Commentary: Why Canada is working and the U.S. isn’t

By Stephen Marche

On July 1, Canada Day, Canadians awoke to a startling, if pleasant, piece of news: For the first time in recent history, according to Environics Analytics WealthScapes, the average Canadian is richer than the average American.

A few days later, Canada and the United States released the latest job figures. Canada’s unemployment rate fell, again, to 7.2 percent, and America’s was a stagnant 8.2 percent. The difference grows starker by the month: The Canadian system is working; the American system is not. And it’s not just Canadians who are noticing. As Iceland considers switching its currency, its leaders’ primary focus of interest is the loonie — the Canadian dollar.

As a study in the New York University Law Review pointed out, national constitutions based on the American model are disappearing. Supreme Court Justice Ruth Bader Ginsburg, in an interview on Egyptian television, admitted, “I would not look to the United States Constitution if I were drafting a constitution in the year 2012.” The natural replacement? The Canadian Charter of Rights and Freedoms, just turning 30.

Good politics do not account entirely for recent economic triumphs. Luck has played a major part. The Alberta tar sands — an environmental catastrophe in waiting — are the third-largest oil reserves in the world, and if America is too squeamish to buy Canada’s filthy energy, there’s always China. Policy, though, has played a significant part.

Liberals and conservatives in the U.S. have tried to use the Canadian example to promote their arguments. The left says Canada shows the rewards of financial regulation and socialism, while the right touts the brutal cuts made to Canadian social programs in the 1990s, which set the stage for economic recovery. Both sides are right.

Since the 1990s, Canada has pursued a hardheaded, even ruthless fiscally conservative form of socialism. Its originator was Paul Martin, who was finance minister for most of the ‘90s and prime minister from 2003 to 2006. Alone among finance ministers in the Group of Eight nations, he “resisted the siren call of deregulation,” in his words, and insisted that banks tighten their loan-loss and reserve requirements. He also made a courageous decision not to allow Canadian banks to merge, even though their CEOs claimed they would never be globally competitive unless they did. The stability of Canadian banks and the concomitant stability in the housing market provide the clearest explanation for why Canadians are richer than Americans.

Martin also slashed funding to social programs. He foresaw that crippling deficits imperiled Canada’s education and health- care systems, which even his Conservative predecessor, Brian Mulroney, described as a “sacred trust.” He cut corporate taxes, too. Social programs and robust capitalism are not inherently opposed propositions. Both are required for meaningful national prosperity.

Mr. Martin’s balanced policies emerged out of Canadian culture, which is fair-minded and rule-following to a fault. The Canadian obsession with order can make for strange politics. Of all the world’s societies, Canada’s is one of the most open to immigrants. Yet Canada also imposes a mandatory one-year prison sentence on illegal immigrants, and the majority of Canadians favor deportation. Canadians insist that their compassion be orderly, too.

This immigration policy is neither “liberal” nor “conservative” in the American political sense. It just works. You could say the same thing about Canada’s economic policies.

Two hundred years ago last month, the War of 1812 began. Thomas Jefferson declared, “The acquisition of Canada, this year, as far as the neighborhood of Quebec, will be a mere matter of marching.” The U.S. had almost 8 million people, compared with Canada’s 300,000. The Canadians nonetheless turned back the assault.

Through good luck, excellent policy and even some heroism, Canada survived the war. But it has taken 200 years for Canada to become winners.

Stephen Marche is a columnist for Esquire magazine. He wrote this for Bloomberg News.