February 2002
Argentina's Lesson for Canada
by Filip Palda
Argentina is not so much a country, as it is a term signifying disease. Once a country with a vigorous economy, natural resources, and a diverse and skilled labour force that had prospered for several generations, its people felt that they could use a break. Along came a salesman with a pitch: "government will guarantee your jobs, shorten your work week, and pay you when you don't work." The salesman was Juan Peron. He infected his people with the belief that all are entitled to a good living no matter how they behave. Forty years on, Argentina is still shaking on its economic sick-bed.
Canada caught the Argentine disease in the 1960s. The disease raged in the 1970s when Pierre Trudeau institution- alized the distribution of state largesse and taught Canadians the delight of living at another's cost. Canada was richer than Argentina was when the disease first hit. That gives us some time to go before we understand how sick we are. It matters little to Canadians that in the last 10 years their after-tax pay has not increased, and that their average income has fallen to a third below that of the US. We are stubborn patients who refuse to acknowledge our illness. The United Nations comforts us with a doctored index of prosperity showing that Canada is almost best, and our state-influenced media take every chance to represent the US as a savage, uncaring place.
The fiction of our health depends on Alberta, Ontario, and, joining them recently, British Columbia. These provinces are the least touched by the Argentine disease and power most of Canada's growth. In none of these provinces do governments take for granted that workers must be guaranteed their jobs. These provinces are trying to wean people from government handouts and are fighting to keep their taxes and government spending low. The virus that drains them of energy is to be found in the governments of Quebec and the Maritime provinces. Quebec politicians are particularly malignant exponents of the view that Canada is a hen house upon which savvy provinces must set themselves like wolves. Jacques Parizeau explained this philosophy when he encouraged electors to go after federal "booty."
Just as rioting Argentineans believe with religious fervour that someone else should work to support them, Quebec politicians have encouraged their people to believe that government is a mystical provider of bread. What seldom makes it into political speeches is that government manna falls not from heaven but from the class of self-supporting Quebeckers and from other provinces who provide equalization payments and subsidized federal government services such as Canada Post.
The Argentine disease will fester in Canada if working provinces continue to subsidize the gospel of dependency popular in Quebec and the Maritimes. If Ottawa did away with equalization payments, Alberta, Ontario, and British Columbia would be freer than they are now to follow economic and state policies that encourage initiative. Their economies would develop along the lines of the US economy.
Meanwhile, Quebec and the Maritimes would likely accelerate their march to big government and economic stagnation, as the example of the Czechs and Slovaks shows. Slovaks discovered the meaning of the Argentine disease when they separated from the Czechs in 1992. Czechs had subsidized Slovaks since the founding of Czechoslovakia after the First World War. The Communist dictatorship that followed the Second War accelerated subsidies to Slovaks. Separation in 1992 allowed the Czechs to halt the payola on which Slovaks had come to depend. Czechs reformed their economy and grew rich, while Slovaks failed to make their people understand that the days of dependency and guaranteed employment had ended. Since the 1992 separation, Slovaks have gone the way of Argentina, whereas the Czechs are now preparing to enter the European Union.
The lesson to be learned from studying the Argentine disease may be that some countries seem never to be able to reform. In the 1950s, South Korea was poorer than Pakistan, yet it is now an economic force whereas Pakistan is in a mire. In spite of massive subsidies for the last 13 years, East Germany is in a rut. Beliefs can be more powerful than the truth. The truth in Argentina is that in seeking to provide security for all, the state has created stagnation and chaos. How long can we in Canada continue to believe that we have not been bitten by the same bug?
Filip Palda is Professor at l'École Nationale d'Administration Publique in Montreal, and Senior Fellow of The Fraser Institute.
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