The Façade And Reality Of The Canadian Economy

The Canadian governing elites, both Conservative and Liberal, claim to be the true custodians of the economy.

Yet as the figures below from Statistics Canada and the International Monetary Fund clearly document, the Canadian economy was being rapidly hollowed out in the last six years of Conservative rule.

The Total Balance of Payments deficits for 2009, 2010, 2011, 2012, 2013, and 2014 are listed below. They represent a dramatic reversal of the massive Balance of Payments surpluses of earlier years.

International Balance of Payments is the nation’s “budget”, and is far more crucial in its impact on jobs and the economy than the government budget.

Data generally available estimates that, for every billion dollars which is taken out of the economy, between 28,000 and 40,000 jobs are lost in Canada, depending on in which area of the economy the funds would have been spent.

If we multiply even the lower estimate of 28,000 jobs by the average $50.6 billion annual balance of payments deficit, the average number of jobs lost to the Canadian economy in each year is more than 1.4 million.

Some explanation is in order here about the nature of the data published by Statistics Canada regarding Canada’s Balance of Payments.

In the table below, Merchandise Trade Balance (1) is when Canada’s export of merchandise is deducted from Canada’s import of merchandise. The value of our exports is always more than the value of our imports, and that gives Canada a large surplus.

Non-merchandise Transactions (2) is where the total value of Canada’s investment income from Canada’s investment abroad is deducted from the profits, service charges, and royalties gained by foreign investors in Canada which are taken out of Canada.

The value of profits and royalties earned from Canada’s investment abroad entering the country is negligible compare with the funds taken out of Canada which are recently many times the amount that comes in. And it is in this category, Current Account Balance (3), that all the income that Canada has gained from its investments abroad and its merchandise trade surplus are wiped out, leaving Canada with a massive Balance of Payments deficit.

The following is how Statistics Canada publishes Canadian Balance of Payments data:

 1.     Merchandise Trade Balance

2.     Balance on Non-merchandise Transactions (Services, Investment Income, and Transfers)

3.     Current Account Balance

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1988 data      1.  $ + 9,809    million

                      2. $ –20,124   million

                      3. $ –10,316   million

All the figures listed below are the line number 3 in Canadian Balance of Payments data. Reviewing the earliest years for which Statistics Canada data has been available we see the following pattern:

Current Account Balances

1970……….$ +1,060 million

1971……….$ +   348 million

1972……….$ —  655 million

1973……….$ + 18 million

1974……….$ — 1492 million

1975……….$ — 4,779 million

1976……….$ — 3,801 million

1977……….$ — 4,299 million

1978……….$ — 5,586 million

1979……….$ — 4,894 million

1980……….$ — 1,096 million

1981……….$ — 5,766 million

1982……….$  + 3,017 million

1983……….$  + 1,577 million

1984……….$  + 2,552 million

1985……….$ — 1,186 million

1986……….$ — 9,268 million

1987……….$ — 10,576 million

1988……….$ — 10,316 million

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……………………………………………………………….

2005……….$ +21,910 million

2006……….$ +17,953 million

2007……….$  +11,307 million

2008……….$  +3,470 million

2009……….$ — 40,341 million

2010……….$ — 58,419 million

2011……….$ — 47,195 million

2012……….$ — 59,911 million

2013……….$ — 56,254 million

2014……….$ — 41,480 million

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2023……….$ –20,429 million

2024……….$ –14,974 million

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Total Deficits for 2009 – 2014……….$ 303,600 million

Two of the largest deficits are in the categories of Services ($–$22,997 million) and Portfolio Investments ($–$20,342 million). These are where any balance of trade surpluses gained through Canada’s export of merchandise are lost.

The chief source of massive deficits in Canada’s balance of payments is foreign investment.

Every year tens of billions of dollars are transferred out of Canada by foreign investors in the form of services, investment income, and royalty payments thus draining funds out of the Canadian economy, as documented by Statistics Canada Catalogues 67-001 and 67-001P.

Another source of loss to Canadian economy is transfer pricing whereby, for example, the American car manufacturers in Canada order parts, for example engines, to their mother company in Detroit, without seeking competitive bids in international markets, thus paying vastly higher prices to their mother company which significantly lowers the profits of the Canadian branch plants. This can even lead to losses which then enables these corporations to demand subsidies from the Canadian government in order to stay in business – a practice which has been used widely by American branch plants in Latin America, as documented by the late American author Penny Lernoux in her influential book Cry of the People.

In reality Canadians’ standard of living has been maintained through a process of reverse mortgage, whereby Canada has been losing between $40 billion and $59.9 billion worth of its national economic assets each year in the years 2009-2014.

Any claim that these deficits are the result of international economic recession has no validity, since during the same period of massive Canadian balance of payments deficits many other countries from Algeria to Zambia, and many others in between, including the poverty-stricken Bangladesh, have been accumulating vast balance of payments surpluses.

Who would have imagined in the 1960s that Canada would have an average annual Balance of Payments Deficit of more than 50 billion dollars six years in succession in pursuit of “Free Trade”, with the dire economic consequences that such massive deficits lead to for the people of Canada?

And so to compensate for such recurring deficits, we sell off even more of Canada’s precious economic assets to foreign investors in order to maintain the façade of prosperity.

The great Bard, William Shakespeare, could have well described Canada’s predicament when he wrote “They sell the pasture now to buy the horse.” And the late, great Canadian economic historian Harold Innis once referred to Canadians as “hewers of wood and drawers of water.”

At the rate we have been selling off our national economic assets soon neither the wood we “hew” nor the water we “draw” will be Canadian owned.

SOURCES OF DATA: Canadian Balance of International Payments (Current account} Statistics Canada Catalogues 67-001, 67-001P, and Table 36-10-0018-01. Also the International Monetary Fund’s International Balance of Payments data.