Economics

Redistribution of Luck: Making Sense of Our Circumstances and The Powers We Hold

I grew up in a little house in the neighbourhood of Pinheiros in Sao Paulo. It was a modest house my parents leased from my grandparents up until I was 11. It was a lovely region, full of bars, shops and concert houses – but despite all of that it was also a dangerous part of town.

I have very vivid memories of being afraid of the outside. My parents had been robbed many times in those streets and once they even had the house broken into by two armed thieves while they were home. Brazil is a country of two nations – a Modern Brazil that resembles the life of North Americans and Europeans; and the Real Brazil, one where people don’t have enough to eat and must live by the decisions of Modern Brazil (which most often don’t reflect the realities of 90% of the population).

Growing up I always wondered what did I do to deserve being born in Modern Brazil. Did my ancestors claw out poverty and discrimination by sheer hard work and power of will, or were we simply lucky enough to have been born into a household descendant of Europeans in the west end of town?

I’ll never have the answers to these “what if” questions, but in seeking to understand history, moral philosophy and economics I was able to fill in some gaps.

Serendipity

After turning 16, I embarked in an exchange program to Canada. The whole idea was to sharpen my English and be exposed to different cultures and ways of life. This entire experience was only possible due to the kindness of the host mom I so luckily happened to be paired with. She treated me like a son and assured my parents that, even though I was 10,000 kilometers away from home, they did not have anything to worry about.

As the years went by, I was able to stay in Canada, gain a scholarship to play basketball in college, graduate university, and start a career that enabled me to live in different parts of the country. Things were working out better than I could have ever wished for. And so my childhood question about serendipity burned even stronger.

The more I travelled, read and talked to people from different walks of life, the more I realized that my life was rather unusual. Sure – I worked hard to achieve my goals and stuck to my values of living an honest life, but none of that would have been possible without a basic foundation that was totally outside of my control that most people around the world can only dream of. Not once have I ever had to worry about not having enough to eat, a doctor to take care of my health when sick, or access to education (among many others).

These are things that the developed world often takes for granted. The very fact that I can read and write this sentence in English automatically gives me access to more books, more papers, and more services than 6 billion people around the world could only dream of. And all it takes is a few Google searches to quickly realize how my income puts me in a far more fortunate position than the vast majority of the globe.

So, if hard work and natural talents only pay off in the face of opportunity, and opportunity is only available to a select group of people in the world by sheer luck of the straw, how much of my personal success can I confidently attribute to my own doing versus where and when I was put into this world?

How would have my life played out had I been born in Real Brazil?

Effective Altruism

For a long time I contemplated how I could give back the fruits of my labor and serendipity in the most impactful way. And so this past year I was exposed to Peter Singer’s philosophy of Effective Altruism that completely changed my perspective on the concept of charity.

In Essays in Philosophy Volume 18, Issue 1 (2017) Effective Altruism: IntroductionWilliam MacAskill defines Effective Altruism as:

“…the project of using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis. […] Its aims are welfarist, impartial, and maximizing: effective altruists aim to maximize the wellbeing of all, where (on some interpretation) everyone counts for one, and no-one for more than one. “

ESSAYS PHILOS (2017)18:1 | DOI: 10.7710/1526-0569.1580 

And so a community of Effective Altruists was born around this idea and platforms were set up to facilitate the engagement of regular folk like myself to contribute in any way they can. Websites such as effectivealtruism.org and givewell.org make giving a lot easier by having a team of experts evaluate the most effective charities around the world and allocate funding based on where your dollar will save the most lives. The concept of Effective Altruism “Mutual Funds” were invented and automated deposits made it that much easier for anyone to get involved.

So, what if you could live a life in which you saved someone from a burning building every year on top of your day job? Effective Altruists have figured out how to do just that.

The Against Malaria Foundation estimates that a mere $3,000 will save someone from dying of Malaria. A bed-net costs as little as $5, and that will effectively protect a child from dying of a disease responsible for killing over 400,000 people every year.

But you see, giving money for Malaria bed-nets isn’t as rewarding a partaking in toy drives, food banks and personal volunteer hours in your local community. The “immediate feedback” of doing good (familiar faces smiling and thanking the donors) is a lot harder to recreate when solving the biggest causes of suffering in the world – specially when they’re happening thousands of miles away from your doorstep.

And to make matters even harder, publicly talking about your altruistic efforts to others has become taboo – your true intentions behind the good deed will come into question. But as Sam Harris, in his conversation with William MacAskill, put it – speaking about your efforts to give back can inspire others to do the same. 

2020 has opened our eyes to many things; one of them being how fragile the human existence truly is and how together we can change the course of history for the better. For so many years we’ve grown protective of our achievements and ways of living. All of that is badly estimated. Much of who we are, what we do and how we live is largely circumstantial. The fortunate ones have the duty to help elevate the tide for all boats. 

And with that I am challenging you, the reader, to embrace your serendipity and join me in this endeavour. 

Begin your journey by committing 1% of your income to making the world a better place for all here: 

effectivealtruism.org or givewell.org

PPA

My Thoughts on the State of the World Today

Important note: all opinions below are my own, and do not reflect the ultimate truth. As more evidence emerges, these opinions will continue to be re-iterated in my never-ending search of getting closer to that ultimate truth.

As of the day of this writing, the world finds itself in a critical tipping point in a number of fronts. A global disease threatens the lives of millions, exposes the fragility of the systems created in the 20th century that have shaped our way of life, and forces us to change at breakneck speed in order to adapt to a future that is still uncertain in just about every angle you look at it.

Series of events that led us here

Information flows are the oxygen that fuel our modern knowledge economy, one that relies in radical transparency and thoughtful disagreement in order to effectively evolve. However, fast-forwarding to the American presidential elections that happened in 2016, the reliability of journalism started to erode as social media ad and content targeting took place on platforms such as Facebook, where campaign managers actively explored voters’ online data tracing to target and convert them with the help of consultancy services from UK-based firm Cambridge Analytica. The scandal reached its boiling point when the CEO and Founder of Facebook, Mark Zuckerburg, had to testify before the Congress of the United States on April 11th of 2018, exposing how unprepared, confused and uneducated the regulators in government were as it related to the new realities of the world.

This loose summary of recent political events led to where we currently find ourselves today: a polarized political environment due to the rise of populist political agendas across the world that undermines the trustworthiness of journalism, science and information leading to alienated citizens and ineffective mechanisms of collaboration between the public and private sectors, while threatening the state of modern democracy as we know it.

The world today is more interdependent than ever before due to globalist policies, increased travel, and interconnected supply chains. These changes have successfully grown the pie instead exclusive individual pieces, proving that the global economy doesn’t have to be a zero-sum game. Since the year 2000, the number of people living in poverty has been reduced in half as the role of developing countries in the global economy raised from 33% to 48% as of 2019. However, with the rise of populist regimes across the world (e.g., USA in 2016) we began to see the introduction of additional tariffs on international trade, closing of borders, and international conflict increase as a form of false reinforcement to its scared citizens that their country is taking action to care for them.

Finally, as the fears of global warming begin to become more real, the future of the energy sector is forced into a generational transformation towards sustainable forms of renewable energy that countries around the world find themselves at different stages of the journey. With the volatility of oil prices around the world increasing, profitability of extracting, moving and selling this commodity becomes uncertain, while countries take measures to increase the incentives on the research and development of new technologies in the renewable arm of the sector while introducing policies (e.g., carbon tax) to reduce the usage of fossil fuels and encourage the transition towards greener sources.

All of these recent changes in the political, economic and social spheres have been pushed to its breaking point when the SARS-CoV-2 was officially declared a global pandemic on March 11th of 2020, leading to a series of domino-effect consequences felt across the world. As of April 11th, most countries have officially entered “Economic Depression-status” where unemployment rates and stock market losses reach double digit highs.

What role do governments need to play

As the virus began the spread, we saw countries react differently: some immediately closed their borders, others cancelled all travel, others placed their citizens under mandatory lock down, and more. At the time, “what” to do was still not well understood and in hindsight we now know that the sooner the country took lock-down measures the lesser the impact on their health systems and economies.

However, due to the novelty of the virus and how it behaved, paired with the specificity of the demographics of each country, the data on fatality and contagiousness was not very reliable. It ranged from 0.2% (South Korea) to 10% (Italy) mortality rate, as the speed at which governments reacted and the age of the population played major factors on determining the number. Since humans aren’t very good at understanding exponential curves, a lot of countries assumed everything was OK when they only had a few hundred cases growing very slowly, even comparing this virus to a “normal flu” or H1N1.

These were irresponsible comparisons (since these people weren’t looking a fatality rate % nor length of time, only at absolute numbers of cases and deaths) that led many to believe this wasn’t a big deal and in turn exacerbated the curvature of the trend.

So, once the markets started to crash, people’s retirement savings began to disappear into thin air, companies’ cash flow statements began to dry up and millions were getting laid off, people were looking to their governments for help – rightfully so. As the multi-billion (and in some cases, multi-trillion) dollar aid packages started to be announced it was clear that the new socio-economic realities of the 21st century demanded governments to change. In a world where we mandate people to self-isolate to stop the spread of a virus, many simply cannot do that as they depend on their next pay-check to cover rent and to put food on the table. Conversations about a UBI (Universal Basic Income) started to sound more realistic in the face of such new realities.

Many people criticized their leaders for sending money abroad to support developing countries in the fight against COVID, without fully understanding why or the relative size of these packages. In Canada, Ottawa pledged $150 million dollars to the WHO (World Health Organization) as a foreign aid package to help combat the virus in refugee camps in Greece and other developing nations. To put this money into perspective, this only amounts to 0.5% of the domestic aid package offered to Canadians (which amounts to $27 billion CAD as of the date of this writing). And from a social responsibility perspective, if we don’t stop the spread in the developing world Canadians will never see this virus go away as it will continue to spread globally even after First World nations successfully beat it domestically. So, pledges such as these are absolutely necessary in the fight against a global pandemic.

In order for lock-downs to work and for countries to successfully beat this virus, it won’t be a domestic fight. It will require global cooperation among countries to mobilize and free up resources to the locations most in need. The virus does not discriminate, so unless we are willing to help each other we will see far more deaths than necessary.

What does this mean to the economy as we know it

Three days before COVID-19 was deemed a global pandemic, Saudi Arabia started an oil price war with Russia leading to a 65% quarterly fall in oil prices in the span of a few days. This was a double gut punch for those regions where economic activity is strongly tied to the price of oil. In turn, further polarization about the industry took place and massive lay offs happened overnight.

Many regions in the world have non-diversified oil economies, which leads to cyclical patterns of economic activity. As an example, in Canada the province of Alberta possesses roughly 10% of the world’s oil reserves. This has led the provincial governments to double down on the industry preventing its local economy from diversifying itself. This type of policy has exposed its people to three major weaknesses that further perpetuates economic fragility:

  1. A boom-and-bust economy that has major impacts in people’s abilities to retain a job over longer periods of time;
  2. Retaining talent that does not want to work in the oil industry, forcing many to leave the province, and;
  3. Entrepreneurs having little to no incentive in opening up non-oil businesses (tech, for example) in Alberta as tax break incentives are removed and applied to pipeline building projects.

When you look at Alberta’s energy grid, 91% of it comes from fossil fuels (43% coming from coal), whereas provinces such as Ontario and Quebec heavily over index on renewable sources. This is not to say that relying on fossil fuels isn’t economically the right thing to do for Alberta (although, questionable when speaking about a sustainable future), but based on the federal government’s tax break incentives for renewable energy usage there are clear advantages for business owners to source their electricity from renewable sources.

However, believing that we can successfully run a sustainable circular economy one day may also be misleading. As Vaclav Smil (scientist and policy analyst from the University of Manitoba) puts it in his book Growth: From Microorganisms to Megacities:

“Modern economies are based on massive linear flows of energy, fertilizers, other agrochemicals, and water required to produce food, and on even more massive energy and materials flows to sustain industrial activities, transportation, and services. Circularization of the two key flows is impossible (reusing spent energy would require nothing less than abolishing entropy; reusing water used in cropping would require the capture of all evapotranspiration and field runoff), and (with the exception of a few metals in some countries) high-intensity (>80% of total flows), mass-scale recycling of materials (above all construction waste, plastics, and electronic waste) remains elusive.”

But this is not to say that innovation couldn’t solve for any of that. It just remains highly unlikely that we will ever get there in any reasonable amount of time unless a massive spur of innovation fueled by huge amounts of capital investment begin flowing into creating solutions for such issues – which the world is no where near the place it needs to be in order for that to happen.

Now, from a pandemic-induced economic breakdown perspective, the short term pain of COVID-19 inevitably will be felt across every country and every level of the economic systems. In order to prevent complete chaos, governments have had to issue massive aid packages so people who have been laid off can continue to pay rent and put food on the table. This money isn’t lost money, as it’s being re-injected into the economy by these very people when they complete a transaction. However, these aid packages mean governments are having to print more money and are now offering close to zero percent interest loans to businesses so they can keep people on the pay roll. This cycle is inflationary in nature and we should expect currency devaluation and more volatility in global trade as a result.

Most recently, hedge fund manager Ray Dalio gave a interview on the TED Connects program about the future of the global economy. He sees what’s happening in the economy today and draws direct comparisons with the 1929-33 Great Depression, when the US saw unemployment rates reach 25% and GDP decline by 30%. Dalio, who predicted and successfully dodged the 2008 market crash by investing in bonds without credit risk, currencies and gold, thinks the impact of COVID “freezing” the economy will force us to rethink the way capitalism currently operates as we understand the need of government intervention and social safety nets in a 21st century new world order.

What will the “new normal” be

Reinvention of systems isn’t something new. Looking back in history this has happened many times. When there is collapse of the world order people come out of it more united and hopeful of a new future, and a new world order that requires reinvention and evolution from the old one emerges. The latest example of this being after World War II.

The idea that the profit system can accomplish everything has not proven to be right, because resource allocation goes to those who have the resources. For example, in our current system those who belong in the top 40% of household wealth spend 5x as much money in their kids’ education than those in the bottom 60%. This system is self perpetuating, reinforcing the funneling of capital and opportunity to those who already possess it in the vast majority of time.

But don’t get me wrong, I believe capitalism works but there comes a time when it needs reform. We should not be able to only grow the size of the pie, but we should also be able to divide it well. Otherwise the people lose faith in the system as the vast majority of them get left out of the benefits from participating in it.

The amount of wealth in the world remains roughly the same over time. The only way to increase value is through innovation and learning – both of which increase productivity (ability to create more with less). Investment in health and education are two of the best decisions any country can make in order to achieve that (studies show a positive correlation between additional years of education leading to longer lifespans). Sadly, we still see many countries (such as the United States) where basic health care isn’t available and education still remains an elusive idea due to the massive amount of money required to get one.

Massive transformation will also need extend to the way businesses’ organizational charts, incentives and key performance indicators are structured. What has become known as “Community Capitalism”, is an emerging business model that caters to the needs of a 21st century society. As the relations between consumers and enterprises change due to advancements in IoT (Internet of Things), the feedback loop has been shortened and so has consumer loyalty. In the past, customers were “one-time” buyers, but with the birth of the sharing economy (think Uber, AirBnb, Spotify, etc.), these same customers will need to become life-long users. And in order to effectively make that happen, organizations will need to restructure the way they collaborate with other stakeholders – which in this case could be other internal teams with conflicting priorities or even external companies that play in the same arena (think of a fridge manufacturer implementing IoT capabilities now having to collaborate with a data cloud company, the success of both depends on each other’s success). And the disruption doesn’t stop there: companies’ value offerings will need to be widened to the value they bring to the wider community – interesting ways some have been able to achieve that is by creating internal banks to provide favorable mortgages to staff.

So, a post-COVID world will give birth to a new consumer: one that’s scared, underemployed, with less assets and more socially conscious. Both service/product providers and employers will need to think of news ways to fulfill these concerns. A more fertile ground for social-entrepreneurship will also emerge.

Why am I optimistic about where we go from here

On the paragraphs above I expressed my concerns and thoughts on a number of changing fronts that are happening in society today. Although the COVID-19 pandemic sparked my desire to write this, the transformations I described are far broader than the health and economic crisis sparked from the virus itself, and in many cases were happening long before the outbreak.

Despite humanity finding itself in a key turning point for the future of its existence, I am an optimist at heart and believe we will get more things right than wrong. As seen in the past, when humans resist change for too long, a series of events eventually change humans against their will. This pandemic seems to be an example of the latter.

Recently, we’ve seen many organizations realize that the work they were asking their employees to do from the office was actually doable from any other location in the world. We’ve been forced to reflect about the need to measure input (hours worked) as a function of output (productivity). And in many cases we’ve learned that most can produce more in less time, whereas some need more time to produce less. This is a fundamental paradigm shift to the one that was introduced after the industrial revolution, where factory workers’ time spent on the manufacturing floor was directly correlated to their value added. In a knowledge economy of the 21st century, this no longer holds true and we are being pushed into questioning the fundamental assumptions that we’ve held our entire lives regarding the relationship between life and work.

We’ve also seen an outpour of gratitude toward frontline workers (nurses, grocery shelf stockers, truck drivers, and many more), which make up the larger part of the essential work needed to keep our societies running. This came as a breath of fresh air, as historically these workers have been undervalued and even marginalized by the holders of power in society.

However, one thing hasn’t changed: the human need to connect with one another. This fundamental need for human love has been displayed in heroic acts of kindness by people helping each other in times of distress. Whether by video chatting with someone going through mental health issues, or by donating your money and time to those in need, or by businesses offering free meals to those in the frontlines keeping the world turning, the very nature of being human has been put on center stage in every corner of Earth in the midst of this pandemic.

With that, I have faith that as a collective we will persevere, as we have many times in the past in the face of insurmountable challenges. By letting our very nature guide us through all of these changes, humans will design a future worth looking forward to, one where everyone has a role to play and a dream to aspire to.

 

PPA

 

Sources:

Why is China No Longer a “Sleeping Giant”

Napoleon Bonaparte once pointed at China and said: “There lies a sleeping giant. Let him sleep! For when he wakes, he will shake the world.“.

China is a giant that has awaken

China is a giant that has awaken

When you think of economic powers the first countries that come to mind are: USA, the EU (European Union) as a block, India, and China. You have probably noticed that I’ve left South Africa, Brazil, Russia, and many others out of the equation. That is because I believe these countries most likely will not become global powers within the near future due to their inconsistency to deliver economic results (which is due to many reasons that range from commodity dependency to political corruption).

Looking back, the same countries seem to have held the top spot in the largest economy in the world ranking for centuries:

Year Country
1-1500 India
1500-1888 China
1888-present USA
2020-onwards China?

Although the world economic dynamics has changed dramatically in the 20th century (with the birth of the Internet), by looking at the past and analyzing current trends in the world it is reasonable to make certain predictions.

China currently has the largest population in the world, it holds the largest trade balance in goods surplus, the largest foreign reserves, and is quickly becoming one of the most important sources of foreign investment. All of these observations point at the same direction: China is well on its way to take away USA’s global power belt.

Most people would agree with that statement, however, very few could explain why.

China’s Strengths

Population

Up until 1520, India had the largest population in the world, until China took over and has been on top since then. Although population size represents a significant factor when determining a country’s global power strength, it can work against you if it is not properly controlled. And that is what happened to China, when they decided to implement the “One Child” quota throughout the country in 1979 – pushing birth rates to fall from 5.5 in the 70s down to 1.6 in 2012.

There was way too much poverty and the country was consuming alarming amounts of energy – although they continue to experience those same symptoms today. The policy was intended to alleviate social, economic, and environmental issues; however, it has caused some new problems in return. China’s population is aging, with the 25-54 age cohort representing nearly 48% of the population – in contrast with the 0-24 cohort representing only 32%. They are not replacing themselves.

Young Chinese are feeling the push and pull of family duty as they deal with aging parents. This puts a constraint in their productivity and well being.

With that, population-wise, India is forecasted to surpass China by 2030.

So, China’s population supremacy has been a two-sided sword, causing both benefits and damages to its development. But as of right now, they do possess an immense work force that willing to put in long hours, what has led China to grow its economy dramatically over the past few decades – currently second largest in the planet.

Gigantic Economy

China has a predominately goods’ – rather than services – economy. As of 2012, China had the largest trade balance in goods surplus in the world by a large margin, with Germany coming in second place – that is, when a country exports more than imports. With an increasing amount of foreign investors dumping money into Chinese companies and multinationals opening HQs in China’s largest cities, the giant of the East has proved to be a tempting place to bet your money on.

Here’s a quick overview of manifestations of global powers in the world over the centuries:

1800s-1914 1945-1990s 2000s-present
Largest Economy China until 1888, then USA USA USA (soon to be China)
Largest Trading Country UK USA China
Dominant Reserve Currency Pound Sterling Dollar Dollar and Euro

Economists forecast that China’s GDP will surpass USA’s by 2020. This is due to a changing level of play in the economic field. The effects of globalization have really benefited China, who until the 2000s had a tough time integrating its upsides with the Western world. But today, with the Internet so easily available and flights going in and out of China on an hourly basis, it has become much easier for the Chinese to offer their services to the Western economic powers.

China’s Drawbacks

Open ocean access

If you look at the global map you might notice that China does not have direct access to any ocean. Although this might seem trivial, it limits China from freely having maritime commerce, open ocean commercial fishing, and a significant navy force.

China's limited access to the ocean presents some serious economic drawbacks.

China’s limited access to the ocean presents some serious economic drawbacks.

If we look at the USA, they have direct access to the Atlantic, Pacific, and Arctic oceans. Off-shore oil drilling and goods’ exportation are only two of the many benefits the Americans experience with their geographic location. The Chinese, in the other hand, are limited to land.

This type of restriction forces the Chinese to maintain good diplomatic relationships with their land neighbors. Aside from India – which has become a strong economic partner of China over the past years leading to the so-called “Chindia” – most of the neighboring countries are economically poor, forcing China to feed the Western world with what it has to offer.

Currency convertibility

Before 2009, the Chinese government prohibited almost all export of currency or its usage in international transactions. The US Dollar – which, as of this day, still is strongly tied to the Yuan’s value – was the currency used to perform such transactions. So, with Chinese people unable to have US Dollars and the international community unable to hold the Yuan, all transactions were made through the People’s Bank of China, leading to a lot of bureaucracy.

In June of 2009, the Chinese government started a program that allowed certain places to utilize the Yuan for international transactions between certain countries, removing the hassle of converting everything to US Dollars beforehand. Nowadays, all Chinese provinces are allowed to do the same, however this type of trade is only available between certain countries: Russia, Vietnam, Sri Lanka, Thailand, and Japan.

This type of limitation ends up restricting the usage of the Yuan, which in turn ends up having little reserve currency power.

Conclusion

To determine a country’s global power we must look at more than just economic and military factors – and the ones discussed above are just a few of them. There are two types of power resources: hard power and soft power. Hard powers are factors such as the country’s economy, territory, population, military, and finance. Soft powers are things such as knowledge, technology, and culture.

China clearly has a strong economy, currently the largest population on planet Earth, a large military, and a territory the size of the USA. However, its soft powers are weak compared to the ones of developed nations. Most of the strongest universities in the world are in the USA, Japan, and Europe – China has only 3 universities in the top 100. Technological R&D follows the same pattern.

But, Thomas Friedman once said: “When I was growing up, my parents told me, ‘Finish your dinner. People in China (and India) are starving’. I tell my daughters, ‘Finish your homework. People in China (and India) are starving for your job.’.

Don’t be fooled by their limitations. China has changed a lot. But so has the economy. I hardly believe that one single country will dominate as global power from here and on. With a much “smaller” world today, a single country cannot do anything on its own. We are already seeing a shift in mentality on how things are done economically, and this new way of thinking will be easily translated onto how global governance operates, as well.

 

PA

 

Should U.S., Canada and Mexico merge into one?

Stephen J. Dubner, in Freakonomics Radio, has recently done a podcast where he explored the possibility of merging the U.S. with Mexico into one gigantic country. It was a 55 minute podcast where an immense flow of ideas came in and left American listeners with this hopeful fantasy of being able to have the best guacamole in the world for cheaper than ever.

NAFTA Logo

NAFTA Logo

In the other hand, one day I was looking for a new book at Chapters and I stumbled upon a book named The Merger of the Century by Diane Francis, where she discusses why Canada and America should become one country.

Now, as we have been hearing on the news lately, with Catalonia pushing for independence from Spain, California trying to split itself into 6 states, Scotland trying to become an independent sovereign state, and more, why not unify and become a super powerhouse? East and West Germany is a perfect example of why this is possible.

Here I will discuss the potential upside and downside for each of the North American countries, politically, economically, and socially, and why this is not a feasible idea.

Political

The American political system is something that not many people understand very well. Basically it is divided into a judiciary branch, which interprets the Constitution, federal laws and regulations; the legislative branch, which is vested in the two chambers of Congress, the Senate and the House of Representatives; and finally, the executive branch, which is headed by the president and is independent of the legislature.

U.S. Capitol - Legislative Branch

U.S. Capitol – Legislative Branch

Canada, in the other hand, is a constitutional monarchy that has a multi-party system and a legislature that derives from Great Britain’s Westminster Parliament.

Finally, Mexico is organized in a system that is somewhat similar to the U.S., with executive, legislative and judicial branches organized into a federal representative democratic republic.

Bringing Mexico and Canada into the equation would require some large political restructures for everyone. The U.S., being the larger country, would probably impose their system and begin electing Senators for each of the new states incorporated. Canada would need to detach completely from the U.K. and divide itself into democrats or republicans. Mexicans would more easily adapt into the new system.

Passing new bills, restructuring the new legislative system –  Canada and the U.S. derive from Common Law, with the exception of Quebec and Louisiana which, alongside Mexico, derive from Civil Law – would be harder than ever. Can you imagine the confusion this would cause to businesses and people?

Would we then have one single president who would rule the entire continent of North America? How would we determine whether he/she should be from Canadian, American, or Mexican descent? How about the changes in languages that Quebec has so hardly fought for through the implementation of the Bill 101? Would we not require ex-Mexicans to learn french and english in school? What kind of super citizen would we be breeding by mashing together all these different cultures and expecting them to become a single one?

And I will not even touch on how the militaries would unify, because this is a whole different ball game.

The bottom line is, regardless of how different these systems are, and the fact that this new gigantic country would be trilingual, this change would costs trillions of dollars and a restructuring that would take decades to be implemented, slowing down the growth of this country and potentially putting it in a hole impossible to get out of.

Economic

The benefits that businesses would get from this unification would probably be the only positive thing out of this merger.

Mexico has one of the strongest automotive industries in the world. Ford, GM, and Chrysler have been operating there since the 30s and nowadays it produces a lot of the technologies we see in our cars. Alongside the automotive industry, Mexico is the 6th largest producer of oil in the world. Their tourism is arguably the strongest in North America, being the 8th most visited country in the world with over 20,000,000 tourists per year.

Canada is as natural resources rich as Russia and is U.S.’ largest importer of oil. From the oil sands in northern Alberta, to the unexplored oil reserves in the Arctic Sea, to having the largest coast line in the world, the nation is an economic power house with a shortage of workers.

The U.S.’ financial markets account to nearly 45% of the world’s market and has an immensely diversified economy. From the tech hub located in the Silicon Valley, to the off shore oil explorations in Louisiana, to their internal real estate dynamics, the country represents 22% of the nominal global GDP, being the strongest economy in the world.

If these three countries unified, the final result would account to a GDP of over $20.6476 trillion.

But how beneficial would this unification really be? By summing up the numbers everything indicates that it would be a great idea, however we need to take into account the different legislations that govern these economies, which allow them to flourish in the way they do.

The different currencies would present an issue

The different currencies would present an issue

The North American Free Trade Agreement (NAFTA) was created for the strengthening of each country’s economy without interfering with the way the countries are ran. Since the dynamics of an economy are highly tied to the country’s politics, changing the internal legislation of each nation to accommodate this North American merger would affect a lot more than just the economy. What about the currency? The Canadian dollar is lower than the American right now, and the Mexican peso is worth nearly $0.07. How would this new country compensate for the financial shift that would occur?

That is why NAFTA is such an asset to these countries, because it allows them to become a trilateral economy (free trade and exchange of workforce with TN Visas) without compromising their independence and currencies.

And let’s not forget about the darkside of Mexico. The cartels run large drug trafficking operations from South America (where they get a lot of their drugs) all the way to the U.S. (who are their largest consumers). Although the DEA works hard to keep things in order in the Southwest (Braking Bad will show you exactly how), becoming one gigantic country would enable drug lords to move illicit drugs across North America with much more ease than ever before, now that they don’t need to go around borders anymore.

Therefore, the economical upside isn’t as good as we would have thought, since there already is a great agreement in place that allows these three countries to operate in a trilateral economy.

Social

The social changes from a merger would be unimaginable.

Canada U.S. Mexico
Population 35.16 million 320.05 million 122.33 million
Area 9,984,670 km2 9,857,306 km2 1,972,550 km2
Unemployment (%) 6.4% 5.9% 5.2%
GDP per capita $40,588 $50,859 $16,143
Life Expectancy 81 years od 79 years old 78 years old
Water System Excellent Excellent Poor

From looking at the data above we can conclude a few things:

  1. Canada has a lot of uninhabited land
  2. The U.S. has an immense amount of people (who make good money)
  3. The average Mexican makes barely enough money to pay rent

Now, with all the immigration issues that the U.S. has with Mexico, it would be safe to say that once these nations merged, a large chunk of the Mexican population would migrate to the U.S.’ current land to look for jobs. The Mexican work force is a lot younger than the U.S.’ and is used to get paid a lot less. This would bring the minimum wage down across this new gigantic nation, bringing down with it the GDP per capita.

Americans would not be very happy about that, and would start moving up to Canadian lands to work in the oil sands (more than they do now). This increased workforce competitiveness would increase the unemployment rate in the northern part of the territory and Canadians would not be happy about that.

A few Canadians would then move down to warmer regions, such as Arizona and California, and eventually move back after suffering from severe sun burns.

Jokes aside, this new nation would cause an immense amount of inland migration leading to severe impacts on unemployment rates and lowered average income, causing the nation to collapse. Plus, the government would need to find a way to standardize and restructure Mexico’s water treating system.

Another big issue to consider is how would this new nation deal with the elderly. Nowadays, Connecticut pays for a large amount of elderly compensation across the U.S., whereas poorer states, such as Mississippi, need a lot more compensation than other states. Bringing in Mexican retired people, who live under the American poverty line, would require this new nation to compensate the southern territory with larger retirement checks, leading income taxes across the country to sky rocket.

Finally, these are only a few of my social predictions from this unification, and I am sure that there are a million other scenarios that we could think of that would lead to a million more, and so on. The bottom line is, merging these three countries into a single one with a population of almost half a billion people would require a lot of governmental changes to compensate for the inequality that would result from this.

Plausible Solution?

Mexicans are very proud of their culture and are not willing to melt into a single nation identity. Canadians are on the same boat, they are proud of the maple leaf and would never want to unify their hockey team with the Americans’ (I cannot imagine Mexicans playing hockey, I’m sorry). So the Americans are standing in the middle with their hands in the air thinking: what do we have to gain from this?

The North American Union would be extremely large

The North American Union would be extremely large

One possible dream that Mexico’s ex-president Vicente Fox proposed on Freakonomics Radio was to create a union, such as the European Union, where countries are independent but people do not need a passport to move around the continent or live somewhere else.

This would be called the North American Union and would potentially bring a lot of benefits to the continent. However, Europe has shown us that it is not all sunshine and rainbows; when one country struggles, the others suffer from it too, leading to inland migration to the countries that are doing well, increasing unemployment rates, and so on. The repercussions from such a Union would be somewhat similar to a merger.

Dreaming is fun, but maybe things should just remain the way they are.

 

PA