The Brain Drain Is Also Exodus Of Entrepreneurial Talent

In his seminal Economics in One Lesson, Henry Hazlitt wrote that bad economists present their errors to the public better than good economists present their truths. Appearing recently on Counterspin, economist Jim Stanford of the Canadian Auto Workers, bolstered Hazlitt’s observation. Indeed, when Stanford, who regularly champions economic wrecking balls like government regulation and spending, took the seat opposite John McCallumn, Chief Economist for the Royal Bank, there was little question as to which of the two was the better man. It’s not that McCallum has exciting observations; he only just issued a warning about precipitously declining per-capita income in Canada. But he, at least, did not join Stanford in claiming the brain drain was fiction.  

In that, Stanford dovetails with PM Jean Chretien and the Canadian Association of University Teachers which self-identifies its membership as “some of the brightest minds in Canada.” Incidentally, the concept of cognitive dissonance is useful in explaining why the likes of Stanford, the PM and the CAUT deny the brain drain: Assuming someone has been selected for the team but it is not you, depending on your degree of personality integration, you can either accept you don’t measure up, or deny that a selection has taken place. The feeble will deploy self-deception to ward off the tension of cognitive dissonance.  

It so happens that Stanford’s dismissal comes at a bad time. Last week, my husband left for a high tech company in Washington State. I stay put for now; cantankerous scribes, like bad economists, are not in high demand south of the border.  

To the pull factors: It’s not so much the wage offered by the U.S. company, although the greenback is preferable to our pesos, and being on the cutting edge is enticing. Neither is it the stock options and the lucre of an initial public offering. Granted, these perks are decreasing in Canada due to high tech disinvestment, but they are still to be had. For those with the Protestant work ethic, the competitiveness of U.S. companies is heaven on earth, but that’s not it. You can, albeit with difficulty, get all the above in Canada. But you cannot keep the proceeds. Leaving is the only way to shed the Sisyphean Canadian tax burden.  

The Nanny State wants to deal with the defection of individuals by offering collective pacifiers in the form of R&D grants and subsidies to companies, or, at the most, some loose change–as the imminent budget will bear out—as personal and business tax relief. It refuses to respect pure unadulterated individual acquisitiveness, namely, the right to keep what is yours.  

Federal industry minister John Manley has finessed the role taxes play in emigration by offering the half-truth that taxes in Silicon Valley are similar to those in Ontario. Indeed, in what is one of the highest taxed US states, a high earner may have a marginal tax rate of about 45 percent.  

What Manley conceals is the flexibility of the U.S. tax system. As a colleague, who recently mailed from the Valley explained: A mortgage, property taxes and dependants make up considerable tax deductions. The upshot? He takes home 74 percent of a hefty wage. What shift of logic then induced the Canadian Taxpayers Federation to write that “making mortgage interest payments tax deductible” is “dumb public policy,” as it creates “an entitlement no government could ever scrap.” This provision was available to Canadians, but it was scrapped. Besides, since when are tax reforms to be evaluated by their rescinding properties?  

Down to brass tacks: In Washington State there are no state taxes. Purchase a home–an unachievable feat in Vancouver–and the total tax burden can whittle to about 23 percent on a 6-figure income. Medical insurance is reasonable considering the absence of backlogs and waiting lists. Juxtapose this with giving the Canadian government 49 percent of earnings once pension fund, unemployment insurance and personal taxes are confiscated, to say nothing of forfeiting the lion’s share of company stocks when these are cashed in.  

In terms of the net worth of the human capital we transfer to the U.S., we are not recovering our costs through immigration. True to its mandate, StatsCan has ignored the U.S.-bound drain by failing to tally temporary NAFTA visas. These account for 90 percent of the exodus and are routinely converted to permanent residence.  

Doubtless, the nattering nabobs will continue the wholesale dismissal of Canada’s departing sons and daughters on account they don’t embody “Canadian values.” Theirs, however, is precisely the kind of unbridled individualism lacking in Canadian society.  

©2000 By Ilana Mercer
  The Calgary Herald
  February 25