Did ‘hardheaded socialism’ make Canada richer than America? Please

The Enterprise Blog

 

James Pethokoukis

Stephen Marche at BloombergView notes that a) the net worth of the average Canadian household in 2011 was $363,202 vs. 319,970 for the average American household, b) Canada’s unemployment rate is a full percentage point lower than America’s, and c) Iceland is thinking about pegging its currency to the loonie rather than the greenback. And then he draws this conclusion:

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 served a stint as 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 the banks tighten their loan-loss and reserve requirements. He also made a courageous decision not to allow Canadian banks to merge, even though their chief executives 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 today.
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. Growth is required to pay for social programs, and social programs that increase opportunity and social integration are the best way to ensure growth over the long term. Social programs and robust capitalism are not, as so many would have you believe, inherently opposed propositions. Both are required for meaningful national prosperity.

Yes, Canada has a nationalized health care system, but overall it ranks as the 6th freest economy in the world, according to the Heritage Foundation’s 2012 Index of Economic Freedom:

The foundations of economic freedom are very strong in Canada, and the economy has emerged from the global economic slowdown relatively unscathed. The rule of law is sustained by an effective and independent court system, ensuring protection of property rights and the equitable application of the commercial code.
Canada also performs well in other pillars of economic freedom and continues to sharpen its long-term competitiveness. The soundness of public finance has been notable, although government spending has been rising as a share of GDP. Along with open-market policies that support trade and dynamic investment, the efficient regulatory environment facilitates entrepreneurial activity and provides a high degree of certainty for business planning. The steady reduction of the standard corporate tax rate over the past three years has also contributed to Canada’s competitiveness.

There is also the fact that Canada has benefited from an energy boom. It’s like one big North Dakota. Still, there seems little doubt that it is a well-run nation. And can get away with a lot if marginal tax rates are low, regulation efficient, debt contained — even a pretty big social welfare state.