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| World Marketplace |
Northern Exposures
Jack M. Mintz
11/01/2004
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Canada’s productivity and demographic challenges are further
complicated by the country’s uneasy relationship with the United States during
much of the Chrétien era. Canada has prospered from being the United States’
largest trading partner; however, Canadians worry about maintaining independence
as their country’s economic reliance upon the United States increases. With
North America’s economy becoming integrated at an unexpectedly rapid pace,
Canada must craft a more productive role for itself within NAFTA. Most
industries are either drawn to the size of the dynamic U.S. market or to the low
wage costs of Mexico. While rich in energy, minerals and timber, Canada can best
attract manufacturing and other sectors only if it offers policy advantages
superior to other countries, including its neighbors.
To craft this new
economic future, Ottawa must pursue a dual strategy. First, the government must
implement policies that sharply increase capital investment and job creation in
the face of powerful competition from other countries in both the developed and
developing worlds. This will require a strong education system and good
communication and transportation infrastructure, coupled with lower taxes,
especially on investments. Second, the country must forge a frictionless border
with the United States to enable goods and people to easily move across it.
After 9/11, border controls tightened dramatically because of security concerns;
fortunately, authorities in Canada and the United States developed the Smart
Border Declaration and eased this pressure. However, much work remains to be
done to remove regulations that impede flows in North America.
Surveys show
that Canadians oppose any return to deficits. However, other necessary economic
reforms do not garner much support. The recent election campaign demonstrated
that tax cuts do not necessarily attract votes, even though current levels are
near historic highs and well above those in the United States. Opinion polls
also suggested that many voters are interested in investing more tax dollars in
the nation’s universal health care system, dwindling school populations and a
host of new social programs such as national day care.
The productivity,
demographic and trade challenges facing Canada are such that a return to the
failed policy framework of the 1970s, with relatively high levels of deficit
spending, would reverse the hard-won gains of the past seven years. Canada must
stick to the path that will complete its transformation into an economic
powerhouse—and be a full participant in and beneficiary of the NAFTA accords—or
it will critically wound its future.
Jack M. Mintz is president and CEO of the C.D. Howe Institute and Deloitte
& Touche professor of taxation at Toronto’s J.L. Rotman School of
Management.
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