Canada's Economic Miracle: How Our Northern Neighbor Avoided Economic Calamity

Whether it's the depressed housing market, high employment or breathtakingly high national debt, the U.S. economy has its share of woes these days. Look north, however, and you'll see a very different scenario.

Though Canada and the United States are often viewed as very similar, our bigger, chillier neighbor has better weathered the recent economic storm, which brought banks, auto companies and other American businesses to their knees when the financial crisis struck nearly three years ago.

Not only has it outshined the U.S., says Alex Colvin, professor of labor relations and conflict resolution at Cornell University's ILR School, but Canada has come through the recession better overall than most other Western economies.

That's been a boon for Canadian workers. Whereas the U.S. unemployment rate rose two ticks to 9 percent in April, Canada's fell to 7.6 percent. Moreover, Canadians enjoy less income inequality, meaning there's less disparity between rich and poor.

Canada also has stronger employment and union regulations, and a greater percentage of Canadians are represented by collective bargaining agreements, offering them greater job protection and benefits. Unionization in Canada is about 30 percent compared to 12 percent for Americans.

Canada's quick rebound is the result of a combination of factors, Colvin says. First, Canada's economy differs from the U.S. in that Canada's economy is much more "resource driven," he says, noting, for example, that oil is a major export -- unlike the U.S., which imports far more oil than it produces.

Also, government regulation has helped to smooth out many bumps in the Canadian economy, Colvin says. Stricter banking rules, compared to the U.S., for the example, meant there was no mortgage crisis in Canada. "It's a much more concentrated and regulated banking industry," he says, which makes it "much more stable."

Further, Canada hasn't in any sense experienced a housing decline -- unlike the U.S., where housing markets across the country still reel from the bursting of the mortgage bubble nearly three years ago.

"There's been no housing crisis [in Canada]," says Jeffrey Ayres, professor of political science at Saint Michael's College in Colchester, Vt. Though the market has slowed, he says, there has been no market collapse.

By contrast, home prices in some U.S. cities, such as Atlanta, Cleveland and Las Vegas, have fallen below 2000 levels, according the S&P/Case-Shiller Home Price Index for February, the most recent available.

Though current Prime Minister Stephen Harper and his Conservative government have benefited from Canada's stellar economic performance (elections last week handed Conservatives a majority in Canada's parliament), the country's ability to recover quickly was largely the product of policies put in place by Liberal Party rule.

Ayres gives much credit to the government of former Prime Minister Jean Chrétien. During his term, the Liberal leader strongly opposed deregulating Canada's banking system. That has meant that Canadian consumers have had scant access to unregulated financial products, putting them at far less risk to predatory lenders.

What's more, Canada's strict bank regulations, and lack of both 30-year mortgages and mortgage-interest tax deductions, also benefit consumers, since Canadians are less likely to borrow and take on more debt.

Canada also has experienced much more modest deficits. Unlike the U.S., where the national debt equals 10 to 11 percent of its Gross Domestic Product, Canada's share is much smaller -- about 2 to 3 percent. And, unlike many U.S. states, Canada's provinces have run relatively small deficits, putting less pressure on provincial coffers and the need to lay off state workers.

According to the U.S. Department of Labor, the number of workers employed by state governments fell 8 percent in April, compared to March, while local governments cut payrolls by 14 percent.

Canada's economic prowess wasn't always evident, however. Twenty-two years ago, an editorial titled "North, to Argentina," appeared in The Wall Street Journal, warning that Canada's debt, along with other failed policies, threatened its economic prosperity.

Since that time, however, Canada, under the leadership of Liberal leaders such as Chrétien and, more recently, Paul Martin, have put the country on a path to prosperity.

Further differentiating Canadians from their southern neighbors is their view on taxes. Canadians may complain about being taxed, but they also realize that those tax dollars help pay for a universal health-care system that most are proud of and helps them to have one of the longest life-expectancy rates on the planet.

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