Policy Choices Matter … Ask Canada
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Think public policy choices don’t impact a country’s economic health? Look at the stark differences between the thriving market-driven democracy of South Korea and the highly centralized North Korean regime, plagued by chronic economic problems.
We’ve got a strong example of the positive effects of good policies even closer to home—Canada. Why has our northern neighbor recovered faster and more robustly from the global recession than nearly all other major economies? Due to a series of smart policy decisions.
In the 1990s, Canadian leaders began the hard work of curbing government spending and balancing the budget. By 2008, spending was substantially reduced and the debt was cut in half. At the same time, they took on entitlement reform. As a result, Canada’s equivalent of Social Security is solvent today and prepared for the influx of retiring baby boomers.
Canada took early steps to foster a business-friendly climate by cutting taxes. Since 2001, Canada’s corporate tax rate has been lowered from 28% to 15%. Now, the country boasts one of the lowest, most competitive corporate tax rates in the world.
It also takes advantage of its natural resources. Recognizing the potential of the Alberta oil sands, the Canadian government streamlined the approval process for energy development and told energy companies to get to work. By embracing its resources, Canada is now on track to become the world’s second-largest oil producer behind Saudi Arabia.
Because of choices like these, Canada has transformed its economy while other nations continue to struggle. At a rate of 3.2%, it is growing faster than many of its competitors. It has recovered all the jobs lost in the recession, and the unemployment rate has dropped down to 7.2% after peaking at 9% in 2009.
Canada, however, is not without its own problems. Canada’s intellectual property protection regime remains weak for a country of its stature. Its agricultural markets are distorted by supply management policies that artificially raise prices. And its government-run health care system is nothing to envy or aspire to. Some key reforms are still needed.
But the fact remains that Canada has effectively addressed challenges that are not unlike some of America’s greatest obstacles to short-term growth and long-term fiscal health. We, too, should cut federal spending and reform our entitlements. We should reform our tax system to be globally competitive. And we should have the good sense to fully leverage our abundant energy resources and tear down the permitting obstacles that stand in the way.
Let’s take a lesson from the north and tackle these priorities now.