Is Canada's pension system contributing to its misery?
The country is investing as if it's still an export nation. However, since it's not in fact anymore, this approach drains the domestic economy of capital much needed to generate growth and prosperity.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
TLDR Summary
Canada hasn’t been running material trade surpluses anymore for almost two decades, mainly because of depressed oil prices. This requires a change in its macro strategy. Most importantly, rather than deploying trade proceeds as investments abroad, they should attract capital to be invested domestically.
However, policymakers don’t seem to have received the memo. Canada is acting like it’s still an export nation. Its C$700bn public pension plan is proudly investing almost 90% of its net assets abroad. If Canadians themselves are unwilling to bet on their own country, how are foreigners supposed to do so? The result is a productivity crisis with an abysmal economic performance, both in absolute terms and when benchmarked against its potential.
Running an export model vs. running an import model
In terms of its international trade strategy, a country can choose between two models: and export model or an import model. Both come with certain advantages and disadvantages and they benefit different types of people. Politicians will typically choose a model based on economic circumstances and preferences of their voters.