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Australia and Canada are one economy, but they have some flaws

IF Australia and If Canada were one economy, this “Ozanada” would be bigger than India and the fifth largest economy in the world after Germany. Thinking about the two in parallel isn’t as crazy as it sounds. Weather aside, they have a lot in common. Both are vast tracts of land, relatively sparsely populated, and home to dangerous wildlife. Both are (mostly) English-speaking of Charles III. Both export rich natural resources to the planet. And both are attractive to immigrants.

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Their business world is much the same. Australian financial group Macquarie is the world’s largest infrastructure investment manager. Canada’s Brookfield is runner-up. Just as Canada has carved out a niche for hoodies and other winterwear, Australia has similarly produced a number of top surfwear brands. And, of course, both are home to commodities giants. But the main thread that ties Ozanada Inc together isn’t so compelling. Rod Sims, former head of Australia’s competition watchdog, says Australian businesses have “forgotten how to compete”. So does its Canadian counterpart.

In recent years, many have fought over the American oligopoly. But next to Ozanada, the world’s largest economy looks like a paragon of perfect competition. Coles & Woolworths, Australia’s largest supermarket, sells 59% of all food, according to research firm GlobalData. Loblaws and Sobeys sell his 34% of Canadian grocery stores, more than the combined share of the top four American grocery stores. In both Australia and Canada, the Big Four hold three-quarters of domestic deposits, compared to less than half in the United States. Both countries have a duopoly in domestic aviation and a triopoly in telecommunications. The list goes on.

Some of the explanations for Ozanada’s oligopolistic tendencies are instructive. A small economy cannot support a small number of companies in many industries if a company needs to be of a certain size in order to survive economically, for example, to be able to afford the necessary investments in computer systems. There is a possibility. But Oxanadian national champions, especially grocers and financiers, are significantly more profitable than their U.S. peers. It points to another, less sinful cause.

The two countries’ toothless antitrust laws set a high bar to block a merger and allow it. Lack of openness to foreign investment does not help. Of the 38 members, OECDOf these, only three are less open to foreign investment: Iceland, Mexico and New Zealand. Strict screening, ownership caps, and various other hurdles make it difficult for foreigners to set up shop in Ozanada. In 2013, Egyptian telecoms tycoon Naguib Sawiris vowed never to invest in Canada again after aiming to buy Manitoba Telecom Services’ fiber-optic network.MTS), the Canadian airline was rejected by the government with little explanation. 4 years later MTS Local rival Bell Canada bought it in its entirety.

All of this may reflect a unique Ozanadian interpretation of the “resource curse” that has brought political instability and underdevelopment to resource-rich countries in Africa and South America. Ozanada’s natural bounty weakens the incentive to build globally competitive industries elsewhere. This may explain why the list of successful Ozanado multinationals beyond household goods and outdoor apparel is so sparse. Canadian banks have a little tread in the US, but they are still small. Indian life insurers are doing just a little better south of the border, largely thanks to big acquisitions. Vegemite, a controversial Australian spread, has yet to win over foreign sandwich lovers.

Ozanada Inc’s limitations are particularly acute in cutting-edge technology. Products such as computers and medicines, considered “high-tech” by the World Bank, account for more than 7% of his total global exports. OECD But only 4% in Canada and less than 2% in Australia. Only 5.9 patents were granted in Canada and 6.7 in Australia per 10,000 population, compared with 9.9 in the United States and 28.2 in South Korea.

This is not due to a lack of a well-fed brain. Ozanada is home to world-class universities and boasts one of the highest tertiary enrollment rates in the world. OECD. Rather, the problem is an innovation system that is in short supply. Spending on research and development is only 1.7% and 1.8%. GDP Canada and Australia, respectively, OECD 2.7% on average. Total venture capital investment in Ozanada will stand at just $16 billion in 2022, about half the level of the UK. Australia’s tech successes Atlassian and Canva and Canada’s Shopify haven’t sparked much new hope for the next generation of tech winners.

sleeping animal spirits

To Ozanadians, this may all seem academic. After all, America is the only country with more than 20 million people that is richer. But once upon a time they were richer than Americans. His first decade of the 2000s was soaring with commodity prices, GDP The amount per capita, in dollar terms, briefly surpassed the United States in the early 2010s. And the fortunes tied to demand for commodities could be particularly precarious in the coming decades.

Canada, which relies on oil and gas exports, could be held back by decarbonisation. Australia will be isolated to some extent by vast reserves of copper and other minerals needed for the green transition. However, it may suffer from its dependence on shipping goods to China. In 2020, China began to introduce restrictions on Australian coal, timber and other products in what appeared to be retaliation for the then-Australian government’s call for an investigation into the origins of the novel coronavirus disease. Australia has weathered these restrictions, which have since been eased, surprisingly well. But as many economists now expect, a long-term slowdown in China’s economic growth will weigh heavily on the country. Ozanada’s economic model is not about to collapse. But over time, a company’s weaknesses can reappear and suffer.

Read more from global business columnist Schumpeter:
Why tech giants are trying to strangle AI in a bureaucratic waye (May 25th)
America’s Culture Wars Threaten Single Market (May 18th)
Striking writers beware: Hollywood has changed forever (May 10th)

Also: If you would like to write to Schumpeter directly, please send an email to: [email protected].And here is explanation About the origin of the name Schumpeter’s Column.

https://www.economist.com/business/2023/06/01/australia-and-canada-are-one-economy-with-one-set-of-flaws Australia and Canada are one economy, but they have some flaws

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