The Exchange

The American Dream Is Alive and Well — in Canada

The Exchange

Quick: Name a wealthy, North American country that values self-reliance, individual freedom and personal ambition.

Sure, you could take the easy way out and say the United States. But you’d be just as accurate if you said Canada. In fact, new research shows the American Dream — the ability to improve your prospects through hard work, personal initiative and grit — is more vibrant in Canada than its native land.

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Most ordinary Americans know it’s getting harder to get ahead. And since the Great Recession that ran from 2007 to 2009, there’s been a growing body of economic research proving what millions of people see around them every day: The rich are getting richer, while the middle class is struggling and lower earners are increasingly falling behind.

Now, some new research helps explain what might be causing the growing gulf between the rich and the rest. In a paper published in the Journal of Economic Perspectives, Miles Corak of the University of Ottawa compared the way people get ahead in the United States with trends in Canada and several other nations. While nations such as Denmark and Sweden tend to have the highest levels of “economic mobility,” or movement between income groups, Canada turned out to be a good basis for comparison because the U.S. and Canada are culturally and economically similar. And in both countries, the share of income flowing to the top 1% of earners has soared since 1980 — though it has risen by more in the United States than in Canada.

More opportunity

Despite those similarities, the Canadian economy offers more opportunity to middle and lower earners than the U.S. economy does. Corak found, for instance, that boys born into low-income families were much more likely to end up in a higher income category in Canada than in the United States. And boys born into high-income families were more likely to slip down the economic food chain in Canada than in America, which means those born into wealth in Canada have to work harder to maintain it.

In America, by contrast, those born into poverty increasingly stay there. And some analysts worry that a kind of hereditary dynasty is forming among the top 1%, since along with concentrated riches, the wealthy tend to gain political power that allows them to perpetuate low tax rates and other policies favorable to them.

So why has the United States become less egalitarian than its neighbor to the north? It’s hard to isolate precise causes, and no, it's not as simple as "Democrats" or "Republicans." But Corak’s research suggests three differences between the U.S. and Canada that may help explain the lower mobility in America:

Less emphasis on early education in America. Education spending in the United States averages nearly $15,000 per student, which is more than every other developed nation except Switzerland. But the United States also targets much of that money at college students, with a much smaller portion going toward younger and especially disadvantaged students. In most other advanced nations, the proportions are reversed, with a strong emphasis on high-quality education from the start for the largest possible number of kids. U.S. education spending, Corak writes, “is allocated to make higher education relatively more of a priority, and in a way that is of relatively more benefit to the relatively advantaged.”

Fewer national-level social-support programs in America. In the United States, the media focus frequently on federal programs such as Medicare and Social Security, but many programs that help determine prosperity — especially education — are managed at the state and local level. There’s nothing inherently wrong with that, except that programs vary considerably from place to place and standards are inconsistent. In Canada, more programs are administered by the national government, which reduces the huge disparities in education quality that exist among U.S. school districts, and tends to make other programs more accessible. “The safety net in Canada is more of a trampoline than a net,” Corak said in an interview. “It helps people bounce up and you don’t have to sink quite so low to be caught by it.”

Canadians trust their government more. Canada, like most European nations, has a national health care plan that's more sweeping than Obamacare – with virtually none of the combative politicking that surrounds the soon-to-be-implemented health care reforms. That may be because Americans tend to feel their government does more harm than good, whereas Canadians have a more favorable view of their political leaders. Higher levels of trust in government up north may allow politicians there to enact more programs that foster economic mobility, while encouraging more people to participate in them.

For all its rough edges, Americans ought to keep in mind that statistics aren't destiny. Plus, the U.S. economy does still provide opportunities for people with good education, relevant skills and a determination to succeed. “There’s still a good deal of mobility in the United States for people in the broad middle,” says Corak. “What’s different is what’s happening at the two extremes.”

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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