The Economy

Without a doubt, one of Canada’s most defining characteristics is its wealth.

Canada is one the world’s richest industrialized nations, with a highly sophisticated economy and a top-tier standard of living. Though obviously not everyone in Canada is equally well-off, most Canadians nevertheless hold reasonably well-paying jobs and access to ample creature comforts that citizens in many other countries can only dream of.

Economic History of Canada

Fur trade

The early Canadian fur trade was rigidly class-based, with the presidents of fur corporations being wealthy aristocrats in Europe, the local trading post bosses upper-class colonial gentlemen, and the actual hunter-gatherers poor French-Canadians or Indians.

Canada was basically founded as a money-making scheme. In the 17th century, when North America was first being colonized by the French and British, the main thing that made Canada such an attractive chunk of land to own was all the furry woodland creatures that dwelled within, since beautiful, glossy furs were one of the most desired possessions of European aristocrats at the time. For centuries, the early Canadian colonies were able to able to thrive under a simple economic system known as the fur trade, where hunters gathered and sold animal furs under the employment of large fur corporations, who then used their profits to build thriving “company towns” across northern America.

As they moved west, early European settlers discovered Canada had lots of other things to harvest and sell too, such as lumber, fish, coal, iron and gold. As arable farmland was discovered, crops like wheat and other grains were soon added to the mix as well. Thus, we can see the two founding principles of the early Canadian economy: natural resources and trade. Originally, much of Canada’s resource trade was directed to Europe, specifically Britain. But as the years went on, it became more logical and profitable for Canada to do most of its trading with either the next-door United States, 0r other cities and provinces within the country itself.

Oil sands

Much of Canada's natural resources are harvested from underpopulated rural areas, meaning that taking a job in an industry like oil, mining or logging usually means packing up and moving far away from the big city.

The industrial revolution of the late 19th and early 20th centuries saw Canadians get involved in manufacturing for the first time, with giant factories springing up to help transform all those raw natural resources into useful high-tech things like paper, cloth, steel, meat, chemicals and automobiles, while dams and derricks allowed for the harvesting of brand new resources like hydroelectricity, oil and natural gas.

In the decades following World War II (1939-1945), the Canadian way of life shifted dramatically, to the point where the national economy is now virtually unrecognizable from its pre-war incarnation, in terms of dominant industries and careers. Years of industrial profits were invested into higher wages and taxes, and an expansion of schools, particularly affordable colleges and universities, generated the rise of a more educated population able to seek out more respectable white-collar jobs and move away from manual labour, factories and farms. Canadian corporations, in turn, were able to make larger profits by outsourcing manufacturing jobs to cheaper third world countries, helping create a more globalized economy and cheaper imports, but also significantly eliminating many traditional sources of Canadian employment.

Canada’s Modern Economy and Industries

Having largely abandoned the country’s agricultural-manufacturing past, today upwards of 75 per cent of Canadians work in what is dubbed the “service” sector of the economy, while only a small minority still labour as farmers or factory workers. The service industry is extremely vast and diverse, and basically entails any sort of (mostly) non-physical work that deals with helping people, rather than making or harvesting stuff.

Canadian banks

Canada has a famously tightly regulated banking system and only five major national banks: TD Canada Trust, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, Scotiabank and the Bank of Montreal.

Within the service sector, the largest sub-sector are the trades, which are highly specialized, skill-based professions like electrician, carpenter or computer repairman. Other dominant sub-sectors include health care, which covers doctors and nurses, plus their clerks and assistants, finance, which includes bankers, brokers and real-estate agents, education, which includes teachers, professors and administrators, and food and retail, which covers cooks, store clerks, mall workers and cashiers. Government or bureaucratic work has also become quite popular in recent decades, with the Canadian federal government now said to be the single largest employer in the country.

Canada’s few remaining farmers reside primarily in the Prairie provinces of Alberta, Saskatchewan and Manitoba, where they continue to farm crops such as wheat, corn and oilseed, as well as raise cattle and pigs, just like their forefathers before them. In many parts of the country, a renewed interest in organic food is helping provide some Canadian farmers, particularly fruit and vegetable farmers, with a mini boom, but overall, Canadian agriculture remains very much an industry in decline. Statistics Canada has a complete profile of the farms that remain.

Canadian manufacturing remains only slightly more lucrative, and still employs about two million workers, or about 13 per cent of the labour force. Like agriculture, it is also an industry that is highly concentrated in one part of the country, namely the so-called “central region” of Ontario and Quebec, which together house more than three-quarters of all Canadian manufacturing jobs. The most famous of these remain centred around Canada’s automotive sector, historically one of the leading symbols of Canada’s postwar economic boom, but now sadly fallen into hard times. In forest-rich British Columbia, the production of lumber and paper still provides work for many, while the production of food, chemicals, electronics and other  miscellaneous bits of machinery and metalwork dominate elsewhere. As is the case in most first world nations, much of what Canadians still manufacture in their own countries are specialty products that are either too expensive or impractical to get built overseas.

Trade and the United States

NAFTA signing

In 1988, Canada signed a Free Trade Agreement (FTA) with the United States, which was later expanded to include Mexico, forming the North American Free Trade Agreement, or NAFTA. Though controversial in its time, the deal has seen Canada-U.S. trade nearly double.

Canada is one of the most trade-dependent countries in the world, with exports comprising nearly 40 per cent of total GDP in the year 2000 (though that number has noticeably declined in recent recession-hit years). Of this, upwards of 80 per cent of all Canadian trade is done exclusively with the United States, meaning the modern Canadian economy is extremely dependent upon, and integrated with, the economic destiny of America. So much so, in fact, that some economic analysts don’t think it’s even worth talking about “Canada” and the “United States” as two separate economic players anymore, so conjoined are the two economies.

Much of what Canada and the United States trade with each other is very similar, including machinery, chemicals and food. Cars and car parts represent a particularly lucrative sub-field, since both countries jointly operate the largest automobile manufacturing industry in the world, based out of the Ontario-Michigan border region. As two of the most energy-rich nations on earth, trade in gas and electricity is huge, and many are often surprised to learn that Canada is the U.S.’s single biggest source of foreign oil.

Along with the country’s biggest trade partner, the U.S. is also the single largest foreign investor in the Canadian economy, with around 50 per cent of all foreign direct investment in Canada held by Americans. In practical terms, much of this investment takes the form of American franchises and businesses that have set up shop in Canada and provide jobs for Canadian workers. Cruising the streets of any major Canadian city will thus expose you to all manner of American chains, from Starbucks to Wal-Mart, which are staffed by Canadians, but ultimately headquartered in the United States. It’s not an entirely uncontroversial state of affairs; while many Canadians workers obviously profit from American investment, others argue the dominance of large American corporations in Canada effectively prevents Canada from establishing powerful corporations in its own right, and reduces the country so a so-called “branch plant” of American business interests. In response to this, Canada has established rules that regulate and limit foreign (i.e., American) ownership in certain industries that are deemed too important to Canadian national interests to trust to Americans, including telecommunications, energy, national defence and culture.

Canadian Taxes

Canadians like to gripe about taxes, but compared to other major industrialized democracies, Canada’s rate of taxation is comparatively low. Total tax revenue in Canada represents about 32 per cent of the country’s GDP, compared to 36 per cent in the U.K. and Germany, 43 per cent in France and 47 per cent in Sweden. The bulk of the money Canadians give to their government is withdrawn through income taxes and sales taxes, which are charged at both the national and provincial level.

Tax protester

Following the introduction of a harmonized sales tax in British Columbia in 2010, organizers successfully petitioned to put the tax to referendum, which voters then promptly rejected by a wide margin. The old PST-GST set up was restored, and the provincial premier who had suggested the change was forced to resign.

Income taxes in Canada are progressive, which is to say, you pay a different rate depending on how much income you make. Federally, the bottom rate is 15 per cent and the top rate is 29 per cent, while at a provincial level most rates are (very roughly) at least half of that. See this Canada Revenue Agency chart for the complete breakdown.

Everything you buy in Canada receives an extra mark-up at the cash register in the form of the Goods and Sales Tax (GST) and Provincial Sales Tax (PST). These days, a lot of provinces merge the two taxes together to make things easier, and the term Harmonized Sales Tax, or HST is becoming increasingly common. The GST rate is currently set at 5 per cent of purchase price, while PST rates vary from province to province, but is usually a bit higher. Again, Canada Revenue has a nice chart to help you.

Canada’s sales taxes have long been among the most contentious and unpopular political policies in modern Canada, and something Canadians never tire of complaining about. The introduction of the GST by the government of Prime Minister Brian Mulroney (b. 1939) in 1991 helped poison his legacy and ruin his party, and all subsequent prime ministers have been elected, in part, on campaigns promising to lower it. Though not quite as radioactive, PSTs and HSTs have ruined more than their share of political careers, too.

Government and the Economy

Despite being one of the world’s major capitalist powers, government still shapes and affects Canada’s economy in a multitude of ways. In fact, as is the case with most western democracies, many economists believe Canada is better described as a “mixed” or “managed” economy than a purely capitalist one, since both the free market and government policy play almost equally relevant roles in shaping the character of the national economy.

Health pass

In many parts of the country, Canadian restaurants are legally required to visibly tell customers that they have passed all the relevant health codes. Seen here, a "pass" sticker from the Toronto Public Health authority in the window of a local restaurant. Photo: Cameron Maitland

For both patriotic and political reasons, a large number of Canadian businesses receive subsidies, or government money, in order to remain afloat in a difficult economic climate. Common recipients include farmers, Canadian artists and musicians, and the industrial manufacturing sector, particularly automotive and aerospace, all of whom would otherwise face an uphill battle to survive in an increasingly competitive global market. According to the Canadian Taxpayer’s Federation, Ottawa spent some $18 billion propping up Canadian business in the years between 1982 and 2006.

The Canadian Government — as well as provincial and local governments — also operate a number of bureaucratic agencies, boards and departments that exist primarily to regulate and direct private business in a number of ways. These include institutions such as the Canadian Human Resources and Skills Development Department, which regulates national industries like banking and railroads, the Canadian Securities Administrators, who regulate the various Canadian stock markets, and local permit boards which hand out licences to small businesses like restaurants and shops. Every province in Canada likewise has its own government-set minium wage, usually around $9.50 per hour.

Canadian Unions

Canadian unions

In a reflection of the growing dominance of government employees in the Canadian labour movement, the largest union in Canada is now the Canadian Union of Public Employees (CUPE), with over 615,000 nominal members. The country's largest private sector union is the United Food and Commercial Workers of Canada (UFCW), with about 250,000 members.

In the old days, when Canada’s manufacturing sector was considerably larger and more important than it is today, many Canadian factory workers formed unions in order to lobby for safer working conditions and higher pay from their cold-hearted plutocrat employers. As manufacturing has declined, unionization has now steadily shifted towards white collar work, and of the 30 per cent of Canadians who now hold union membership, the majority work in fields such as teaching, nursing or the civil service.

Though Canadian unions can certainly be quite militant and left-wing when they want to, Canada is overall not a country that experiences a great deal of labour unrest, and strikes are usually short and rare. Since an increasing number of the country’s unionized workers now perform safe, comfortable jobs for government employers, contract negations have lost a lot of their earlier passion and intensity, and are now mostly around the calm negotiation of things such as vacation lengths, sick days and layoff procedures.

Links About the Canadian Economy:

Quick Facts:

  • Canada is one of the world's wealthiest nations.
  • The Canadian economy has historically been based around trading natural resources, but is now dominated by the "service" sector.
  • Canada and the United States have a very tight economic relationship, and 80 per cent of all Canadian trade is with the U.S.
  • Though Canada has a generally free-market economy, the government still plays a large role in regulating and subsidizing many industries.