31. On the surface, the Canadian and American economies are pretty similar: they're both highly developed mixed economies with a strong services component.
Under the hood, there are huge differences that make meaningful changes to the way that the two countries function.
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32. A first place to look is the breakdown of GDP by industry. It's hard to make an exact comparison, but here are some representative charts from Statista using Statistics Canada/US Bureau of Economic Analysis data.
Source: statista.com/statistics/463, statista.com/statistics/248
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33. The first thing you'll notice is that the primary sector (agriculture, mining, logging) is way more important to Canada than to the US. Primary industries make up less than 2% of US GDP, but nearly 10% of Canadian GDP.
Canada is blessed (cursed?) with natural resources!
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34. Mining (including oil & gas) is literally an order of magnitude more important to Canada than the US: >8% of Canadian GDP but only 0.8% of American GDP.
Mining is the second biggest sector of the TSX (Toronto Stock Exchange) by market cap, after finance!
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35. This already tells us (or at least the Canadians) something pretty concrete.
Buying a TSX index fund is *not* the Canadian version of buying the S&P500! The TSX rounds to big banks, mining companies, and Shopify.
tradingview.com/markets/stocks
(This is not investment advice.)
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36. If you dig deeper you notice that Canada's dependence on oil and gas is somewhere between that of a regular developed country (like the US) and a petro state like Norway.
Oil and gas is something like 5% of GDP, compared to 20% for Norway.
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37. Oil is Canada's biggest export and a primary driver of the value of the Canadian dollar. As far as I can tell there's no single sector that drives the American economy in the same way.
(image credit; Economic Complexity Observatory, via Wikipedia)
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This actually messed things up for me personally at least once. When I was a college student my financial aid was calculated using exchange rates from the year before, which was fine until the 2014 crash in oil prices...
(Chart credit: xe.com)
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38. These changes are amplified by the fact that many service industries at tailored to the local economy. American financial services are diversified across a wide variety of industries, but financing mining (and especially petroleum drives a lot of Canadian finance.
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39. Speaking of finance, the banking sector was one of the few real "you're not in Kansas anymore" culture shocks when I moved to the US.
I remember walking around town and literally losing track of all the bank names. Bank of the West! Banc of California! East West Bank!
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In Canada, the six largest banks (TD, Bank of Montreal, CIBC, RBC, Scotiabank, and National Bank) account for more than 90% of the market share, and there are fewer than 100 chartered (licensed) banks in total.
The US has ~5k banks, and that doesn't even count credit unions!
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40. The Canadian and American economies are closely linked: the US is Canada's largest trading partner, and Canada is the largest destination for US exports (and second largest trading partner overall, after China).
This relationship is extremely lopsided.
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41. The US is Canada's largest trading partner (ahead of China) by a factor of ~7.
This made the Trump-era NAFTA debates weird for Canadians; it was like your parents fighting over where you should go for college. You're the one who has to go!
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42. NAFTA (or USMCA) is funny because Canadians look at the same that Americans do, even though they're counterparties.
Canadians: Ugh, we like cheap stuff but it means that American steal our jobs.
Americans: Ugh, we like cheap stuff but it means that Mexicans steal our jobs.
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(I'll probably talk more about NAFTA later because I didn't talk about the part of it that's most important to me, personally.)
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43. Stepping back from stats-heavy stuff for a moment, the Canadian and American economies have really different *vibes* (I'm serious).
One of the biggest things is differential development, or what calls *skew* (omar.website/posts/skew/).
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44. The Canadian economy advances faster than the American one when high levels of coordination are required.
Canada has had chip-and-PIN debit cards, usable at most points-of-sale and all ATMs, since the late 2000s. The US *still* doesn't have ubiquitous chip-and-PIN today.
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Canadians: American debit/credit cards increasingly have chips, but most points-of-sale use chip and *signature*. Better than when I moved here in 2012, though, when even my debit card (issued by a major bank) didn't have a chip. 🤦♂️
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I'm reasonably sure that the small- and highly-regulated nature of Canadian banking made it much easier to roll out new technology, even in the face of strong legacy network effects.
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45. In contrast, the American economy advances faster than the Canadian one *everywhere else*, more or less.
This holds up even in industries where you'd think that Canada would have a natural advantage, like logistics.
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Remember what I said about how urbanized the Canadian population is? The sound you heard in the background was the entire logistics industry salivating.
Plonk down a warehouse or two in each major metro and you're almost done!
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6. As of the 2016 census, Canada's population was ~35 million. More than half of them (~13 million) live in the five largest metro areas (Toronto, Montreal, Vancouver, and Calgary).
For Americans: that is like having ~165 million people across NYC, LA, Houston, and Chicago.
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Yet... as far as I can tell, the Canadian logistics industry offers a lower level of service at higher prices than the American one.
I haven't lived in Canada for a while, but here's a recent story:
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Last December I went home to visit family, and completed my mandatory 2 week quarantine in an AirBnB near the border. I realized that I forgot some toiletries and figured I'd buy them on Amazon.
... which could only deliver them within *10 days*. 😱
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In the US I can order ~anything from Amazon's catalog and have it delivered within 3 days, and all the basics (and more) are generally delivered next-day.
I genuinely have no idea what's going on here. What's up with Canadian logistics? If you have any ideas, please let me know!
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(Whoops, meant to call the logistics one opinion/observation number 47.)
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48. I don't know of any good statistics on this, but my impression is that Canadians are less likely to move for work than Americans.
A good chunk of people I know in the US "moved around a lot for [parents'] work", whereas basically everyone I know in Canada stuck to one metro.
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49. Relatedly, a significant majority of e.g., my high school classmates moved back to the Toronto area after graduating from university. My American college friends are pretty well distributed across the wealthy coastal parts of the US.
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I used to think that this was another consequence of how concentrated the Canadian population is, but now I'm less sure. I don't know that many Canadians who grew up between even two metro areas.
This might just be my filter bubble, so I'd be curious to see hard statistics.
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50. In honour of being half-way done, here's my single biggest puzzle about the Canadian economy:
Why are high-tech industries (Silicon Valley-type "tech", biotech, pharma, etc.) so underdeveloped in Canada, compared to the US?
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51. Let's look at the information tech/"Silicon Valley" tech industry first, since I've though the most about it.
On the surface, Canada feels like it should be a *better* place than the United States for the tech industry to flourish.
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52. The tech industry is largely built through startups displacing big companies, and Canada has a lot going for it when it comes to starting a startup. Single payer healthcare, a more robust social safety net (especially for the young), and lower wages all seem useful.
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53. The tech industry requires a ton of highly skilled immigrant labour, and Canada's immigration system is much friendlier to skilled immigrants than the American one.
If you're highly skilled and thinking about moving to Canada, check out Express Entry: canada.ca/en/immigration
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54. Even apart from immigration, Canada has tons of tech talent. Silicon Valley is filled with Canadian-educated engineers: if you look closely you can spot many of them by their Iron Rings: en.wikipedia.org/wiki/Iron_Ring.
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Something like 40% of the graduating CS class at the University of Waterloo ends up working in the United States. I'm told that a super high status thing for Waterloo CS students is getting a co-op/internship at every one of the FAANGs.
Canada has loads of technical talent!
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54. Canada is a smaller market, but it's probably the single best foreign country from which to launch in the American market.
We share a language, time zones, and culture. Canadians don't struggle to do business in the US.
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55. Nonetheless, the Canadian tech industry feels really undeveloped compared to the American one.
At any point in the past ten years, Canada has had at most one large, globally large tech company. Today, that's Shopify. When I was growing up, it was RIM/Blackberry.
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Back during the dot-com boom, Nortel was literally 1/3 of the total value of the Toronto Stock Exchange, until it spectacularly imploded. If I remember correctly it limped along on government subsidies for a few years before declaring bankruptcy.
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56. Canada has a lot of the ingredients of a dynamic tech industry, but not a lot to show. Why?
Tobi Lütke cites Canadian modesty: tobi.lutke.com/blogs/news/the
blames risk-averse angels: alexdanco.com/2021/01/11/why
People on HN think they know: news.ycombinator.com/item?id=6077025
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I certainly feel like there are some compelling points, but nothing that feels complete to me.
If you have ideas, I'm eager to hear them!
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57. This isn't just a tech industry phenomenon, either. We see the same pattern in biotech, summarized in The Globe and Mail (~the Canadian NY Times):
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This isn't to say that there aren't shining stars. Notably, Vancouver-based Acuitas developed the lipids used to encapsulate the Pfizer/BioNTech COVID vaccine!
And yet... the entire Canadian biotech sector is worth something like $30 billion. What's going on?
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