“The Last Best West: Home for Millions” read the pamphlet once distributed throughout Europe to encourage settlers to Canada’s untamed western frontier. At around the same time, posters advertising voyages to Buenos Aires daubed the towns and cities of Spain and Italy, and companies such as the Compañía Trasatlántica Española in Barcelona and La Veloce in Genoa did a roaring trade shipping migrants to the Latin American country. It was the early 20th century, and both Argentina and Canada were the future.
The budding young nations had much in common. Both were ex-European colonies now charting their own economic course (Canada was still part of the British Empire, but acted for the most part as a self-governing entity). Each had a population of around 5 million, and rising fast thanks to successive waves of immigration and high birth rates. They were also vibrant economically, ranking among the richest nations in the world in per capita terms—in Argentina’s case so much so that the expression riche comme un Argentin (as rich as an Argentine) was part of the French lexicon.
However, Canada and Argentina lacked the manufacturing dynamism and innovative prowess of their much larger American neighbor, the United States. The structure of both economies still hinged largely on extracting value from their vast land areas: Canada was a key producer of timber, while Argentina’s fertile pampas proved perfect for cattle raising, as well as for growing corn and wheat. The United Kingdom—the world’s first industrialized nation—was a key commercial partner to both countries, as an export market for their primary goods and as a source of FDI.
Fast forward to today, and the similarities are much less evident. Over the past century, Canada has successfully transitioned into a high-income nation, with strengths in areas as diverse as financial services, video gaming, automobile manufacturing and aerospace. But Argentina’s economy has struggled to remain internationally competitive. Despite having a slightly smaller population, Canada’s economy is now several times larger. GDP per capita in Canada is USD 43,000, compared to a mere USD 8,000 in Argentina. And while Canada retains its allure to migrants—attracting hundreds of thousands a year—Argentina has long since lost its luster. Many high-skilled professionals now leave the Latin American nation each year in search of a brighter future abroad.
This sense of faded glory is evident when walking the streets of Buenos Aires, with the worn facades of buildings erected during the city’s turn-of-the-20th-century heyday contrasting sharply with the modern glass structures of buzzing Canadian metropolises such as Toronto and Montreal.
Our panelists’ forecasts are a further reflection of these contrasting fortunes. In Canada, the Consensus is for sustained growth in GDP and living standards in the coming years, accompanied by declining unemployment, a stable currency and mild inflation. The same can’t be said for Argentina: Here, panelists forecast soft growth relative to other emerging markets, stubbornly high joblessness, and inflation well in the double digits due to the rapid depreciation of the peso.
The reasons for such a divergence in fortunes are complex and manifold, and form part of a process spanning many decades. But three factors stand out: Human capital levels, institutional solidity and economic openness.
- Education, education, education
“Buenos Aires is today one of the most cosmopolitan cities in the world. […] Large and numerous department stores, with their tempting window display, attract the well-dressed crowds of shoppers. […] The proportion of well-clothed, well-fed people is greater than in American cities, the slums are smaller, and the submerged classes less in proportion.” Such was George Whitfield Ray’s glowing description of the Argentinian capital in his 1903 novel Through Five Republics on Horseback.
However, beneath this patina of wealth there were already cracks in the country’s economic foundations. Argentina’s political system at the time was largely in the hands of a narrow elite—a legacy of the division of agricultural land into large estates worked by tenant farmers. In contrast, from its earliest days the Canadian Confederation opted for a model of smaller family-run farms, avoiding the build-up of a landowning class that could capture state institutions. As such, Argentina’s politicians were arguably less motivated to invest in education for the masses: In 1900, Argentinian children spent on average just one year in school, compared to four in Canada.
This gap persists today. The most recent PISA test results placed Canada’s education system among the top 10 performers globally, while Argentina languished in 63rd place. Canadian universities far outperform their Argentinian counterparts in global rankings. And in Canada, R&D spending is worth 1.6% of GDP, compared to 0.5% in Argentina. A more skilled populace has helped Canada break free from a reliance on primary activity and move into higher value-added economic sectors over the last century.
- State of the nation
Both countries have long democratic traditions. Argentina’s 1853 constitution was largely based on the U.S. presidential model, while Canada was bequeathed a carbon copy of the parliamentarianism practiced in Great Britain. These political systems rode out waves of European immigration and the wrenching economic effects of the First World War. Each showed malleability in the face of the profound societal shifts of the early 20th century: Canada granted women the right to vote in 1918, while in 1916 the Radical Party swept to power in Argentina, promising to govern for the middle and lower classes following decades of political dominance by wealthy landowners.
But when true crisis came calling in the form of the Great Depression, only Canada weathered the storm. Despite rampant unemployment and widespread social discontent—made worse by a crippling drought on the Prairies—the country’s democratic institutions held fast. And while there was no sharp shift in state policy comparable to Roosevelt’s New Deal in the U.S., Ottawa took some important steps, creating a national Central Bank in 1935, and a system of unemployment insurance a few years later. WW2 and the need to support the military effort then restored economic output to full potential, as factories churned out everything from bombers to bullets. The years that followed the war saw huge gains in living standards, relative political stability and a massively expanded role for the state.
Meanwhile, Argentina buckled. In a taste of things to come, the government was overthrown by the military in 1930. Five further coup d’états would follow in the coming decades, with the ensuing uncertainty acting as a severe brake on development. Today, democracy may once again be well-established, but the whipsawing economic priorities of successive administrations remain—just ask those who experienced both the neoliberal policies of the 1990s and the far more statist administrations of Néstor and Cristina Kirchner. The government’s credibility is still shot following two sovereign defaults so far this century. And politicians have proved ineffective at finding a lasting cure to the country’s economic and social malaise.
These contrasting fortunes extend to other key institutions. Take central banks: Canada’s was one of the world’s first to adopt formal inflation targeting in the early 1990s, and it has been highly successful at keeping price pressures low and stable ever since. Argentina, on the other hand, has suffered chronic inflation for decades. Attempts to introduce inflation targeting under President Macri failed in part because economic agents simply didn’t believe the Central Bank had what it took—even when the policy rate rose to over 80% in late 2019, elevated inflation expectations remained high.
- Hello world
Trade policy is the third key area where Argentina and Canada differ. In the decades leading up to WW1—known as the first golden age of globalization—both countries relied heavily on open international markets and demand from the United Kingdom to spur growth. But war and the Great Depression truncated this model, amid greater protectionism and the UK’s permanently diminished economic stature.
In response, Argentina committed arguably two strategic errors. The first was to initially double down on its bet on an ailing Britain, signing a treaty in 1933 which improved access for its beef exports in exchange for significant concessions. When this approach failed to deliver the hoped-for benefits, the second was an attempt to withdraw from the global economy under the premiership of Juan Perón, adopting a model of import substitution industrialization. Mollycoddled behind high tariff walls, Argentinian firms were ill-prepared to compete on global markets. While the economy has become more open in recent decades, trade policy retains a protectionist tilt, and measures such as export taxes and non-tariff barriers are rife.
On the other hand, Canada understood the changing of the economic guard, pivoting seamlessly towards trade with the U.S., which was emerging as the pre-eminent global power. Tariffs between the two nations were progressively reduced from the 1930s onwards, culminating in the signing of the NAFTA (now USMCA). U.S. firms invested heavily in sectors such as energy and manufacturing, and also provided a constant flow of technology and managerial expertise north of the border—vital for the development of Canada’s industrial base and services sector. The transformation in the U.S.’ role was as swift as it was stark: In 1900, only 14% of foreign investment in Canada was U.S.-owned; By 1955, the share was 77%.
Canada has also pushed an open trade agenda more generally. It was a founding member of the GATT, a trade accord created in the aftermath of WW2 which was eventually superseded by the World Trade Organization. Successive governments have clinched trade deals with important international markets such as the European Union, and Pacific-Rim nations under the CPTPP.
The result of decades of divergent trade policies is evident: Today, in Canada the average import tariff is a mere 1.5%, compared to 7.3% in Argentina, while exports as a share of GDP are almost double Argentina’s.
- The future
Neither Argentina’s fall from grace nor Canada’s economic prosperity were preordained. There was no one moment when the development paths of the two nations were irrevocably cleaved apart; no single awry government measure or economic mishap. Rather, an accumulation of divergent policy decisions over the last 100 years—some big, some small—has brought us to today.
In the same way, each country’s economic future is in its own hands. A spate of strong market-oriented reforms in Argentina could set the economy on a path towards re-convergence with developed nations: Indeed, the above-Consensus growth forecasts of a few panelists out to 2025 suggest they see at least some positive structural changes in the economy over the medium term.
By the same token, Canada’s future development is not guaranteed. The country’s foundations, much more solid than those of early 20th century Argentina’s, may play in its favor: Its political architecture is well-functioning, the economy diversified and the population well-educated. Yet if Argentina was able to go from being one of the world’s wealthiest countries a century ago to an also-ran today, there is nothing to say Canada couldn’t suffer a similar relative decline in the next 100 years.
The knowledge of both countries’ economic past—similar in so many aspects, yet with such radically different outcomes—should bring hope to those who believe economic instability is an inevitable feature of Argentina’s national landscape, and caution to any Canadians who may feel that success is assured. Only the policies of tomorrow will determine whether each economy has a vibrant future—the same vibrancy which encouraged millions of Europeans to cross the ocean in search of a better life, all those years ago.