Our big chance - Macleans.ca

Our big chance

Given Canada’s strength, this may be our time to pull out of America’s shadow


Our big chanceFifteen years ago Caleb Howard could have been a poster boy for Canada’s brain drain epidemic. In 1993 the University of Waterloo-trained mathematician and computer animator visited Los Angeles and was stunned by what he saw. Movie studios were clamouring for workers with his skills, and they were willing to pay three times more than companies in Toronto. So Howard joined thousands of other highly skilled Canadians who flocked to the U.S. in the 1990s. He went on to design special effects for video games and blockbuster movies—he’s particularly proud of the fire and smoke he fashioned for the rocket-launch scene in Apollo 13—and built a prosperous life with his Canadian wife and their two children in Santa Monica. From time to time, the topic of returning to Canada came up. But California’s unbridled energy and sense of opportunity made it difficult to leave.

Early last year, all that began to change. Signs of the coming economic crisis were everywhere. House prices were plunging, and so too were the couple’s retirement savings. Soon even their well-educated friends were struggling to find work. As the energy fizzled and jobs dried up, the couple sold their home. Then, just like 14 years earlier, they packed up and headed to where the opportunities looked most promising: only this time, that meant Canada. “It was with an acute awareness of the decline of the American economic situation that we came back,” says Howard, now a computer graphics supervisor at Electronic Arts in Burnaby, B.C. “We couldn’t have picked a better place to return to.”

For Canada, a country that has spent the better part of 20 years nervously wringing its hands over its perceived inadequacies, the dramatic reversal over the past year has been striking. Our banks were once seen as lacking innovation; now world leaders hail the boring Big Five as being among some of the safest and most profitable banks in the world. We fretted that our economy was overly reliant on commodities; now our rocks, oil and gas are seen as a natural hedge against havoc in the manufacturing sector. We worried that Canada’s strict mortgage rules were a drag on our housing market; now we can brag that we don’t put people into homes they can’t afford. Almost any way you look at it, Canada is uniquely positioned. So as other developed nations struggle, the question is: will we squander this once-in-a-generation opportunity or take advantage of our good fortune to punch above our weight?

“You’d have to go back to those golden early Trudeau years of ’69, ’70 to find a time when things were aligned so well,” says Glen Hodgson, chief economist at the Conference Board of Canada. Last week the board predicted that next year Canada will see a huge leap in our ranking by international economic performance, from 11th place out of 17 countries in 2008, to fifth. Canada’s rise will be driven by GDP growth, improved employment growth and increased foreign investment.

Our rise will be helped by a rock-solid banking system that U.S. President Barack Obama has called “striking.” Brian Cowen, the head of Ireland’s government, has vowed to adopt “the Canadian model” for his country’s banks. And when Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney travelled to China last week, it was to showcase our “excellence” in financial regulation. For those who just can’t get their fill, the New York Times website has even been running a “Canada Regulation Series.”

No one is saying this country isn’t suffering through a deep recession. Just ask employees in the forestry and automotive sectors. But Canada’s economy was on solid ground before the recession hit, putting us in the pole position for a recovery. Unemployment was already at a 30-year low and Canada was the only G8 country to consistently balance its books. Assuming annual deficits of $30 billion over the next decade, Canada’s debt as a share of GDP will hover around 35 per cent, according to CIBC World Markets. The International Monetary Fund warns that America’s debt, on the other hand, could hit 100 per cent of GDP by 2019. Britain could get there in half the time. “Other countries, most notably the U.S., face large tax increases to address more serious debt and deficit burdens than Canada’s, again opening up competitive room for Canada,” CIBC economist Avery Shenfeld wrote in a report last month.

It’s not just Ottawa’s ledgers that put Canada ahead of most other nations. Our housing sector is showing signs of firming up, and some economists have declared that Canada’s brief housing meltdown is already over. Whether it is or it isn’t, we can at least smugly boast that we didn’t have government-backed mortgage companies like Fannie Mae pushing zero-down, 30-year subprime loans for years on end. Instead, we had the Canada Mortgage and Housing Corporation, the federally owned mortgage insurer, which only briefly danced with subprime until a stern rebuke from former Bank of Canada governor David Dodge. By 2006 subprime mortgages made up 21 per cent of all new mortgages in the U.S., but as little as one per cent in Canada. America may pride itself on its tradition of personal responsibility, but it’s only in Canada that homeowners who default on their mortgages face the consequences of having their wages garnisheed. In America homeowners can walk away from their obligations, which is exactly what thousands of them do.

Canadians are also better positioned for a rebound in our wallets. According to a recent report by CIBC economist Benjamin Tal, disposable incomes in Canada have been rising at more than twice the rate they are in the U.S. since 2005—at 11 per cent versus five per cent. “So quick was the revival of Canadian income that in a short four-year span, per capita real income in Canada was able to wipe out no less than 15 years of income underperformance vs. the U.S.,” Tal wrote. With commodity prices expected to climb as the global economy recovers, Tal believes Canadians are poised to significantly out-earn American workers once the recession ends.

Meanwhile in the U.S., some pundits are worrying whether the country will ever regain its former glory. Those who predicted the recession, like New York University professor Nouriel Roubini (also known as Dr. Doom), say the U.S. economy could bottom out this year, but it still faces a glacial rebound. Many expect American unemployment to keep rising well into next year, while house prices continue tumbling on a year-over-year basis, and more banks go bust. The nation’s finances, already in shambles before the recession, have hit rock bottom with multi-trillion deficits projected for years to come. Whole states, like California, face bankruptcy without huge tax increases and deep spending cuts.

Compared to the U.S. and many other countries, Canada has done well and we should be proud. But it’s one thing to gloat, and another to exploit our relative lead. If Canada really is in a better position than it has been in decades, how can we make sure we take advantage of that going forward?

For starters, we should use our current high standing to attract the best and brightest workers from around the world, say experts. According to Liam Clifford, managing director of London immigration consultancy Globalvisas.com, it shouldn’t be that hard. “Canada is held up as such a fantastic destination here in the U.K. because it’s the strongest economy of the G8, and it’s often voted to have the highest standard of living of any country,” he says. “Our offices in India, South Africa and the U.K. all find Canada to be the most sought-after destination.” Visa inquiries for Canada, in fact, have already jumped 65 per cent from last year.

That could be because, as Jim Milway, managing director of the Institute for Competitiveness and Prosperity, points out, the U.S. is turning away talent like never before. Companies that get U.S. stimulus funds now face restrictions on hiring foreign-born workers—even M.B.A.s. “This is a big opportunity for Canadian schools and banks to get down there and recruit,” he says.

Canada could also attract new industry with a little-known fact: we’ll soon offer a more attractive tax climate for businesses than America does. The U.S. already has one of the highest tax rates on new business investment in the world, and many expect its corporate tax rate, currently at 35 per cent, to rise further. Yet Canada’s combined federal and provincial corporate tax rate will fall to 25 per cent over the next two to three years. That’s already prompting companies to shift their headquarters here, pumping additional revenue into government coffers. In June, Tim Hortons Inc. moved its corporate headquarters back from Delaware to Oakville, Ont., to save on taxes. “Americans just seem intent on shooting themselves in the foot, and we shouldn’t stand in their way,” says Milway.

It’s true that Canada still has its problems: our productivity, for instance, still lags the U.S.’s by a long shot. But when you look at the overall picture: employment rates, wages, standard of living, debt levels, financial stability, Canada has never been in a stronger position. It’s a stunning about-face from just a few years ago.

When Howard chased the bright lights to Hollywood, it was a foregone conclusion Canada couldn’t hold a candle to America’s better pay and job prospects. “The great Canadian brain drain was a point of some minor shame for me, because the government paid for my education and I immediately went south and paid American taxes for 15 years,” he says. Now the roles are reversed. “I got the best experience in the world in L.A. for 15 years. Now I’m able to bring it back and apply it to Canadian industry.”


Our big chance

  1. Don't tell the Liberals, they are praying for more recession. Just watch all the lib-left posters write how out of touch this article is and how Canada is heading for even worse economic times.

    How awful would it be for the Liberals to have Harper lead Canada into economic prosperity while they continue to complain that the sky is about to fall?

    • While your response projects your emotional partisanship, what was the economic action plan before the coalition threatened the PM's job?

  2. Who would have thought .. sometimes I think our national pessimism and national inferiority complex (when it comes to all things yankee) can really get in the way. How much does anyone want to bet that there will be more posts about how we are not up to snuff than there willl be ones that acknowledge our natural advantages and superior postions in many areas. I can see the posts now all starting the same = yes this one thing is good BUT – fill in area of concern. It's like when was the last time a canadian went = we rule! period full stop do not add anything … you almost never see or hear it – people should travel more I have extensively and will tell anyone that we have so many blessings maybe we should stop give credit where credit is due – especiall to all gov't in the past Liberla and Conservative as well as to the current gov't too – oh boy I can see the flaming now

    • we owe owe and canada does not and we will be taxed to death in the near future. these things are in motion no inferiority complex needed.

  3. It's the triumph of pragmatism over ideology.

    • THIS

  4. There are certainly some things that Canada does well. Just don't get sick or pregnant.

    • For Pete's sake Sanity Injection!

      I think you need to get your head out of the sand. Better maternity/parenthood leaves than most countries, a health system that can't turn you away, and that is just the beginning. Now we look to be recovering national prosperity faster than the rest too. Time to be both relieved and proud I think.

  5. i am an american (chicago)…what is the worst thing about Canada? seriously, to me the only bad thing about Canada i KNOW for a fact is the weather…anything else?

    • A largely apathetic and disinterested voting public.

    • We tend to be more risk averse than you're used to and have a much smaller population over a much larger area. This has a number of effects, for instance it can be harder to get niche market items and specialty goods in Canada because you won't find as many people taking risks on starting businesses that provide those kinds of things, or enough demand to support such a store. (Fortunately, internet ordering from the US to Canada is rapidly becoming more viable for all sorts of products).

      This also means your opportunities to reach the level of success a person could in America are far more limited here.
      On the flip side, the chances of things going devastatingly bad are far more limited as well.

  6. Will the US ever regain it's former glory? Not with Obama/Pelosi at the helm. Obama was telling the truth when he said he wanted to fundamentally change america. He wants a european style socialist system with a massive expansive of the welfare state and redistribution of wealth.

    This will almost certainly result in massive tax increases (or inflation) and cause unemployment to remain permanently at around 8% with anemic GDP growth. It's robust GDP growth that actually creates wealth and drives the economy. But…Obama doesn't care. Oh, he cares…just not very much. He'll be more than willing to permanently hamstring our economy to achieve his socialist utopia.

  7. This is all fine and good, but this reliance on immigration for growth is the real news. It means we will eventually end up as an islam-dominated hellhole like the rest of the countries in western civ with negative demographics, and any current economic success stories will be long forgotten as the muslim horror descends upon us.

  8. To angelo.

    The weather does suck but you can always vacation in Florida.

  9. Gee, the glib writer almost got me.

    Gee, the glib writer almost got me.

    No bank bailout ? Why did CMHC swap $75b mortgages from Cdn banks for cash ? That's $750b if inflating it by a factor of 10 when compared with the US.

    The *only* reason we are not bailing out the banks is because we bailed them out in advance through CMHC, *before* the bust. You, the taxpayers are now on the hook for all the garbage 0/40 mortgages.



    Canadian media is superb at keeping its citizens dumb.

    • Excelent anarchist sources.

      Which school did you go to? The FLQ training camp?

    • OK, a shoutout to someone WHO KNOWS SOMETHING, please. My understanding was that the propping up of a potentially troublesome batch of mortgages was to give the banks enough wiggle room to keep lending money to worthy customers in the short term, all the while propping up mortgages that they would have been basically on the hook for anyway if the whole house of cards fell over later. And, it turns out, the "troublesome" mortgages are NOT going to kill our banks because they weren't in over their heads to begin with, many of the big five are making profits this very quarter and these prop-up "loans" will therefore be paid back.

      Anybody (again, who actually knows something about this, please) able to confirm or correct my understanding of all this?

      • I've posted two links up there. Anyone with an analytical mind should be able to digest them (readers comments are also helpful). You only need to have some basic understanding of a) mortgage insurance b) mortgage backed security c) house price to median household income ratio (and the breakpoints and norms for various countries).

        • Oh, I understand economics alright. But seeing as both your sources are neither accredited or qualified analysts, critical thinking trumps economics.

  10. just had my line of credit interest rate upped from 1% over prime to 2.81% over prime, or an INCREASE of 181% (over prime) for no reason that I can think of, or that they gave me. So long, RBC.

  11. Canadians will never get out of their inferiority complex vis-a-vis the US. Who were the first to invite George W. Bush to speak after he left office, paying him some $250,000 for the privilege? Calgary businessmen. Then, Toronto guys did the same for Bush and Clinton. Then, Clinton came back to Toronto a couple of days ago to tell his usual plattitudes. On October 22, Bush will be in Montreal to tell the Canadian morons how he ruled the world when he was president.

    Can enyone tell me when did Americans invite a Canadian ex-prime minister to talk to them and paid him for the privilege?

  12. "Whole states, like California, face bankruptcy without huge tax increases and deep spending cuts."

    U.S. states are constitutionally forbidden from declaring bankruptcy or canceling debts. If a budget cannot be balanced the creditor can sue the state of California. At that point a federal judge will seize the assets of California (such as state parks) and auction them off until the debts are paid.

  13. its about TIME

    WOOHOOO for canada:))

    ohh canaaadaaa(L)

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  17. We should invest in a long-term strategy to combat brain drain. Offering money for talent to *move* here does not entice them to stay in the long run. When they have enjoyed their signing bonus and our financial/economic position goes back to normal, they will go south again. To ensure long term prosperity, we need to offer a world class quality of life that can compete with California’s silicon valley. We should be out shopping for a tropical island to join and become part of Canada. Only then, can we hope to have a fighting chance against sunny and warm California. Think about it. If you could work for RIM in Waterloo, or work for Apple in sunny California, where would you go? It’s a no “brainer”. Read more about this idea and Like it on facebook: