The Pendulum of Progress: Why Canada’s Economy Is More Resilient Than It Seems

In today’s media landscape, the loudest voices often dominate. Whether it be traditional news outlets or anonymous conspiracy theorists on social media, the system thrives on sensationalism because it attracts clicks, attention, and, ultimately, revenue. Politicians are no strangers to this game, using manufactured outrage to amplify their campaign messages. Recently, Canada’s economy has become a central character in this game. And why not? There is so much to be worried about: inflation is pressing down on Canadians, the housing crisis is squeezing home ownership, taxes seem ever-rising, and national debt climbs higher. However, what if this perpetually pushed pessimism of a bleak Canadian economy does not tell the full story? What if, instead, Canada is experiencing something constructive, a period of recalibration?

Lessons From Why Nations Fail

In their book Why Nations Fail (2012), economists Daron Acemoglu and James Robinson explore why some nations flourish while others falter. They argue that the prosperity of a nation hinges on the inclusiveness of its political and economic institutions. Inclusive institutions, which allow widespread participation and equal opportunity, empower people to pursue their ambitions. By contrast, extractive institutions—those in which power is centralized in the hands of a few—stagnate economies by restricting competition and opportunity. In a truly inclusive society, the democratic pendulum swings freely, correcting itself as new challenges arise. When policies become too extreme, public demand pulls them back toward the centre, toward balance. This process of self-correction is not merely a feature of democracy; it is the engine of progress. It is based on this principle that an approach to the current turmoil can be formulated. Does the country have the ability to adapt and overcome its challenges? For Canada to prosper, its institutions must foster resilience and growth by allowing citizens to voice their opinions and bring about change when the system becomes extractive.

The Canadian Perspective

As Canadians navigate the economic pressures facing the nation today, a sense of turbulence has understandably taken root. On the bright side, inflation has finally returned to the 2% target (Gellatly & McCormack, 2024). Meanwhile, the housing market—a major source of frustration—is beginning to cool, with Toronto housing prices down 18% from their peak and Vancouver prices down 8% (Canadian Real Estate Association, 2024). However, rising government debt, affordability issues, and the recent slowdown in GDP growth still paint a daunting picture (Gellatly & McCormack, 2024). As Acemoglu and Robinson suggest, the health of our institutions may be accountable for the current challenges. Economists Tim Sargent and Fen Olser Hampson (2024) highlight the rapid growth of government as a significant concern for Canadians. Federal government spending, they note, increased from 13% of GDP in 2015-16 to 15.6% of GDP in 2022-23. The public service sector has grown significantly, with the number of federal public servants increasing by 38% from 259,000 in 2016 to 357,000 in 2023. This growth rate is three times faster than that of the general workforce over the same period. Sargent and Hampson argue that such growth is unsustainable, as it suggests inefficiencies and challenges in attracting suitable talent within the public sector.

Fortunately, Canadians have the power to induce change, explaining the marked shift in public support for the Conservative Party. This shift reflects a desire for a more fiscally disciplined and less interventionist government (Korzinski, 2024). The pendulum is swinging in response to people’s concerns, illustrating the responsive nature of democracy.

One way to assess the health of Canada’s institutions is through the Global Social Mobility Index, which evaluates countries across ten pillars: Health, Education Access, Education Quality and Equity, Lifelong Learning, Technological Access, Work Opportunities, Fair Wages, Working Conditions, Social Protection, and Inclusive Institutions (World Economic Forum, 2020). Canada ranks 14th globally, a strong position that underscores the country’s relatively high social mobility and equitable opportunities. This ranking provides a solid foundation for optimism, suggesting that Canada has the structural capacity to foster greater economic and social mobility.

(Source: World Economic Forum)

However, there is room for improvement. For example, giving citizens more agency over the exact allocation of their tax proceeds would increase transparency and decentralization. By directly involving the public in fiscal decisions, Canada could ensure that resources go toward initiatives that genuinely reflect the priorities of its people, bolstering public trust in institutions. 

The Argentina Example: A Radical Response to Economic Struggle

For a striking example of the pendulum effect, we can turn to Argentina, a nation with a history of economic instability where persistent debt crises and currency devaluation have contributed to recurring periods of hyperinflation (Reyes, 2024). Despite its abundant resources, Argentina’s economy has consistently faltered, leading to widespread disillusionment with government institutions (Reyes, 2024). The public was desperate for change and, in response, elected a radically libertarian president, Javier Milei, whose “chainsaw” approach to government has become symbolic of the country’s need for transformation (Holmes, 2024).

Milei has pursued a libertarian economic approach by slashing government spending and removing rent controls (Dubé & Frydlewsky, 2024). These drastic measures have started to yield results: Argentina’s inflation rate has decreased from 25% in December 2023 to 11% by March 2024 (Holmes, 2024). But this change did not come without costs: thousands of public-sector jobs have been cut and many more are feeling the immediate sting of austerity (LaFranchi & Sosa, 2024). Nonetheless, for many Argentinians, these sacrifices represent a necessary pain for long-term stability, a step toward moving the pendulum back to balance. Milei’s goal is to reset and rebuild the country and its institutions (LaFranchi & Sosa, 2024). Canada can learn from Argentina's experience and turn a period of hardship into an opportunity for national growth and improvement. 

The Corrective Swing of Democracy

Canada is not Argentina, but the lesson is universal: the pendulum swing is a hallmark of resilient democracies. With governance being an iterative rather than a linear path, it is normal for things to get messy. States face a necessity to constantly evolve in response to the demands and needs of their people. And while the news cycle may focus on the messiness and the noise, the bigger picture tells a story of progress through trial and error. There is no single “right” way to run a country, but democracies thrive because they can swing between differing policies and ideologies. As such, Canada’s current challenges are not the end, but rather an opportunity to strengthen our institutions. It is an opportunity for public voices to be heard, pushing policymakers to address the most pressing issues of our time. Rather than fearing the chaos, we should embrace it as a sign that our democracy is alive, responsive, and capable of meeting the challenges ahead. Finally, it is important to notice that this institutionalist approach does not explain everything. For example, it does not explain how more authoritarian nations such as China or Singapore have achieved such economic success  (Gates, 2013).

All in all, though some academics remain critical of Acemoglu and Johnson’s work, their ideas still stand as a strong framework for understanding the current trajectory of Canada’s economy.

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References

Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Currency.

Canadian Real Estate Association. (2024, October 15). Try the MLS HPI Tool. CREA. https://www.crea.ca/housing-market-stats/mls-home-price-index/hpi-tool/ 

Custodio, L. (2023, October 30). Why Nations Fail: Chapter Summaries And Analysis. HugPages. https://discover.hubpages.com/literature/why-nation-fails-chapter-summaries 

Dubé, R., & Frydlewsky, S. (2024, September 24). Argentina Scrapped Its Rent Controls. Now the Market Is Thriving. The Wall Street Journal. https://www.wsj.com/world/americas/argentina-milei-rent-control-free-market-5345c3d5 

Gates, B. (2013, February 26). Good ideas, but missing analysis. GatesNotes. https://www.gatesnotes.com/Why-Nations-Fail 

Gellatly, G., & McCormack, C. (2024, October 23). Recent developments in the Canadian economy: Fall 2024. Statistics Canada. https://www150.statcan.gc.ca/n1/pub/36-28-0001/2024010/article/00001-eng.htm 

Holmes, F. (2024, May 13). How Javier Milei’s “Shock Therapy” is transforming Argentina’s economy. U.S. Global Investors - USGI. https://www.usfunds.com/resource/how-javier-mileis-shock-therapy-is-transforming-argentinas-economy/ 

Kirby, J. (2024, April 15). How a ballooning public sector is reshaping Canada’s economy. The Globe and Mail. https://www.theglobeandmail.com/business/article-canada-economy-public-sector-jobs-trudeau/ 

Korzinski, D. (2024, April 29). Budget 2024: Majority of Canadians concerned about deficit, say federal government is spending ‘too much’. Angus Reid Institute. https://angusreid.org/canada-budget-deficit-spending-liberals-trudeau-poilievre-nato-health-care/ 

LaFranchi, H., & Sosa, A. (2024, October 23). ‘I eat the elite for breakfast!’ Argentina’s Javier Milei wants radical disruption. The Christian Science Monitor. https://www.csmonitor.com/USA/Politics/2024/1023/Argentina-Javier-Milei-socialism-libertarian 

Reyes, D. (2024, June 13). A New Growth Horizon for Argentina. (2024, June 13). World Bank. https://www.worldbank.org/en/country/argentina/publication/un-nuevo-horizonte-de-crecimiento-para-argentina 

Sargent, T., & Hampson, F. O. (2024, August 2). Fen Osler Hampson and Tim Sargent: Canada’s government is way, way too big. Here are five ways to rightsize the federal public service. The Hub. https://thehub.ca/2024/08/02/fen-osler-hampson-and-tim-sargent-canadas-government-is-way-way-too-big-here-are-five-ways-to-rightsize-the-federal-public-service/ 

Vukovic, V. (2024, October 10). The United States of Trial and Error. TIME. https://time.com/7071872/us-trial-and-error-essay/ 

World Economic Forum. (2020). Global Social Mobility Index 2020: why economies benefit from fixing inequality. https://www.weforum.org/publications/global-social-mobility-index-2020-why-economies-benefit-from-fixing-inequality/