The Globe and Mail
December 23, 2011
Remember “ My American Cousin ”? Wayward big cousin Butch from California shows up at his aunt and uncle’s ranch in British Columbia in his fancy car, sending dreamy and bored little cousin Sandy into a tizzy.
The film is set in the 1950s and was released in 1985, but captures an enduring sentiment: The typical American is richer than the typical Canadian.
It’s time to rethink that notion. Your American cousin is now your poorer one.
International Monetary Fund estimates show Canada will generate about $51,147 of gross domestic product on a per capita basis in 2011, compared with about $48,147 per capita in the United States. (The figures are quoted in U.S. dollars and are unadjusted for inflation.) If the IMF forecasts prove true, it will be the first time Canada outstrips the U.S. in GDP per person in records dating back to 1980.
The milestone is more than a fun factoid to break the ice at holiday parties over the next week. It describes a shift in Canada’s quality of life – at least measured in terms of consumer choices. Canada’s relative wealth compared with the U.S. explains the rush of American retailers and food chains to the other side of their northern border.
“Canada is certainly one of our growth markets. Our business is very healthy up there,” Andrew Shehan, international chief operating officer of Atlanta-based Popeyes Louisiana Kitchen, told The Globe’s Jeff Gray this week . “Compared with the U.S., your economy has weathered the recession much better.”
Fortune accounts for much of this shift. Canada has benefited greatly in recent years from the commodity boom. The U.S. economic bust means Canada would have gained in relative terms simply by standing still. In 2009, U.S. per capita GDP was $43,348 compared with $39,728 in Canada.
This shift in relative wealth might not be as recent at the IMF data suggests.
An excellent report published this week by Statistics Canada’s Ryan Macdonald shows Canada has exceeded the U.S. in terms of real GDP per capita and real Gross National Income per capita for much of the past decade. Of course, in terms of labour productivity, Canada trails badly.
Mr. Macdonald argues that perhaps too much is made of Canada’s weak productivity performance. Productivity matters because the more each worker produces, the wealthier the society. That’s especially important for economies that do little trading. But Canada trades.
“When nations trade, there are other routes that can raise living standards,” Mr. Macdonald writes. “Trading nations can transform their stock of assets (knowledge, capital, resources) into the goods and services they want to consume by exchanging them with other nations. If the terms at which one nation can trade with another improve, then that nation can transform its exports into a greater flow of imported goods and services, thereby increasing its living standards.”
Changes in terms of trade – essentially, the value of exports versus the value of imports – aren’t captured in productivity data. Therefore, Mr. Macdonald argues that productivity isn’t necessarily the best way to evaluate Canada’s living standards. He prefers gross national income, which he describes as a “measure of the purchasing power of the income that accrues to Canadians through the production process, regardless of where the production occurs.”
Between the second quarter of 2009 and the first quarter of 2011, U.S. GNI per capita grew 1.6 per cent. Canada’s rate of growth: 3.9 per cent.
Enjoy the holidays. You’re (relatively) richer than you thought you were.