Having finished Meredith Whitney’s Fate of States: The New Geography of American Prosperity (which I reviewed in a previous post) it got me to thinking about whether her analysis applies to Canada. The crux of Whitney’s argument is that due to the irresponsible spending of the various states and communities during the housing boom, these jurisdictions now face a growing debt problems. When the housing bubble burst, the income that enabled the outlandish spending dried up, forcing tax increases and deep service cuts which threatened to undermine their economic competitiveness. In contrasts parts of the United States that did not experience the housing boom (large swaths of the centre of the country) and never had the reckless spending found in the bust states. In turn, these states and jurisdictions never saw a collapse in their revenue sources or a ballooning debt that forced them to raise taxes or cut services making them comparatively competitive from an economic standpoint. This sound financial footing, coupled with the oil and gas revolution that has emerged from fracking technology has the potential to redraw the economic map of the United States.
Canada, didn’t have a housing collapse or mortgage crisis like the United States during the Great Recession (although some argue that bubbles exist in Toronto and Vancouver), but there is evidence that the economic epicenter of Canada certainly has begun to or already has shifted. The decline in Canada’s manufacturing sector (particularly the auto sector in southwest Ontario) has ripped the heart out of what had been the traditional engine of economic progress in Canada. This decline, coupled with the draw of the high paying jobs of resource rich west has resulted in shifts in inter-provincial migration causing a shift in the economic and political landscape of Canada. This shift of importance from central to western Canada and Ontario’s decline from the economic engine of Canada to “have not” status has the potential to dramatically altered the Canadian federation.
These dramatic shifts in the economic foundation of Canada along with the impact of expanded government spending during the recession have resulted in a skyrocketing provincial debt levels mirror many of the bust states in the US. Although several provinces have managed to reverse the trend of deficits, the debt that has been piled on has resulted in Quebec and Ontario credit ratings downgraded and comparisons to the economic basket case of Greece being made. The longer the “have not” provinces continue to behave as if their finances are stable, the more severe the austerity will be and the greater the economic consequences that future generations will face. The changes that we are seeing in the Canada are eerily similar pattern of shifts between economic “have” and “have not” as the United States. Only time will tell if the trends and predictions that Whitney describes will come true in the United States but if bold action isn’t taken in parts of Canada, some provinces could face a similar fate to the housing bubble states in the US.