Our Total Liabilities

Choices

We have dug ourselves quite a hole, with the best of intentions, by creating social welfare programs that may have now grown to such a size that they are beyond our ability to pay for them. Worse, they may be sapping us of our ability to be productive and innovative and prosper in the world economy.

Observing the trajectories of different countries affords us some important lessons. At the turn of the last century, for example, Argentina, Australia and Canada were seen as equally promising emerging nations. All these countries had a rich resource base, relatively rural economies and room for expansion. Today, Canada has a per capita income almost 200 per cent more than Argentina and 10 per cent more than Australia. This shows that countries of similar resource endowment can end up with different standards of living over time. Small differences in national growth rates can have a huge impact over time.

As sure as a country develops it can also de-develop both relatively and absolutely. In the 1980s it seemed like the Japanese economy could do no wrong. But the 1990s proved that Japanese growth was masking very fundamental structural problems with the Japanese economy, resulting in the relative decline of Japan as a major economy.

The lesson is clear: Canada cannot afford to rest on its laurels.

Canada has benefited immensely from its geo-political closeness to the United States, leading to a very high level of integration between Canada and the world’s major economy. But many Canadians may not realize that Canada also benefited from a long-term tradition of limited government intervention. Sir Wilfrid Laurier is often noted as saying that the 19th Century was the century of the USA, but that the 20th Century would be the century of Canada. But somewhat less known was Laurier's commitment to limited government. "If you remove the incentive of ambition and emulation from public enterprises, you suppress progress, you condemn the community to stagnation and immobility.” (Source: Doug Owram, The Government Generation: Canadian Intellectuals and the State, 1900-45. Toronto: University of Toronto Press, 1986)

As the Canadian economist William Watson points out in his book Globalization and the Meaning of Canadian Life, Canada was actually a relatively late comer to the sort of comprehensive social welfare systems that were set up earlier in countries like Australia and Argentina. Although there is nothing wrong with social programs, when they undermine the system of 'ambition and emulation' they invariably create the conditions for undermining their long-term sustainability.