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the railway and the telegraph
in the early 1800s. Over the years, a steady tide of technological
progress has profoundly reshaped our economy, making possible the
combustion engine, the assembly line, computer networks and professional
consultants. Today, economic progress rides an electronic expressway
of automation, information and instant communication. Advances in
technology, the increased globalization of markets and the emergence
of liberal trading regimes are fundamentally changing the way Canadians
conduct their business. Long removed from an economy based almost
exclusively on natural resources, Canada is rapidly moving toward
a knowledge-based economy built on innovation and technology. The
new economy is also a smarter economy: Canadas knowledge-intensive
industries are generating advances in our ability to produce high-tech
machinery and equipment, and encouraging industrial innovation as
a result.
Canadian businesses
are getting connected more than ever before, exploiting
advances in communications technology to reach out into the global
marketplace in search of buyers for their products. Though we have
always been a nation looking outward for markets, Canadian trade
continues to grow beyond our borders. Indeed, with a small domestic
market, the steady expansion of multilateral trade is critical to
the structure of our economy and the continued prosperity of our
nation.
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 espite
the transformations now rippling through the Canadian marketplace, the
most dramatic structural change our economy has undergone is the rise
of the services sector. Though our goods-producing industries account
for 33% of our national economy, the Canadian services sector is much
larger, employing three out of four Canadians and generating two-thirds
of our gross domestic product.
What exactly makes up the Canadian services
sector? Its easy to picture the physical products churned out by
our manufacturing, agriculture, mining, forestry and construction industries,
but the value of the services sector is less tangible. Goods need to be
delivered, and this involves storage services, truck drivers, rail carriers
and bicycle couriers. The actual exchange of goods often requires legal
and financial services to process the transactions. Canadians also want
to shop, eat out, and be entertained by movies, operas, concerts and ballets.
And nearly every aspect of government activityfrom health care to
education to national defenceis a service provided to Canadian citizens.
Just as a Canadian family counts its bills
and income to get a picture of its economic health, economists measure
a countrys expenditures and income. Gross domestic product (GDP)
is a popular indicator used by countries to estimate the value of their
economic activity. Measuring the total value of goods and services produced
in a country during a given period, GDP includes everything from personal
expenditures on food, clothing, rent, haircuts and movies to government
expenditures on roads, military hardware, business investments and net
exports (exports minus imports). It also accounts for the money companies
spend on new factories or shopping malls. GDP does not, however, include
transfer payments such as old age pensions, employment insurance and welfare
payments. It also ignores the purchase of raw materials or intermediate
goods and services used by businesses to produce final products purchased
by consumers, thus measuring the value of production without any duplication.
GDP can also be measured by focussing on economic production. It measures
the cost of production by the industry. GDP or value added can be obtained
by subtracting from the total value of production the value of inputs
purchased from other industries (intermediate inputs). Using net rather
than gross outputs avoids double counting the output of one industry that
is an intermediate input to another.
For Canada, 1999 marked the eighth consecutive
year of economic growth, with our GDP at factor cost reaching $753 billion.
After factoring out inflation, GDP grew by 4.3% in 1999.
This overall expansion was mirrored in nearly all facets of the Canadian
economy. Manufacturing led the charge, growing at 6.3%, a reflection of
the increased production of motor vehicles (22.4%), vehicle parts (13.6%),
telecommunications equipment (35.7%) and computers and peripherals (27.4%).
Together, these products accounted for over half the growth in output.
The services sector also grew in
1999by 3.7%. Wholesale trade provided some of the thrust, growing
at 6.7%, largely because of substantial sales of computers, computer software
and other electronic machinery. A 7.8% growth rate in business services
was propelled by a 23.3% gain in computer consulting and related services,
much of which was likely influenced by the Year 2000 computer bug.
After stagnating in 1998, the construction
sector rebounded in 1999, growing by about 4%. Construction was bolstered
by significant increases in residential housing (5.8%) and non-residential
building (4.8%). The modest 1.1% growth rate of the primary sector can
be largely attributed to weak commodity markets, particularly for the
mining, quarrying and oil well industries. Mining in Canada experienced
a decline in real output in 1999, with metal mining falling 9.3%, crude
oil and natural gas down 2.4% and drilling activities dropping 5.3%.

Canadas continuing economic boom has rippled straight across the
nation. The Ontario economy was robust in 1999 as manufacturing, retail
trade and housing put up strong performances. The economy, especially
the manufacturing sector, was also rigorous in Quebec in 1999, although
the growth rate was below that of Ontario.
The Atlantic economy has been fuelled in
recent years by construction megaprojects such as the Terra Nova offshore
oil platform, off Sable Island, the Confederation Bridge and the expansion
of a refinery in Saint John. Also buoying the economies of Newfoundland,
New Brunswick, Nova Scotia and Prince Edward Island in 1999 was an increased
foreign demand for food and wood products.
Although economic growth in 1999 was generally
positive in the Prairies, the significant agricultural sector continued
to struggle, largely because of weak grain prices. Farther west, the British
Columbia economy surged ahead, posting gains in resource-based industries,
especially in the second half of 1999. In particular, a strong American
housing industry generated a healthy demand for wood products made by
British Columbias forestry firms.


ven
when the Canadian economy is chugging away and seemingly on auto-pilot,
economists are constantly maintaining a lookout for symptoms of trouble,
such as a dip in productivity or a loss in buying power. They measure
the health of the economy, determine the long-term impacts of trends in
the marketplace, and prescribe adjustments to ensure it remains balanced.
A number of tools for giving the economy a physical are at
their disposal.

One effective barometer of an economys
strength is the extent to which it operates at full capacityits
capacity utilization rate. This rate compares the potential output of
any given industry or company with its actual output.
During the late 1990s, the sound of assembly
lines churning out product after product all across Canada was certainly
music to economists ears. In 1999, the average capacity utilization
rate for all Canadian industries, excluding farm goods, was 84.9%. This
rate was higher than at any other time in Canadian history, with the exception
of the 198788 boom period.
As industries operating at full capacity reach
their production limits, however, inflationary pressures can begin to
emerge. The current boom in investment, especially for new machinery and
equipment, should ease that pressure somewhat because it will allow producers
to continue to expand their production lines and lower their prices through
improvements in the efficiency of production.

Productivity is another useful indicator
of economic health. Increases in productivity can reflect improvements
in a number of critical areas of a modern economy, such as advanced production
techniques or knowledge. Productivity also provides the foundation for
improvements in a countrys standard of living. Wages and salaries
grow when businesses become more efficient, and higher production efficiency
also allows the prices of goods and services to drop. Increased productivity
is also a sign of a highly skilled labour force, with more workers using
machines to produce goods, and improved management practices.
Labour
productivitythe measure of real GDP generated per hour of workis
a useful reading of the strength of our work force. Strong labour productivity
can mean higher rewards for our workers. Since higher productivity lowers
prices, better wages and living standards for all Canadians can emerge
as a result. Bolstered by a jump in improvement in the manufacturing sector,
labour productivity in 1999 grew 1.4%, almost three times the pace set
one year before (0.5%). The productivity of workers increased 2.1% in
the goods sector and 1% in the services sector.
Though not traditionally considered a high-tech industry, the agriculture
sector in 1999 led in productivity, with an advance of 13.4%. Other substantial
gains could be seen in forestry (7.2%), communications and other utility
industries (6.8%), wholesale trade (5.2%) and mining (4.5%).

The amount of economic output,
or gross domestic product, for every person in the country can also
be a telling sign of economic health. GDP per capita measures can help
indicate the average family income; growth in Canadas GDP per
capita and growth in average annual income have generally followed similar
paths. In fact, the growth rates in GDP and family income strongly reflect
the business cycle over the past 20 years. Both declined in 1982 when
the economy was sluggish, rose rapidly during the boom period from 1985
to 1988, and then declined again in the early 1990s during the economic
slowdown.


GDP per capita in 1998 varied
from a high of $36,000 per capita in Alberta to a low of $21,000 in
Newfoundland. Ontarios GDP per capita was $33,000 while GDP per
capita in Quebec was $26,000.

To gauge their economic performance, Canadians
often compare their economy with that of the United States, despite
the obvious difference in size. Though international comparisons are
often difficult to make, one useful measure is buying power how
much we get for our respective dollars. Though the exchange rate seems
an obvious measuring stick, it does not always indicate real price differences
between countries. Purchasing power parity (PPP) is a more accurate
measure.
PPPs are conversion rates
based on the real purchasing power of currenciesas opposed to the
international market price of the currencies. One popular approach used
to convert international currencies to their correct exchange
rate is the Big Mac Index, calculated regularly by The
Economist. This index equalizes the price of the McDonalds hamburger
in various countries. For example, in April 2000, a Big Mac cost US$2.51
in the United States and C$2.85 in Canada. The PPP value, or $2.51 divided
by $2.85, was $0.88. Since the Canadian dollar was trading at US$0.68
at the time, based on the price of hamburgers, the Canadian dollar was
worth 20 cents more than its open market exchange-rate value.
Based on a larger basket of
goods, the Canadian dollar in 1998 had a PPP value of US$0.84, compared
with its exchange rate of US$0.67. In other words, the Canadian dollar
had a purchasing power value about 25% higher than the exchange rate suggested
by the market.
This approach can also be
used to compare GDP per capita figures among countries. In 1998, based
on PPPs in Canadian dollars, Canadian GDP was $29,300 per capita, compared
with $36,500 for the United States, $28,000 for Japan, $25,500 for France,
$26,800 for Germany, $25,700 for the United Kingdom and $9,200 for Mexico.

hough
we have always been a trading people, Canadians today are expanding their
networks abroad more than ever before. The liberalization of trade through
the World Trade Organization and the North American Free Trade Agreement
(NAFTA) has reduced the costs associated with international trade, increased
production runs and encouraged specialization. Moreover, the rapid diffusion
of information and communication technologies has cut transportation costs
and improved delivery times. Technological progress and productivity gains
in the global marketplace have also lowered prices on many goods. As a
result, Canadians are increasing an already strong reliance on international
trade, particularly in North America.

International trade grabbed the headlines
of many Canadian newspapers in the early 1990s. The focus, of course, was
on the liberalization of our trade relations with the United States. Seeking
to open up the continent to increased tariff-free trade and investment,
Canada and the United States established the North American Free Trade Agreement,
which entered into force on January 1, 1994.
NAFTAs signatories are
Canada, the United States and Mexico. To encourage trade among them, the
agreement contains an ambitious schedule for the elimination of tariffs
on goods and services being traded, as well as a reduction of other barriers
to trade. The philosophy is simple: by eliminating some of the costs of
doing business (namely, tariffs), firms are better able to realize their
full potential by operating in a larger, more integrated and efficient
North American economy. And as the effects of freer trade trickle through
the economy, consumers generally benefit from heightened competition with
better products, services and prices.


Though it is difficult to isolate the precise effects of any trade agreement
on economic growth, NAFTAs numbers are compelling: by the fifth
anniversary of the agreement, Canadas merchandise trade with the
United States and Mexico had vaulted 80% and 100%, respectively. By 1999,
trade in goods and services between Canada and the United States totalled
$622.7 billionan average of $1.7 billion of business crossing our
border every single day. The dominance of the United States in our trade
statistics is striking: all told, in 1998 the United States bought over
four-fifths of our exports and produced three-quarters of our imports.
Our overall trade performance
also remains impressive. Two-way trade in 1999 capped a decade of exceptional
growth. Over the period 199099during which our GDP grew at
an average annual pace of 2.2%exports of goods and services averaged
8% growth, while imports increased at a 7% clip.
Despite the overwhelming influence
of the United States on our trade industry, Canadian goods also find their
way to other corners of the world. Asia remains an important target, though
exports to some Asian nations declined in 1999. On the other side of the
world, sales to the European Union picked up moderately, as growth in
the major western European economies firmed.


The balance of payments system is used to
record transactions between Canada and the rest of the world. It tracks
receipts coming into Canada from all international sources as well as payments
made by Canadians to non-residents. The current account balance sheet records
international trade in goods and services, and investment income including
interest, dividends and profits earned by Canadian firms both at home and
abroad, and Canada-based operations of foreign companies. The capital and
financial accounts measure direct investment abroad and investment by Canadians
in foreign stocks and bonds.

Just like any companys
books, the accounts must balance. If more money is leaving Canada than
coming in, the balance of payments shows a deficit, and the difference
needs to be financed. In other words, a current account deficit must be
matched by an equivalent amount of foreign capital entering Canada or
by borrowing from other countries.
Canadas current account
balance of payments was negative for most of the 1990s. However, in 1999
the current account deficit narrowed considerably from $16.3 billion in
1998 to $3.4 billion. This was the result of a $14.7 billion increase
in the goods surplus from the previous year.
The balance of trade for merchandise
is normally positive, since Canada traditionally sells more goods than
it buys. This positive trade balance (surplus) for goods is due almost
entirely to trade with the United States. The current account surplus
with the United States reached an all-time high of $60.1 billion in 1999.
The agriculture, fishing, energy, forestry and automotive sectors all
continued to produce positive trade balances during the 1990s. Negative
merchandise trade balances occurred in 1999 for machinery and equipment
goods, as well as for industrial goods and consumer products.


 ore
than 1 million new jobs were created from 1994 to 1998. Employment growth
was exceptionally strong in 1999, reflecting the sustained boom in the
overall economy: in that year alone, 391,000 jobs were created. This growth
was led by a resurgence in the manufacturing sector, particularly the
computer and electronic parts industries.Growth in the number of full-time
jobs was the driving force behind the surge in employment. About 383,000
full-time jobs and 8,000 part-time positions were created in 1999. Transportation
services (especially trucking), warehousing and the trade sector posted
gains in employment. The scientific and professional services industries
also expanded, as Canadian businesses hired more technicians to upgrade
their computer systems in advance of the millennium bug.
Employment in the primary industries suffered
in 1999, however, from low commodity prices, particularly for agricultural
goods.
In 1999, Alberta recorded job growth of 2.5%, New Brunswick 3.3%, and
Ontario 3.6%. Newfoundland saw the largest relative increase, a 5.5%
jump. Canadas major metropolitan areas continued to lure job seekers,
particularly in Ontario and Quebec; the strong economies in Toronto, OttawaHull
and Montréal were instrumental in driving new job creation in Central
Canada.
Low grain prices and weak
forestry and mining industries kept employment increases to a minimum
in Manitoba and Saskatchewan. However, Albertas employment rate
rose thanks to Calgarys strong economy and an expansion of the provinces
construction, management, administrative, professional, scientific and
technical services industries. Rebounding commodity prices gave British
Columbia a modest boost in employment in the second half of 1999.
The overall job growth in
Canada drove the unemployment rate down to an average of 7.6% in 1999.
The unemployment rate ranged from a high of 16.9% in Newfoundland to a
low of 5.6% in Manitoba.

A
new species of worker is beginning to leave its mark on the Canadian job
market: the knowledge worker. Globalization, the increased specialization
of trades and the diffusion of technology have made the knowledge worker
an indispensable asset in our desire to modernize, innovate and ultimately
expand the Canadian economy. With the requisite skills, training and education
needed to participate effectively in high-tech industries, knowledge workers
are finding themselves in great demand the world over.
These men and women normally
possess a university degree or college diploma, and are distributed across
a wide range of industries. For example, though computer services technicians
can find employment in the computer services industry, the widespread
use of computers makes their skills transferable to any number of industries
such as engineering, wholesale trade, financial services, education, health
and government services.
Canadian knowledge workers
seem to find a particular niche, however, in the services industries.
In 1996, nearly 61% of all science and technology workers were employed
in the services sector. Of these, approximately 16% were attracted to
health and social services, 11% to wholesale and retail trade, 8% to business
services and 7% to government services.
The rise of the knowledge
worker is having an impressive impact on the Canadian labour market. Since
1990, 1.8 million jobs have been created for people who are highly educated;
over the same period, more than one million jobs for people with only
a high school education or less have been lost.
The demand for highly skilled
individuals reaches far beyond the Canadian border. As the rapid growth
of knowledge-based industries continues, worldwide demand for skilled
professional and technical workers has proliferated. Many Canadians are
well able to compete for such jobs, where the criterion for employment
is having a postsecondary degree or diploma. Half of the Canadian labour
force between the ages of 25 and 64 has a postsecondary degree or diploma;
in the United States only 37% of this group hold similar qualifications.
Moreover, Canada has the highest postsecondary education enrollment in
the world and the second-highest university graduation rate. Canada also
ranks among the top G7 countries for spending on education.
Some Canadians are taking
their degrees and heading south of the border in search of employment.
Unemployment rates in Canadian science and engineering occupations in
particular are double those of the United States, and earnings in these
occupations are often much higher stateside. The largest wage gaps between
Canada and the United States are found in the high-growth and high technology
sectors: biopharmaceuticals, telecommunications, bioagriculture, and geomatics.
Canadian industries often
rely on attracting professionally trained immigrants to help meet their
labour demand. Despite the numbers moving to the United States in search
of work, Canada gains more skilled workers than it loses overall, thanks
to the large number of skilled immigrants moving to Canada. In fact, this
brain gain outnumbers the flow of Canadian workers to the
United States by a wide margin.

Though the word biotechnology is relatively new, people
have used its principles for centuries to make yoghurt, beer and wine,
and more recently, vaccines, and antibiotics and for environmental
re-mediation. Advances in the biotech field are bound to affect many
aspects of life in Canada, especially in the agriculture, environment
and human-health sectors. Small, research-intensive firms make up
most of the 300 firms engaged in biotechnology in Canada. Almost half
of them are working at improving human health. The health sector accounts
for more than 80% of the spending and 62% of the employment in the
field. About a quarter of the firms are in the agricultural sector.
Employment in biotech research and development is expected to grow
more than 25% by 2001, adding to the current shortfall of almost 2,000
positions that require high levels of education and skill.
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ome
macroeconomic aspects of the Canadian economyinflation, the federal
debt or the value of the Canadian dollarcan have microeconomic consequences.
Canadians shopping for groceries, computers, a new car or a house are
directly affected by rising costs. Snowbirds migrating
to Florida for the winter months find that the weak Canadian dollar is
shrinking their savings more rapidly. And though the federal government
is responsible for paying the debt, it does so using significant shares
of our tax dollars.

Nothing can be more deflating to Canadian
wallets than inflation. Back in 1981, with inflation running at 12.4%,
Canadians had to live with the uncomfortable knowledge that what they
bought that year would cost significantly more the next.
Inflation especially hits home for mortgage-holders. For example, a 200-basis
point increase in the mortgage rate pushes the cost of a $100,000 mortgage
up by $1,624 a year. Small businesses feel an even sharper pinch: a similar
increase in interest rates would push the interest on a $2,000,000 loan
up by $28,000 annually. Recognizing the importance of maintaining a stable
inflation rate, the Bank of Canada introduced inflation control targets
in 1991, when inflation was 5.9%.
The
inflation control targets assist the Bank in determining what monetary
policy actions are needed in the short- and medium-term to maintain a
relatively stable price environment. One of the most important benefits
of inflation targets is their role in focussing expectations of future
inflation. This in turn feeds back into the kind of economic decision-makingby
individuals, businesses, governmentsthat tends to reinforce the
capacity of the economy for continuing non-inflationary growth.
The Bank of Canada sets the target inflation
rate between 1% and 3% and maintains this even keel by raising or lowering
interest rates. If these annual targets are exceeded, the Bank can reduce
demand for goods and services by raising interest rates. If inflation
is running lower than 1%, the Bank can reduce interest rates to help stimulate
consumer and business spending. It has been highly successful in keeping
inflation in check over the past decade. Since 1992, the inflation rate
has averaged 1.5%.
Interestingly, regulation
of interest rates by the Bank of Canada can take anywhere from 18 to 24
months to work its way through the economy and have a significant impact
on inflation. A dynamic process of change occurs: first, spending rises
or falls, depending on the rate; changes in production and employment
follow; and then prices are altered accordinglyultimately changing
the inflation figures. As a result, the Bank of Canada must constantly
peer over the economic horizon for any signals that indicate the emergence
of upward or downward pressures on prices down the road and then take
corrective measures far in advance.
Strong inflationary pressures
have been kept in checkdespite the upward pressures of the extremely
robust Canadian economy of late. Other developments have also helped keep
inflation down. Government deficits have been virtually eliminated, accumulated
public debts are starting to shrink, and a major restructuring of many
Canadian businesses during the 1990s has provided a firm base for price
stability and has increased the efficiency of business operations.

Inflation is most strongly felt by the Canadian
consumer. To measure the impact on our buying power, economists use the
Consumer Price Index (CPI), the cost of a basket of about 600 items representing
typical household expenditures such as food, shelter, clothing, furniture,
transportation and recreation. The cost of the basket is tallied every month
and these prices are tracked by Statistics Canada.
The prices in the basket are
measured against a base year (currently 1992) that is assigned a value
of 100. In 1999, the basket of goods and services had a value of 110.5,
representing an increase of 1.7% from 1998.
Food and energy costs tend
to fluctuate more than other items in the CPI basket, and are thus removed
in order to measure price changes for core components of the CPI. The
term core inflation refers to the price changes of all goods
and services in the basket except food and energy. In 1999, the core inflation
rate was 1.5%.
A price index also monitors
industrial goods and energy, where rising prices provide an early warning
of possible price increases for consumer goods and services. On average,
Canada experienced stable industrial prices in the 1990s. In 1999, the
Industrial Product Price Index increased by 1.9%, mirroring the increase
of the CPI.


When
the paper greenbacks gave way to the loonie coin
in 1987, the Canadian dollar was in the middle of an upward trend against
the U.S. dollar. Lasting the rest of the decade, the upswing was motivated
by various factors, including a buoyant economy and a tightening of monetary
policy. The dollar closed the 1980s at US$0.863.
The loonie continued
to climb against its American counterpart in the early 1990s. Cresting
at US$0.893 in November 1991, it began to depreciate sharply thereafter.
Persistent government budgetary problems, decreasing commodity prices
and large current account deficits were the primary cause of this downward
trend, which was broken up by a brief period of stability through 1995
and 1996. Weakness in the currency flared up once again in 1997 and continued
for the rest of the decade, despite a strong Canadian economy. Rebounding
over the course of 1999 from a historic low of US$0.638 in August 1998,
the dollar averaged US$0.673 over the year.
As with the currencies of
most industrialized countries, the value of the Canadian dollar is set
by a floating exchange rate mechanism, whereby its price fluctuates according
to international market conditions. These conditions, as well as massive
speculative activity, can sometimes put the Canadian dollar through periods
of volatility and price instability. During these periods, the Bank of
Canada may intervene in the international market by buying or selling
Canadian dollars. When the Bank buys large amounts of Canadian dollars,
demand for the currency is stimulated and upward price pressures result.
Selling generates the opposite effect.
Though Canada has experimented
with fixed or managed exchange rate policies, it has generally favoured
a flexible exchange rate. Recently, the debate on exchange rate regimes
has been reviewed in Canada and abroad. The outcome will depend on national
circumstances and preferences of countries.

The Canadian dollar came into being less than 150 years ago. French
and Spanish silver coins circulated in New France in the 17th and
18th centuries, but because they were in short supply, playing cards
were cut to various sizes and signed by the Governor to serve as legal
tender. Following the Conquest of Canada by Great Britain in 175960,
and for about a hundred years following, British pounds, shillings
and pence were Canada's official currency. Dollar
bank notes were first issued by the Bank of Montreal in 1817 and included
a $4 denomination, the official value of the pound. But sundry types
of currency still circulated, including Nova Scotia provincial money,
American dollars and gold coins, Spanish dollars and even British
paper army money used to buy supplies during the War of 1812. British
money was rejected in the 1840s, and on January 1, 1858, the Canadian
dollar became the official monetary unit of the Province of Canada.
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As for individual households, the more debt
a country holds, the more difficult it is to maintain economic health. High
debt increases the portion of income dedicated to paying interest and principal,
reduces scope for spending on other items and restricts overall freedom
of action. On a national level, a high debt keeps interest rates high, reduces
spending on public programs, soaks up money that could be used for productive
investments, and keeps taxes up. It also leaves the country vulnerable to
economic slowdowns and worldwide interest rate shocks.
Such was the case for Canada
in the early 1990s. By 1995, the federal government had been spending
more than it collected in revenues for 25 consecutive years. The deficitthe
amount by which government spending exceeds revenues in any given yearwas
$37.5 billion. As a result of persistent deficit financing, Canadas
total debt loadthe accumulation of all past deficits and surpluses
since Confederationhad grown from $20 billion in 1971 to over $545 billion
in 1995. Covering the interest costs alone was costing Canadians $42 billion
by 199495more than the annual deficit and some 26% of the
entire federal budget. By March 2000, Canadas net public debt had
reached almost $565 billion.
Recognizing the urgent need
to begin balancing the national books, the federal government undertook
a massive program to reverse the nations financial course in 1994.
Because of a reduction in program spending and a growing economy, Canada
was well on its way to achieving a financial turnaround before the decade
ended. By 199798, the government recorded a surplus for the first
time in 28 years; the following year marked the first back-to-back surplus
in almost 50 years.
Surpluses both achieved and
anticipated have allowed the government to direct more money toward paying
off the accumulated debt. As a result, the cost of paying interest on
the debt has dropped from a high of 36 cents of every dollar of revenue
collected by the federal government in 199596 to 25 cents in 199900.
Another promising sign is the decrease in the debt-to-GDP ratio, which
gives a picture of the size of a nations debt in relation to the
size of its economy. This measurement provides a sense of the ability
of a countrys economy to service its debt; just as a household with
a larger income can finance a larger mortgage, a country with a larger
economy can service a larger debt. Though still high by historical and
international standards, Canadas debt-to-GDP ratio had fallen from
71% in 199596 to 59% by 199900.


When it was time to buy a new Montréal
Canadiens jersey in Roch Carriers childrens story The
Hockey Sweater, young Rochs mother placed her order through
the Eatons catalogue. My mother was proud. . . the only
clothes that were good enough for us were the latest styles from Eatons
catalogue, wrote Carrier.
The authors
mother was not alone. In the years after Irish immigrant Timothy
Eaton founded the company in 1869 as a small downtown Toronto dry
goods store, the company became a central part of Canadian daily
life and consciousness as a full-line department store with a broad
selection of goods, including jewellery, carpets and laces.
Eatons, which
would later be run by several of Timothys descendants, was
also famous for its policy of selling items as marked, with no haggling
over prices, its promise of Money Refunded if Goods Not Satisfactory,
and, of course, its catalogue, which offered everything from farm
tools and wedding rings, to home remedies and prefabricated homes.
For more than a century,
the companys innovative approach to retailing kept Eatons
at the forefront of Canadian department stores. In the 1950s, Eatons
laid claim to more than half of all department store spending in
Canada; in the 1990s, the company had 90 stores; and in 1992, sales
hit the $2.1-billion mark.
But like its renowned
catalogue, which disappeared in 1976, Eatons would soon
be erased from Canadas retail landscape, the victim of years
of mismanagement, stiff competition from aggressive American retailers
such as Wal-Mart and an economic downturn in the late 1980s and
early 1990s.
On February 27, 1997,
executives for the venerable department store chain admitted the
unthinkable: after 128 years as a Canadian institution, the company
could no longer pay its bills. With outstanding debts of $330 million,
Eatons sought protection from its creditors, closed 21 stores,
and hired a new chief executive officer.
But it was a case of
too little, too late: on May 18, 1999, Eatons was forced to
hang a for sale sign on in its remaining stores.
Eatons was not
the first department store chain to fall: previous casualties had
included K-Mart, Woodwards and Towers. Nevertheless, the venerable
chains fall from grace devastated long-time shoppers, who
for decades had made Eatons their department store of choice.
If Timothy Eaton
were alive and saw this hed be a pretty sad man, one
bargain hunter said during an auction where cash registers, desks
and well-worn chairs from Eatons better times were up for
grabs.
The companys downfall
brought an end to the heyday of Canadian family-owned department stores,
but the Eaton name lives on. On December 30, 1999, Sears Canada
Inc. spent $60 million to acquire all Eatons trademarks and
16 of its outlets. In the fall of 2000, Sears planned to open
full-line, upscale department stores under the banner eatons,
in Toronto, Ottawa, Winnipeg, Calgary, Vancouver and Victoria.
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Bank of Canada
Industry Canada
Department of Finance
Statistics Canada

Canadian Economic Observer.
Monthly. 11-010-XPB
The Performance of the 1990s Canadian Labour Market.
Occasional. 11F0019MIF00148
National Income and Expenditure Accounts.
Quarterly. 13-001-XPB
Gross Domestic Product by Industry.
Monthly. 15-001-XIE
Labour Force Update.
Quarterly. 71-005-XPB
Innovation Analysis Bulletin.
Irregular. 88-003-XIE

International Migration of Skilled Workers:
Facts and Figures.
Industry Canada and Human Resources Development Canada. 1999.
The Economic and Fiscal Update.
Department of Finance. 1999.
The Service Economy at a Glance.
Industry Canada. 1998.
Trends in Canadas Merchandise Trade.
Bank of Canada. 2000.
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