O Canada: Lessons From Our Northern Neighbor

October 28th, 2010 // 4:00 am @ Oliver DeMille

Two words that haven’t shown up together very much since the 2008 economic meltdown are “austerity” and “Canada.”

That’s quite an accomplishment for our neighbor to the North. Austerity has been paired with Greece, Portugal, Spain, Great Britain and France in just the past 18 months.

Austerity means having your economy controlled and run by international regulators, and right now the idea of austerity for the United States is growing.

Not only is the federal government in financial trouble, but so are many of the individual states. In addition to struggles in 2008, 2009 and 2010, 31 states project major budgetary shortfalls in 2011.

Prospects are getting worse in many states, rather than improving.

Unemployment numbers are knocking on double digits (which is to say that in some places they already exceed 10 percent), and the U.S. deficit and debt promise to be major issues in the 2010 election — to say nothing of their impact on America’s future for years and perhaps decades to come.

Canada’s Example

But Canada faces a much smaller challenge.

Ironically, for decades U.S. conservatives have pointed to Canada’s health care system as the example of what not to do — often referring to it as a failed icon of “socialized medicine.”

Many liberals have idealized the nations of Western Europe, looking past Canada and preferring Britain, France and Germany as examples.

The Great Recession has changed all this — mainly because Canada avoided the worst of the global financial meltdown.

As Ken Kurson put it:

“When the worldwide system collapsed…Canada didn’t have a single bank poisoned by toxic assets and not a penny of public money was used to bail out its financial institutions.”

Of course, many businesses and individuals suffered, but it would have been much worse if Canadian banks followed more European-U.S. policies.

Israel, India and China all fared pretty well in the meltdown — as did Canada — while the U.S. and Britain were hit very hard. Canada’s traditional liberalism and conservatism helped shield it from the worse financial collapse other nations faced.

Modern liberalism and conservatism are mostly focused on winning office and promoting partisan agendas, whereas the traditional strains of both conservatism and liberalism are more interested in ideas, values and ideals.

Traditional liberals in Canada used government to put caps and controls on the nation’s financial institutions, keeping them from simultaneously posing as both lending institutions and speculators in the Japanese style that most European and U.S. banks have adopted.

And traditional conservatism kept banks and business from leveraging their resources at the high levels which brought down so many institutions in other nations.

One can argue with either the underlying Canadian liberalism or conservatism, but the results were a traditional kind of system that is too often seen in many advanced (and broke) nations as outmoded, quaint and passé.

For example, most U.S. mortgages were intended for sale while nearly all mortgages in Canada are still held by the banks where they originated.

In other words, Canadian bankers only made loans to people they intended to have as long-term customers; the happy result is that when the housing bubble burst such banks remained solvent.

Of course, all nations were hurt by the global economic downturn. Certainly, Canada, Israel, and other nations have their share of problems, but simple financial frugality and common sense are never old-fashioned.

What We Can Learn

There are at least two important lessons America should learn from this.

First, the traditional models of either liberalism or conservatism seem better for America than the modern, partisan styles of liberals and conservatives.

The commonsensical use of government combined with a free and flourishing private sector is vital to the future of freedom and prosperity. And the ideal is found in earlier American history rather than modern Canada, India or China.

Still, when China incentives free enterprise more effectively than the United States, the results are predictable. Freedom works, and when America ignores its own legacy it loses its strength and economic resiliency.

Second, technology doesn’t trump wisdom.

We live in a world where checks can be deposited through cell phone cameras, current events are taught better on QRANK than the nightly news, and mobile phone applications like Avoidr “allow Foursquare users to select the ‘friends’ they want to avoid” (and their phones keep them abreast of where their friends are at any given moment).

Amazon sells more books on Kindle than in hardback, and online media is causing many newspapers and now book publishers to disappear.

On a macro level, nanotechnology makes surveillance, theoretically, ubiquitous — it is becoming ever-present, everywhere, always.

As Graeme Wood wrote in The Atlantic:

“If the past several years in the shadow of a war against terrorism have taught us anything, it is that, once available, surveillance technologies rarely go unused, or un-abused.”

And governments are pursuing increasingly deeper rings of secrecy even though technology makes transparency possible.

All of these are ultimately the tools of human values and decisions. Indeed, the more powerful the technology, the greater the need for wisdom, limits, checks and balances.

It matters whether we learn these lessons or not. When the global economy broke down in 2008-2009, many businesses, industries and even states were bailed out by the federal government.

But the next round of major decline could easily force Washington to follow the majority of non-industrialized nations and even European countries like Greece, Spain, Portugal, and France in turning to international lenders for bailouts.

If this comes before 2012 or even 2020, as it certainly could, we will have to borrow from those who have money to lend — meaning banks in nations such as China, Israel or Canada.

Of all the possible candidates, we will most likely go hat in hand to Canada.

Revisionist History

The other option is simply to adopt fiscal responsibility on our own. A little common sense — both the conservative and liberal kinds — can go a long way.

Unfortunately, the opposite seems to be gaining momentum. After the end of the Cold War in 1989, the common wisdom seemed to be that capitalistic nations had overcome their communistic rivals.

But for many, the Great Recession has revised this conclusion. Now the theme seems to be that Soviet-style communism and Americanized capitalism are just the age-old battle between power and greed.

The emerging winner appears to be government-run industry, what The Economist called “Leviathan Inc.: The State Goes Back Into Business.” Indeed, these are the models followed by nations like China, Israel, Brazil, India and Canada that fared better than most in the recession.

Some leaders in Washington are taking note:

“[F]rom Berlin to Brussels, demand for industrial policy is back. Japan’s new government is responding to what it sees as the increasingly aggressive policies of foreign competitors by deepening the links between business and the state.

In America Barack Obama, the effective owner of General Motors and a chunk of Wall Street, has turned his back on the laissez-faire approach of the past: a strategic-industries initiative is under way.”

Unfortunately, the politicians are ignoring the rest of this report:

“Yet the overwhelming reason for China’s miracle is that the state released its stifling grip and opened the country to private enterprise and to the world…

India’s wildly successful software and business-process-outsourcing industries blossomed not because of help from the government, but precisely because its [government] did not understand these nascent fields well enough to choke them off…

In the rich world, meanwhile, the record shows, again and again, that industrial policy doesn’t work.”

The Real Need

I’ll take traditional liberalism or conservatism – either one – over the current modern Democratic or Republican models.

Commonsensical uses of government spurring a free economy, or a truly free-enterprise system with a limited government effectively taking care of the basics—either would be much better than the current reality.

Canada, Greece, Israel, China, Britain, France, Portugal, Spain, Germany, many other nations, and the United States — all could use a free-enterprise upgrade.

A constitutional, free enterprising, federal democratic republic which believes in freedom and applies its principles sounds like a utopian dream.

Or, it could just be a nation run by a truly educated, wise and active citizenry.

Without citizens who are effective overseers of the government, freedom doesn’t last anywhere. Because of this, even those nations which were less hurt by the Great Recession face difficult futures.

It remains to be seen what nation (or will it be a tribe, or something else?) in the world will become the new standard of freedom.

Such leadership will naturally flow to the society whose common citizens become a new generation of great citizens—like the American founding generations.

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Oliver DeMille is the founder of the Center for Social Leadership, and a co-creator of TJEd..