The Need for a National Economy

President Donald Trump's threat of annexing Canada has been mostly rejected by Canadian politicians but not necessarily by the public. Depending on how the question is phrased, support for unification ranges from the Leger Poll result of 13 percent of the general population to 40 percent of 18-37 year-olds according to an Ipsos Poll.

Overall Canadians prefer their own country, but the country's failure to deliver opportunities has severely tested the loyalty of its younger people. The question is why has Canada failed so badly? The answer might be very simple - there is no national economy!

All this talk about annexation brought back to the surface a book that was published 12 years ago - The Merger of the Century by business writer Diane Francis. (Below there is a 30 minute presentation by Francis who is a very entertaining speaker.)  

Merger of the Century

Francis who is a dual American-Canadian citizen believes that Canada has two options going forward. Either it has to join the United States or develop a national economy which it does not have right now due to provincial tariff barriers. As ridiculous as it sounds, Canada has internal tariffs. The highest rate which is 34 percent is in Alberta and the lowest rate which is 7 percent is in British Columbia and Nova Scotia. Ontario's rate is in the middle at 18 percent which is so typical of a province that does not want to stand out.


This is what the Canadian Chamber of Commerce thinks says about the provincial tariffs:
"Removal of these barriers could therefore have a significant impact for Canadian businesses and consumers alike, as recent studies indicate that meaningful liberalization of internal trade could add $50 billion to $130 billion to Canada's overall GDP. Using a mid-range estimate of $100 billion, these economic gains represent more than $7,500 per household per year ; this would also serve to cut the Canada-U.S. productivity gap by as much as one-third."  Canadian Chamber of Commerce

Imagine that Canada can cut its productivity gap with the US by as much as one third! Right now Ontario has a per-person level of economic output as Alabama. Imagine that the richest province in Canada is on par with the poorest in the United States, and the average house in Alabama is around a very affordable $324,000 Canadian. It looks like Alabama beats Canada with one hand in its pocket.

Seriously speaking what do these trade barriers really accomplish? Yes, they protect home industry, but they also weaken the entire country as a whole. A country should not have provincial barriers if it expects to be taken seriously. So what is there to do?

Diane Francis says that the US faced the same issue early in its founding and empowered its national government to enforce free trade within its own borders. Prime Minister Stephen Harper tried the soft approach with the ITCA in 2010 to convince the premiers to join the 21st Century. Nothing much came out that because the provinces are really provincial in their thinking.

Trump is a threat but also an opportunity! Canada either takes up his offer or gets serious about a national economy. According to Francis both are good ideas, but doing nothing is not! The status quo has not worked for a long time and Canada needs to adapt. 

Canada will eventually have the same fate as the Spanish and Ottoman empires. They suffered a very slow death, and by the time the end came they were already hollowed out by inertia. 

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