Fareed Zakaria on Canada: A North American Initiative

This post can also be seen on FPA’s Latin America Blog.

One of the greatest and diverse minds in public policy today is Fareed Zakaria. Once the host of a wonderful public policy show Foreign Exchange on PBS, Fareed Zakaria GPS is now likely CNN’s best and most in depth show on American media today. Zakaria has done much to add colour in the shadows of the current financial crisis debate. In the last two weeks he has written an interesting article on Canada in the financial crisis, and last week interviewed Canadian Prime Minister Stephen Harper regarding Canada’s relative financial successes during the crisis, speaking about the future of Afghanistan where Canadian soldiers have been fighting, and often with many causalities in the process. The article and interview compliments President Obama’s meeting in Ottawa with Mr. Harper in February and brings Canada into the sphere of the North American policy dialogue.

Zakaria’s Newsweek article has received a great deal of attention from Canadian media and bloggers. While he is correct in many of his conclusions, there are some details which should be taken in a more critical light. An invitation from myself to explore these issues with Fareed is always open. I will address some of my concerns below.

In Zakaria’s Newsweek article “Worthwhile Canadian Initiative” he argues that Canada, while being seen as an generally unexciting, uneventful and thus safe place, has been successful in creating conditions apart of all the banking systems in the developed countries in the world. Canada has not been affected by financial crisis like the US, UK or other similar nations and Canadian banks were indeed ranked number one by the World Economic Forum as the healthiest banking system worldwide. High leverage by Canadian banks have kept many of them afloat due to strict regulations and strict business practices that has kept Canadian banks secure, but that often have left many smaller healthy businesses from obtaining loans from private sector lenders. Canada’s banks traditionally were largely protected from outside investment, resulting in Canada having on average five major banks throughout the country over the last century. While this has kept many banks safe, it has also allowed a lack of competition in the Canadian banking market. Two examples of problems with this sector are very high returns coming from service charges laid on customers for many bank activities and overly restrictive loan conditions for SME’s. Protection from foreign competition and service fees have created excess cash for many Canadian banks, often being sourced directly from lower income customers who cannot invest the amounts of cash to avoid excessive fees to use essentially their own funds. In addition, mergers between Canada’s five main traditional banks have restricted open competition for service fees and banking services for customers in Canada. An opening of the banking sector a few years back did not curb fees, but allowed banks to enter the insurance market and offer those additional services. While foreign banks were able to enter the Canadian market a few short years ago, many had to run their retail banking services through established brick and mortar Canadian retail bank branches, taking further fees for clients who literally have no saving with the Canadian banks in order to use their account with another bank. While there are positives to the secure Canadian banking system, the end result where business takes loans and credit from these banks often are done so the bank assumes no risk whatsoever. Often incorporated company loans are tied to the personal assets of their principal investors, eliminating the tradition of Legal Incorporation and limiting further the ability of Canadian businesses to grow and be successful. With the security of Canada’s banking system is praised, a lack of credit to business is not a proper method to grow commerce in this economy in any nation.

The Canadian government over the last few years have been very sensible for the most part as argued by Fareed. The issue in Canada however is not the success of the Federal Government in Ottawa, but the lack of success of many regional governments and increased responsibilities of municipal governments over the last few years. Housing and the financial systems supporting many transactions have boomed in many Canadian cities, but like in many other places in the world it came from investments losing their popularity in mutual funds, and like in many markets being placed into real estate. While Canadian cities have currently stable housing prices in comparison to the US; where housing began the current decline, loss of employment, even in Canada and highly inflated prices and accompanying taxes have made cities like Toronto, Vancouver and Calgary into municipalities where affordable living no longer exists. With large populations living in the centre of Canadian cities, it has become unaffordable for many who cannot afford starter homes or have had to move to another municipality due to increased taxes during boom times, and even more taxes being promised by cities in this bust time. While Canada has great fundamentals, some provinces and cities have often mismanaged their communities or have yet to feel the effect of a Canadian recession.

Federally, the Canadian Government has done well to shield itself from the worst of the global recession. The governing party of Canada made great commitments in 2007 and 2008 to bring attention to a waning economy and had put in many economic measures that likely kept Canada as a topic of praise for journalists like Zakaria and commercial and policy experts worldwide. The greatest challenge to Canada had received little attention however, where Canada’s Parliamentary Opposition recently attempted to bring down the current government only a few short weeks after an election. While never attempted Constitutionally in any Parliamentary democracy before, the opposition leaders sought to join into a coalition to take control of Parliament and remove the current sitting government after an election had taken place. The controversy to force policy changes on Canada’s current government met with much anger and reduced Canada’s sensible government into a holding pattern during the key months of an economic crisis, producing a new opposition leader, staunch lack of support by smaller opposition parties and has kept a Canadian bailout package in limbo to date despite having support by the two largest parties in Parliament. While Canadians are often seen as uneventful and sensible, many Canadians likely felt a great amount of shame, and party politics to date is still withholding proper policy from being implemented.

Fareed Zakaria also praised Canada’s immigration system, but security and immigration, while for most policymakers would have simple conclusions, looks better on paper for Canada than it exists in reality. While Canada has an unlimited acceptance of skilled workers, many professionals who come to Canada are not hired or given a reasonably acceptable opportunity for re-training to work and use those skills once they arrive in Canada. Canada in immigrant communities is seen by many as a country with the second most doctors driving taxis after Cuba. While a glib comment on the situation, in studies of a food bank in the Toronto area the majority of recipients of food aid were immigrants, and out of those, the majority had studied in universities before coming to Canada, many to Masters level or higher. In a CNN interview with Canadian Prime Minister Harper, Afghanistan was addressed as likely an unsolvable conflict due to the nature and history of the region. While debate in US media and political infighting in Canada followed the interview, a major issue of great future importance to security and immigration will be the current drug war in Mexico. In recent weeks drug violence in Vancouver has reached its limit with likely connections to the drug war abroad. Many in Mexico will likely seek refugee status in the US and Canada, and further security issues have likely started in connection with the transnational drug trade. While Afghanistan and the economy are major issues facing both countries, security and refugees from Mexico will likely absorb many concerns of all three NAFTA neighbors in 2009. Canada is indeed sensible, must be praised for its successes/or lack of losses, but also needs to be addressed in real terms, whether good or bad. The NAFTA partners can learn a lot from each other, but can also realistically focus its goals towards more “exciting” issues of North America. With praise should always come criticism. Thank you again Fareed Zakaria for your work!

Zakaria Speaking with Canadian PM Harper