Tar Sands or Socialism: What’s Driving Canada’s Success?

Canada is generating more jobs and creating more wealth than the United States. What explains the discrepancy?

A truck delivers oil sands to an ore preparation plant in Fort McMurray, Alberta
A truck delivers oil sands to an ore preparation plant in Fort McMurray, Alberta (Suncor)

The average Canadian has a higher net worth than the average American. An Environics Analytics WealthScapes study found that the mean household wealth in Canada was $363,202 in 2011 compared to $319,970 in the United States.

Moreover, Canada is generating more jobs than its neighbor to the south. Its employment rate fell last month to 7.2 percent while the United States’ remains stagnant at 8.2. What explains the discrepancy?

Writing for Bloomberg, Stephen Marche argues that Canada’s success is partly due to sheer luck. “The Alberta tar sands,” he points out, “are the third largest oil reserves in the world and if America is too squeamish to buy our filthy energy, there’s always China.” As Wikistrat researcher Katherine Kokkinos told the Atlantic Sentinel last year, “With an estimated 175 billion barrels of oil, Canadian oil sands present huge economic opportunities” indeed.

The presence of natural resources doesn’t altogether account for the Canadian success story, however. It is estimated that America’s oil and gas reserves are in fact larger. The Government Accountability Office reported in May that up to three trillion barrels of oil are recoverable from shale between the states of Colorado, Wyoming and Utah alone — the equivalent of the entire world’s proven oil reserves!

The difference is that Canada has prioritized its energy industry over environmental concerns, unlike many American states where legislatures are reluctant to allow unconventional drilling techniques like fracking to extract oil and gas from shale.

Marche speaks for many on the left when he characterizes oil sand exploitation in Alberta as “an environmental catastrophe in waiting.” That may be true but it is also quite profitable and a boon to local employment. Dozens of companies are active in the exploitation of tar sands and related industries and services. And they provide well paid jobs. Kari Lydersen reports for In These Times that, “Tar sands jobs typically pay $100,000 for workers with only a high-school degree.”

There’s more to Canada’s economy than tar sands. Marche notes that the country resisted calls to deregulate its financial industry. “The stability of Canadian banks and the concomitant stability in the housing market provide the clearest explanation for why Canadians are richer than Americans today.”

Beyond the banking sector, it’s a rather different story. Whereas regulation of business is increasing in the United States, Canadian companies are among the most lightly regulated in the world. According to the Index of Economic Freedom that is compiled by the conservative Heritage Foundation and The Wall Street Journal every year, “Along with open market policies that support trade and dynamic investment, the efficient regulatory environment facilitates entrepreneurial activity and provides a high degree of certainty for business planning.”

The average cost of getting necessary licenses has been cut almost in half. Flexible labor regulations enhance employment and productivity growth.

A steady reduction in the corporate tax rate — now 15 percent compared to a maximum of 35 percent in the United States — “has also contributed to Canada’s competitiveness.”

The Canadian welfare state is typically considered to be more generous than the American but if government spending as a percentage of gross domestic product is compared between the two countries — 39.7 for Canada, 38.9 for the United States — it can only be bigger if it is run more efficiently.

Clearly, “big government” hardly plays into Canada’s newfound economic success. Rather little has changed in education, health-care and welfare policies since the conservative Stephen Harper took over as prime minister in 2006 from the Liberal Party stalwart Paul Martin. What has changed is that taxes were reduced and regulations lifted, especially on energy companies, which has enabled Canada to add jobs and create wealth where the United States haven’t.

Correction: An earlier version of this article erroneously referred to three billion instead of trillion barrels of oil that are recoverable from shale in the states of Colorado, Wyoming and Utah.

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