According to Longworth, "the reason (the bank) insist on keeping inflation in line is because this is the best contribution the bank can make to a healthy economy." In other words, keeping inflation low, stable and predictable is key to keeping the economy "on the smoothest possible track for long-lasting economic growth and job creation," says Longworth. By doing this, the Canadian public and private monetary policy is able to avoid an inflationary "boom-and-bust" cycle is one of the leading causes to recessions and increased rates of unemployment. "To put it another way, the Bank's focus on inflation means that the gap between the potential and actual performance of the economy can be kept as narrow as possible."
III. The Negative Side of the Canadian Economy
On the flip side of the careful monetary policy planning is the government's fiscal policy planning, or, according to some, lack of planning. According to Pierre Fortin, Canada is currently facing a looming fiscal problem that is essentially macroeconomic in nature. According to Fortin, the essential problem for Canada is its uncontrolled public debt, which is fourth behind only Belgium, Greece and Italy. Fortin states that the rising government indebtedness has "three major consequences." First, over time it will make the country poorer due to its crowding out of investment and foreign debt and higher tax rates. Second, the public finance sectors, such as discussed above, will become destablilized and more sensitive to variations in interest rates. Finally, the expanding interest payments on these debts require citizens to receive "declining amounts of public goods and services in exchange for rising taxes." This generates deep frustration and "contaminates the quality of democratic life." Because all three of these elements are starting to show signs of existence in Canada, the excellent standing of Canada's economy that exist today is in jeopardy.
IV. The Increase in Foreign Investment
As a result of Canada's strong economic status, many foreign investors have been attracted to the country, which has led to numerous foreign corporate takeovers. However, according to statistics, this increase in foreign investors has not created a hollowing out effect in corporate Canada but in fact has played a significant role in the strengthening of the economy. Statistics show that foreign investors have actually created more head-office jobs in recent years as compared to Canadian corporations. (Vieira, 2007).
Further, foreign companies have generated two-thirds of the productivity growth over the past three decades, paid higher wages and have hired more white-collar workers in the manufacturing fields. Finally, foreign corporations have also contributed more to research and economic development than domestic firms. Thus, because of the strong and diverse economic backdrop of Canada, it has developed an economy which has appealed to foreign investors, in which has led to the creation of an even stronger economy. (Vieira, 2007).
Even despite this increase in foreign investors, for the past two decades the annual rate of growth for investments made abroad by Canadians has been around 11%. This is in comparison to the 8% invested by foreigners. Thus, as more foreign investors are investing in Canada, Canada continues to invest heavily in foreign markets. Thus, the effect is that Canada continues to have an import/export economy: it imports investments and exports its own investments on an almost balanced ration.
As can be seen, Canada's diverse economic structure and policy structure is what has led to the nation's current economic status. Further, because Canada has established itself as a traditionally stable economic and business environment, it has attracted the investments of many multinational corporations. This, of course, has led to an increase in corporate takeovers. Despite what the popular opinion may suggest, that these takeovers will cause a hollowing out of the Canadian economy, statistical studies have in fact showed the opposite as being true. Instead of international takeovers as being a threat, the attention of economic nay sayers should focus on the real threat to the Canadian economy: International Debt.
Central Intelligence Agency. (2005): CIA World Factbook: Canada. Washington, D.C.: U.S. Government Publishing.
Fortin, Pierre. (1995). The Canadian Fiscal Problem: The Macroeconomic Connection. Atlantic Economic Journal.
Howlett, Michael and M. Ramesh. (1992). Political Economy of Canada: An Introduction. Toronto: McClelland and Steward.
Longworth, David. (2007). Canadian Monetary Policy.