Orwellian renaming resulted in its change from UI (Unemployment Insurance) to EI (Employment Insurance). Of course, by the original logic of calling it UI it makes more sense to say Death Insurance than Life Insurance. This also reminds me of the use of the term Death Tax as a term with more negative connotations to describe Inheritance Tax. There is also the highly visible fight over the pro-abortion/pro-choice vs anti-abortion/pro-life factions where terminology games are played in Orwellian fashion.

My previous posts on the Canadian economy are here and here.

Share |      By Randall Parker at 2002 October 12 05:36 PM  Economics Political

Bob said at October 13, 2002 7:00 PM:

I would like to clarify what I actually said for the benefit of your readers:

I said that Canadians are complacent in their uncritical acceptance of what the Canadian media present as an accurate image of the world.

The Canadian media present a consensus pinhole view of the world pointed decidedly to the left of the US Democrats.

The media have built into this pinhole view--in truly diabolical Orwellian fashion--the comforting notion that Canadians have a wider view of the world because it differs from the American view. They thereby feed and feed off of Canadian insecurities.

Many Canadians would consider the following farcical statements self-evident truths:

  • Rent controls lead to long-term lower rents

  • Higher minimum wages raise overall living standards

  • Americans are geographic ignorami

  • OHIP etc. provide universal healthcare

  • Ronald Reagan was irresponsible and a threat to the world

  • The US threatens Canadian sovereignty

  • Economic protection of Canadian media helps preserve Canadian identity

  • A social safety net gives Canadians a higher standard of living

  • Globalization will harm the third-world

  • American culture is inherently violent

  • High gun availability leads to increased violent crime

  • Multiculturalism promotes unity

  • American political opinion lacks nuance and breadth

  • Americans are more racist than Canadians

  • Groups have rights

  • Canadians protect the environment better than Americans

Canadians are not complacent about the conditions of their lives. They will loudly, vociferously and adamantly demand larger government to protect their jobs, to pay for their needs and to stroke their egos. They are foolish enough and ignorant enough to believe they can get something for nothing, and they thereby beggar themselves.

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