global economics



What I think is a serious problem and a serious lack of understanding on the part of Canadians today is an overall picture of Canada’s superior position relative to the rest of the nations and people of the world, and what it means.

We don’t seem to realize that after only 150 years of existence our very small population (27 in rank) has become at the same time the 11th largest economy in the world. Canada is now one of the top six richest industrial countries on earth. In the last decade, we have reached a GDP per capita ($51,000) which ties us with the GDP per capita of the United States, which has a population 10 times as large as Canada’s.

By international standards, we rate even higher as #6 on the World Economic Freedom Index. This too is very important.

This is a remarkable achievement of the Canadian people by any standard. And while this is great, it is true that we could be even better off if it was not for our waste, non-productive spending and all to often misuse of Canadian resources.

In a more and more competitive global economy, we are just beginning to feel the pressure of the awakening Asian goliaths such as China, India and the other rapidly growing countries of Singapore, South Korea and Australia. Our problem is simply how to retain our competitive position on the top of the world while at the same time, retaining our individual liberty.

One is not so good without the other. To be well off without personal liberty is just as bad as being free in poverty.

One way to be competitive is to keep the cost of government and taxation in Canada as low as possible. At present, Canada’s combined federal and provincial top marginal tax rates at 53.5% are the second highest compared to those in the G7 countries. In order to keep us competitive in the global economy rather than see Canadian incomes forced to decline, it would be much better policy to reduce our current tax levels by reducing the cost of government and thus the need for these non-competitive high levels of taxation – more on this later.

Despite our forays in the past into socialist fantasies, which I will also deal with later, our conservative forefathers gave us a solid social and economic basis to become one of the most successful countries in the world.

I think it is important to understand that a growing, productive Canadian economy is the essential basis, and the only source we have to solve our present and future human, social and environmental problems and aspirations.

Surely then the biggest issue facing Canadians today is how to retain our prized position and how to sustain and build upon it in the future. To meet this challenge, I believe one of the first things we must do is to clearly understand our situation and how we got here.

Our assets of human capital, natural resources, and our financial and political stability are well known and appreciated. But what of our threats? I think it important to objectively identify and consider the current threats that could undermine Canada’s future and the continuing health, happiness, productivity and prosperity of this and future generations.

These threats to our continuing success come not from without but from within.

We must recognize we have serious problems that must be faced if we are to continue our success. Such problems can no longer be ignored or swept under the rug by political correctness, silence and evasion.

Three of the most pressing and ignored problems are: first, a vast, too costly government health care monopoly that runs on socialist ideology and that does not produce affordable and effective health care.

Secondly – the serious, festering nation-wide aboriginal crisis. This situation is far more costly, serious and dangerous than most of us realize. We must ignore the misinformation and immediately work closely with the aboriginal community and be of practical help. This is a tragedy of a people, the bulk of whom are on a one way road to breakdown and collapse. If we continue to ignore the future success of our aboriginals, we run the risk of dangerous confrontation. While we must work with them, throwing more money at this clearly cultural breakdown is like pouring gasoline on a fire to put it out.

According to Indigenous and Northern Affairs Canada (INAC) Canada increased aboriginal welfare from $82 million annually in 1946/47 to over $7.9 billion in 2013/14. Welfare costs per aboriginal individual rose from $939.00 per person in 1949/50 to $8,578.00 per person in 2013/14, an increase of 814%. On top of this, aboriginals received an additional $2.6 billion for health care.

So throwing money at this problem is not helpful. During this period, repeated crisis reports of increased suicides, increased rates of prison incarceration, increased drug addiction and alcoholism, social despair and lack of hope seem to be leading to a collapse of many of these isolated communities. During this period, average unemployment on the reserves was above 20% and graduation rates under 40 %. What we have been doing isn’t working, nor will it work in the future.

Thirdly, our trillion dollar national debt which has now reached 110% of our GDP must be stopped cold and progressively paid down on a carefully planned and determined basis. Big threats like the three above and smaller problems like our costly and unconstitutional inter-provincial trade barriers, and the Supply Management farm cartel which overcharges consumers for milk, eggs and chickens, must also be dealt with as soon as possible. This cartel is especially harmful to low income families with children.

I can go on with a list of other lesser threats to our continuing success but they can all be recognized, ameliorated and successfully dealt with if we will only describe them objectively and we have the political will to solve them.

At the moment, we seem to have a Canadian political culture that is reluctant to do or say anything about these important economic issues as they might be considered unpopular or controversial.

The size, cost and mismanagement of taxpayer dollars by all levels of government is a problem. Just one of many examples is the Ontario Liberal government’s estimated multi-billion dollar loss in one act – the cancellation of power plants under construction for purely political reasons. This is just the tip of a massive and unnecessary iceberg of waste and costs. The rapid increase in Hydro rates in Ontario is typical of this utopian theory and evidence of appalling mismanagement.

If we are concerned about being globally non-competitive, I believe Canadians should be aware that Canada is burdened by an exceedingly high cost of government. Perhaps even more alarming is their growth rate. Governments have been growing in the last 20 years at the alarming rate of 22.6% per year while the private sector has been less than half of that.

In 1970, the government consumed 17% of our gross domestic product while now it consumes nearly 40% of our GDP. These high costs are increased by the continually growing number of civil servants in Canada which now exceeds 3.6 million on the taxpayer’s payroll. This privileged group has grown to become 22% of Canada’s total workforce.

While these numbers grow, we also learn that civil servants enjoy wages, salaries, benefits and pensions that are 10-12% greater than earned by private sector employees doing the same work.

Instead of listening to political propaganda and Party ideology, Canadians should be asking one critical question regarding every proposed government policy –IS IT PRODUCTIVE? Or is it just another costly utopian dream of theorists?

We should ignore partisan political party ideology and ask politicians – Is your proposed policy PRODUCTIVE and does it produce wealth with a direct benefit to Canadians? If Canadians (who have the constitutional right to ask) do not ask this question, we will become another failed economy like Greece, Venezuela, Brazil and Portugal. And we will lose our liberty in the process.

We should insist that our politicians remember that our growth in wealth, standard of living, employment security and liberty comes not from government but from our savings, investments and productive work in a free, competitive, privately owned market system called ‘free enterprise’.

In Canada during the three decades following World War II, the balance between the capitalist free market system which allocates resources through markets and our democratic political system which allocates resources in accordance with a political agenda, was kept in balance. This equilibrium gave Canadians low taxes, economic growth, low inflation, rising incomes, full employment, income mobility and a debt-free fiscal record. This in turn led to the steady growth of individual prosperity.

But at the end of this period, Canadians elected an avowed socialist named Pierre Elliot Trudeau (1968-1984). He soon disabled the successful balance between a free market economy and a socialist political agenda.

One of Trudeau’s biographers, Robert Plamondon, in his book, ‘The Truth about Trudeau’ wrote, “The discrepancy between the strong economic position Trudeau inherited from his predecessor and the calamity he left to his successor, could not be more stark”. Famous historian Desmond Morton called Trudeau ‘the disappointment of the century and a man who left Canada dramatically more divided and drastically poorer than he found it’.

It took his successors nearly 25 years to rectify this socialist experiment.

We must be careful to avoid this imbalance between our free market economic system and another socialist experiment – no matter how charismatic or sunny its proponent.
As history has so painfully shown us, this link between fiscal balance, economic growth, prosperity and personal liberty cannot be ignored.

To protect our successful position in the world, we do not need any more ideologically driven social theories, but rather a pragmatic system of governance that delivers measurable benefits to taxpayers.

A case in point is our failing health care system and its unacceptable and growing ‘wait’ times which have escalated to 18.3 weeks on average. The Fraser Institute studies published in 2015 of Comparative Health Care Systems in other western nations such as the United Kingdom, Australia, France, Germany, the Netherlands, Sweden and Switzerland, found that , contrary to what we are told, Canada has the highest cost age-adjusted health care system in the world.

And despite the cost of many health care initiatives, we do not receive value for money. For example, these studies found that, we are rated 19th in ‘hospital care fatality rates within 30 days of ischemic stroke’. In the number of doctors per hundred thousand people, Canada ranks 24th out of the 25 nations studied.

In the number of MRI units per million citizens, Canada, despite being number 1 in costs, ranks number 17 in terms of units.

A second study which rates 10 of the world’s health care systems is the recent study conducted by the Commonwealth Fund of Washington, D.C. In this study, Canada rated second last of the ten nations studied. Of the other countries in this survey, all allow competing private, for profit health care except Canada. All of these countries except for one outranked Canada in cost, health outcomes, wait times and equitable care.

This is because our system (as any first year economics student knows) ignores the first principle of economics – the law of supply and demand. As economists know, as the price declines, the demand rises.

The ramification of ignoring this economic principle with our system of mandated zero pricing has created an infinite demand for health care. At the same time as zero pricing has created and insatiable demand for health care that cannot be satisfied, we have not, and cannot increase the supply of doctors, medical equipment or services to meet the ever growing demand.

This is because the system on an age-adjusted basis is already the most expensive system in the world – we cannot afford what we have now, let alone increase the cost. As the demand continues to rise and supply stagnates, three things happen – costs continue to rise, patient wait times increase and medical outcomes deteriorate.

On the matter of rising costs, a recent study issued last month by the Fraser Institute forecasts that at the current rate of growth, by 2030 five of the Canadian provinces including Ontario will have health care costs that are more than 50% of their total provincial budgets. So where is our vaunted Canadian health care system?

It is said to be insanity to use the same failed system to solve the same problem over and over again, and then to expect a different result.

To increase the health care supply, cut wait times, lower costs and improve health outcomes, we must repeal the Canadian Health Care Act and immediately allow private for-profit health care operations in Canada. This is a solution that is long, long overdue. The root problem that must be reformed is the funding and structure of the system itself.

The superiority of the Canadian Health Care monopoly is a highly touted myth. Why is this myth so assiduously promoted and who benefits? You can rest assured it does not benefit Canadian patients, taxpayers or over stressed doctors.
Why are we so resistant to allow essential competition in health care which can only benefit the patient and the taxpayer as it does in every other western nation in the world?

As we have discovered, but apparently not willing to admit, we cannot continue to ignore the laws of economics.

Last year in Saskatchewan, Premier Brad Wall despite the Canada Health Care Act, introduced private competitive health care to his province. The results published by the province reports a 75% decline in wait times, greatly improved health care, and that, with the same fee structure, the combined health care system was 26% less costly.

The central question remains! As a people do we have the understanding and the will to meet the challenge of an increasingly competitive world in the 21st Century or not?

I, for one, believe we must contain and reduce the increasing burden and imbalance of government on our citizens and on the free market system which has been so productive for all Canadians in the past.

I believe to retain our success and reach our true potential as a nation we must address our major threats – health care, aboriginals and our massive debt before they become intractable.

On the subject of the growth of government since the 1970s, all of our political parties tell us they want to give the people the means to control the growth of oppressive government. The problem is, however, that in fact, they are giving us more, not less. This too, for our long term growth and prosperity, we will have to face and deal with.

If we are concerned about the future we will have to return to a more pragmatic, productive and balanced consumption and deployment of our resources, and to the brand of economic common sense that has served us so well in the past.

George MacDonell
July 2016

During his career, George MacDonell served as a CEO in Canadian industry and as Deputy Minister of Industry, Trade and Technology in the Ontario government