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Canada offers lessons to solve U.S. issues

WASHINGTON — Whatever else they've thought about their neighbor to the north, Americans have almost never looked to Canada as a role model.

Indeed, during the long, bitter push to revamp the U.S. health care system, opponents repeatedly warned that if we weren't careful, we could end up with a medical system like Canada's.

But on health care, and such crucial issues as the deficit, unemployment, immigration and prospering in the global economy, Canada seems to be outperforming the United States. And in doing so, it is offering examples of successful strategies that Americans might consider.

While the United States, Japan and much of Europe are struggling with massive fiscal deficits, Canada's financial house is tidy and secure. Most economists say it will take years for the United States to make up the 8 million-plus jobs lost during the recession, but Canada — despite its historic role as a major supplier for the still-troubled U.S. auto industry — already has recovered essentially all of the jobs it lost.

Meanwhile, as Americans continue their grueling battle over immigration, Canadians have united behind a policy that emphasizes opening the door to tens of thousands of skilled professionals, entrepreneurs and other productive workers who have played an important role in the Canadian economy.

Granted, Canada's problem with illegal immigration is smaller, and its economy does not match the scale and dynamic productivity of the world's largest. But on the most troubling issues of the day, the United States is locked in near-paralyzing political and ideological debates, while those issues are hardly raising eyebrows in Canada.

"We did a lot of things right going into the financial crisis," said Glen Hodgson, senior vice president at the Conference Board of Canada, a business-membership and research group in Ottawa.

One of the most important, he said: Back in the 1990s, Canada cleaned up the fiscal mess that most every developed nation is now facing. Earlier that decade, Canada too was straining from years of excessive government spending that bloated the nation's total debts, to 70 percent of annual economic output — a figure the United States is projected to approach in two years.

Canada's credit rating was downgraded in the early 1990s, sharply raising its borrowing costs. With its economy suffering and pressure mounting from international investors — Wall Street bankers in particular — Canadian officials slashed spending for social programs and shifted more of the cost burden to provincial governments, which almost everyone in Canada felt.

"I had to share a phone line with another professor. Can you believe it?" recalled Wenran Jiang, who joined the University of Alberta's political science faculty in 1993. Professors there and elsewhere also took salary cuts.

With the economic downturn, Canada pumped up public spending to stimulate growth, as other nations did. Still, its fiscal shortfall this year is projected at $33 billion, comfortably below the 3 percent-of-GDP threshold that economists consider a manageable level of debt.

Washington's deficit this fiscal year is estimated by the Congressional Budget Office at $1.35 trillion — or 9.2 percent of projected GDP.

The United States' larger size — its population and economy are roughly 10 times those of Canada — makes direct comparisons difficult. And many Canadians readily acknowledge that American entrepreneurship and productivity are enviably stronger.

But having learned to tighten their belts in the 1990s, Canadians such as Michael Gregory have little sympathy for U.S. consumers who pile debt onto their credit cards and homes.

"We've been taught: You don't buy what you can't afford," said Gregory, a senior economist at the Bank of Montreal.

Similarly, Canadian banks have been more conservative than American ones. So they made few subprime loans, and home equity lines are relatively recent offerings in Canada.

Yet their solid if unexciting product lines and financial results mean Canadian firms can now expand lending. This comes as U.S. banks continue to refrain from extending credit, thus restraining spending, investment and job growth.

Canada's stricter banking regulations and bankruptcy rules certainly have played a role, too, but Gregory attributes part of the difference to cultural factors. When he worked for now-defunct Lehman Bros. Holdings Inc. in New York in the late 1990s, he drove a Ford minivan or a Toyota Camry while many of his colleagues tooled around in BMWs and other luxury brands.

"U.S. businesses are certainly looking at lessons learned from Canada," said Bart van Ark, chief economist at the Conference Board in New York. "In a nutshell, Canada has been very pragmatic in dealing with the economy."

Canada's approach to immigration is one example. With one of the highest immigration rates in the world, Canada has been receiving about 250,000 permanent residents annually. About one-fourth of the new arrivals gain entry through family relations, but more than 60 percent are admitted as "economic immigrants" — that is, skilled workers, entrepreneurs and investors.

In the U.S., it's basically the reverse: Most of the 1 million-plus permanent residents received annually have been family-sponsored; only about 1 in 7 are admitted based on employment preferences. That is, Washington emphasizes bringing in family members of immigrants already in the U.S. Ottawa puts the emphasis on admitting those who can contribute to the economy.

Many Americans, of course, don't see that as the key difference. The estimated 11 million illegal immigrants in the U.S. are what dominate public discussions of immigration policy.

"The thing about the U.S. is you have a border with Mexico, which Canada doesn't," said Jeffrey Reitz, a sociologist and immigration expert at the University of Toronto.

Canada offers lessons to solve U.S. issues 07/17/10 [Last modified: Friday, July 16, 2010 7:37pm]
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