Canada vs. USA: Canadians Are Wealthier, But Will 'Innovation Drain' Short Circuit Canada's Success?

By Keith Edmund White

In July, a study that found Canadians’ net wealth—averaging $363,202—surpassing that of their Southern neighbors by over $40,000 got a lot of airtime on cable news. 

But is this Canadian wealth-assent here to stay?

Well, first, let's see what Canada's getting right.  For that, check out Stephen Marche’s July 15^th Bloomberg article, Hardheaded Socialism Makes Canada Richer Than U.S.  He cites Canada’s superior Constitutional structure, rich natural resources, and smart policy choices as keys to Canada's wealth success (without much actual analysis).  But that's because his real thesis is much more narrow, and easier to identify:  Marche credits “[t]he stability of Canadian banks and the concomitant stability in the housing market.” But this, at least to me, falls under Canada's superior public policy choices, which--with some of my own reading between the lines--really looks like Marche liking Canada’s left-leaning, parliamentary democracy over America's log-jammed  republic that splits its executive and legislative functions.

But, however one might read into the article, is Marche’s ode to Canada fair?  Canada bucked the financial troubles that have plagued America—and, let's not forget, Europe.  And Marche does admit that a big part of that relative success owes to Canada's burgeoning energy sector (of which America is the biggest buyer).

But is Marche missing Canada's economic Achilles' heel? 

According to the Library of Parliament Research Services (the Canadian version of Congressional Research Services), Canadian citizens and policy makers have reason to fret over their long-term economic health.  Canada is falling behind when it comes to innovation: 

…Canada’s weak innovation performance can generally be traced to the overall poor business investment in innovation.  The panels (past reviews of Canada’s innovation performance) also showed that Canada’s relatively subpar productivity growth will put the nation’s prosperity in jeopardy, if left unaddressed.”  (The Business of Innovation in Canada:  Challenges and Responses, Dillan Theckedath, June 8, 2012)

I recommend reading the report (which may lead you to ponder how to properly define and measure innovation) to appreciate how hard defining, let alone discussing, how best to spur innovation can be.  But the report gives one implicit and one explicit takeaway.

Explicitly, it shows that Canadian industry--owing to Canada's large size but small population--does not encourage its industries to come up with innovative products of techniques.  And, with Canadian worker productivity already in the pits, its shows that Canada's wealth victory over the United States might have as much to do with America's bad choices as Canada's right choices.

But the reports implicit finding is probably more important.  When it comes to assessing whatever headlines may grab the attention of the talking-heads for a day, its important to remember that success tends to blur both what's right and wrong with a nation.  Was America’s rise in the 90s owing to particularly stronger political leadership than 2012--let alone a different constitutional framework?  I don't think so.

And with that in mind, American readers should not assume that America's current economic weaknesses mean everything is going wrong at home.  In fact, America i an innovation leader, a characteristic that might just propel America's economic motor to--once again--be the envy of the world.