"What we're seeing (in the U.S.) isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: Income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite ... It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates."
- Paul Krugman, New York Times, Feb. 27, 2006.
In the mid-1990s, the Wall Street Journal delivered the classic insult to this nation when it called Canada an honorary Third World country.
Indeed, at that time Canada's economy was coming out of a period of relative difficulty.
Our balance of payments was shaky, the federal government had posted a long string of budget deficits and the Canadian dollar was weak.
Adding to these economic woes, as of the mid-1990s, Canada also had a long history of posting substantially higher inflation rates than in the United States.
Now, however, the trade and fiscal deficits situation has been turned on its head, with the United States incurring huge fiscal deficits and borrowing enormous amounts of foreign capital to balance its hefty international trade deficit. In fact, in a relatively short time span, the U.S. has become the largest debtor nation in the world.
And as Paul Krugman and many other economists have pointed out, U.S. income disparity is obscenely large and increasing, while higher education is not overcoming the polarization of income and the shrinking of the middle class.
The latter point is somewhat surprising, since most Western democracies see the elimination or reduction of economic inequality as a good idea. Indeed, it is a generally accepted principle that the underlying causes of economic inequality based on such non-economic differences as race, gender, or geography should also be minimized or eliminated.
In other words, there is a strong predilection in most Western countries to level the economic playing field as much as possible. This seems not to be the case in the United States.
The United Nations publishes a Human Development Index that ranks countries in terms of life expectancy, literacy, education and standard of living. The latest published data were based on 2005 statistics. The U.S., despite its vast wealth and power, placed only in the 12th position among industrial countries. The top four countries were Iceland, Norway, Australia and Canada. These top four countries still pay some lip service to income distribution as an important economic and social goal.
Ironically, the U.S. today has many more features in common with Third World status than Canada ever did back in the mid-1990s.
What is usually meant by a Third World economy? A half-century ago, the term was associated with the economically underdeveloped countries of Africa, Asia, South America and Oceania. The common characteristics of these Third World countries were high levels of poverty, income inequality, high birth rates and an economic dependence upon the advanced countries. Third World countries were simply not as industrialized or technologically advanced as Western countries.
But what are some of the distinguishing characteristics of contemporary Third World countries? They go beyond these nations' fiscal position or undue concentration on natural resource exports.
The glaring features today include poverty, lack of democratic institutions, controlling oligarchies and the unequal distribution of income and wealth. In other words, the few enjoy a rich lifestyle while the many share subpar incomes and poverty.
Another characteristic of Third World countries is that a major portion of their fiscal expenditures is allocated to the military. In many Third World countries, the military is controlled by an elite or a small collection of the wealthy.
Finally, in many Third World countries one finds that leadership is passed from one generation to the next, often via a close relative.
Guess what country we are talking about now?
Arthur Donner and Doug Peters are Toronto-based economists.
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