Tag Archives: Canada

Canada – Post 2008

Published Feb 7, 2009 From the magazine issue dated Feb 16, 2009 Fareed
Zakaria of Newsweek

The legendary editor of The New Republic, Michael Kinsley, once held a
“Boring Headline Contest” and decided that the winner was “Worthwhile
Canadian Initiative.” Twenty-two years later, the magazine was rescued from
its economic troubles by a Canadian media company, which should have taught
us Americans to be a bit more humble. Now there is even more striking
evidence of Canada’s virtues.

Guess which country, alone in the industrialized world, has not faced a
single bank failure,calls for bailouts or government intervention in the
financial or mortgage sectors? Yup, it’s Canada.

In 2008, the World Economic Forum ranked Canada’s banking system the
healthiest in the world. America’s ranked 40th, Britain’s 44th.

Canada has done more than survive this financial crisis. The country is
positively thriving in it. Canadian banks are well capitalized and poised to
take advantage of opportunities that American and European banks cannot
seize.

The Toronto Dominion Bank, for example, was the 15th-largest bank in North
America one year ago. Now it is the fifth-largest. It hasn’t grown in size;
the others have all shrunk.

So what accounts for the genius of the Canadians?
Common sense. Over the past 15 years, as the United States and Europe
loosened regulations on their financial industries, the Canadians refused to
follow suit, seeing the old rules as useful shock absorbers. Canadian banks
are typically leveraged at 18 to 1?compared with U.S. banks at 26 to 1 and
European banks at a frightening 61 to1. Partly this reflects Canada’s more
risk-averse business culture, but it is also a product of old-fashioned
rules on banking. Canada has also been shielded from the worst aspects of
this crisis because its housing prices have not fluctuated as wildly as
those in the United States. Home prices are down 25 percent in the United
States, but only half as much in Canada. Why? Well, the Canadian tax code
does not provide the massive incentive for overconsumption that the U.S.
code does: interest on your mortgage isn’t deductible up north.

In addition, home loans in the United States are  “non-recourse,” which
basically means that if you go belly up on a bad mortgage, it’s mostly the
bank’s problem. In Canada, it’s yours. Ah, but you’ve heard American
politicians wax eloquent on the need for these expensive programs?interest
deductibility alone costs the federal government $100 billion a year?because
they allow the average Joe to fulfill the American Dream of owning a home.
Sixty-eight percent of Americans own their own homes. And the rate of
Canadian homeownership? It’s 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has
had 12 years of budget surpluses, and can now spend money to fuel a recovery
from a strong position. The government has restructured the national pension
system, placing it on a firm fiscal footing, unlike our own insolvent Social
Security. Its health-care system is cheaper than America’s by far
(accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does
better on all major indexes.

Life expectancy in Canada is 81 years, versus 78 in the United States;
“healthy life expectancy”  is 72 years, versus 69. American car companies
have moved so many jobs to Canada to take advantage of lower health-care
costs that since 2004, Ontario and not Michigan has been North America’s
largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We
issue a small number of work visas and green cards, turning away from our
shores thousands of talented students who want to stay and work here.

Canada, by contrast, has no limit on the number of skilled migrants who can
move to the country. They can apply on their own for a Canadian Skilled
Worker Visa, which allows them to become perfectly legal “permanent
residents” in Canada?no need for a sponsoring employer, or even a job. Visas
are awarded based on education level, work experience,
age and language abilities. If a prospective immigrant earns 67 points out
of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she
can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to
hire foreign graduate students in the United States, decided to open a
research center in Vancouver. The company’s announcement noted that it would
staff the center with “highly skilled people affected by immigration issues
in the U.S.” So the brightest Chinese and Indian software engineers are
attracted to the United States, trained by American universities, then
thrown out of the country and picked up by Canada?where most of them will
work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and
all of us, could learn from our quiet?OK, sometimes boring?neighbor to the
north.

Meanwhile, in the councils of the financial world, Canada is pushing for new
rules for financial institutions that would reflect its approach. This
strikes me as, well, a worthwhile Canadian initiative.