Business

The economic advantages of life in a cold country

There are economic advantages to living in a cold country, writes Don Pittis.

Europeans suffering from Canadian-style weather this week might be wondering whether it is worth living in one of the world's richest regions. Obviously, a lot of Canadians think the same way.

The people on the radio were giving out shrill warnings as I got ready for another year back at work this week. "Bundle up," they said. It was –12 C rising to –6.

Even in the banana belt of southern Ontario, this is not remarkably cold for January. Nonetheless, there are a lot of people who don't like chilly weather. So why, you might ask, do people from nice cozy countries that Canadians visit for winter vacations move north to endure Canadian and European winters?

A few might come because they like the idea of wilderness and lots of skiing. But not many. The obvious reason people come to Canada, and the main reason they stay, is because of our economy. Even during downturns, there are jobs. And for those who stay and have children, there are all the benefits of a rich-world economy: health care, education, high-skill employment. 

Northern attraction

As I travel to work on the subway, I am surrounded by people who could easily be somewhere warm. Instead, all of us are bundled like Russian peasants because we believed the guy on the radio. We are all perspiring freely. At least one of us is spending the time thinking about what it is that makes cold countries rich and hot countries poor. 

The rule is surprisingly general, and in many ways counterintuitive.

Hot equatorial countries have more sun and thus more solar energy. In theory at least, their agriculture should be more productive. More sun means more crops, more growing power. Life there should therefore be a lot cheaper. Even as far north as the sub-tropics people can survive without the cost of heat or insulated living space. Without the work of building and heating, there should be lots of surplus human resources to build a rich society. 

But that is not the way it tends to go.

Of course, there are exceptions. Among cold countries, Russia and other Eastern European states are not so rich. But that is after decades of mismanagement under Communist rule. Their economies will likely take decades to fix.

There are also exceptions in the south. As of 2008, tropical Singapore and subtropical Hong Kong — with wealth per person of about $52,000 US and $44,000 US, respectively — did better than Canada's $39,000 US, according to the CIA World Factbook.

But in general, the rule seems to apply even across cultures. Japan, Korea, Northern Europe, Canada, the United States, New Zealand, Australia — cool and more temperate regions of the world — prosper. In South America, Chile and Argentina aren't economic superstars just now, but they are in the top 100 and better off than many of their neighbors. Obviously, political culture and social rules play a role.

In my family, we tend to go north for our winter holidays. We spent this Christmas in Saint-Ferréol-les-Neiges, Que. Yes that is "les neiges" as in "the snows." The town profits from snow because of the nearby Mont-Ste-Anne ski resort. But it also struck me one year, when the snow piles were well above the ground-floor windows, that snow powers the entire Quebec economy. It collects without evaporating through the winter months until the spring melt sends it down to the power dams to make Quebec's cheap electricity.

And herein lies one of the arguments for why cold countries tend to be rich. Smaller populations share huge resources. Whether hydroelectricity, forests, frigid farmland or mineral resources, a meagre few million Canadians sit on a multi-zillion-dollar resource pile. And even if we don't own it personally, we benefit from the economic activity of processing and selling those resources to the world.

A completely different reason for why northerners are rich has been suggested by Jared Diamond, the author of Guns, Germs and Steel. He credits the cold with killing germs, giving cooler countries a long-term advantage over the disease-ridden south.

Diamond also suggests that wealth has gradually moved north due to human despoliation. He says the original, warmer, breadbaskets of the world were first to be exploited and first to be environmentally destroyed. In the more humid north, soils were more resilient.

Climate

Another strong argument for northern wealth is the climate itself. To survive here, each person needs a lot of things. In economics, things are called capital. 

I remember during a visit to Mumbai (then called Bombay), I saw people raising families with very little capital. At night, sidewalks, streets and every bare piece of land were staked out like blankets at the Edmonton Folk Festival. A blanket became a bedroom where a whole family could sleep.

In Canada in winter, that would be impossible. In northern climes, people need clothing and buildings and the fuel to heat them. We need systems for providing clothing, building materials and fuel. We need systems for storing food from season to season. To keep animals (for food), we need even more capital to house the animals and store a winter's worth of fodder. The colder the climate, the more those thing are needed. They are not luxuries; they are necessities. The alternative being death by freezing.

Some poor people do die from freezing. Certainly in Russia, it has become a significant killer in a shrinking population. In rich countries, it doesn't generally come to that. But by politics, personal effort and community support, the threat of imminent death keeps levels of capital per person in cold countries high.

Another way of saying it is that in cold countries, population is limited by a high minimum level of distributed wealth. And wealth distribution, where every member gets to participate in the economy, is what keeps countries thriving and rich.

If warm places like Vietnam, Brazil and the Congo can eventually figure out alternative ways to distribute wealth, maybe they, too, will become rich. It seems to be working in Taiwan, Malaysia and Singapore.

But so far, we cold-weather countries have a leg up. Even if you are the type who endures winter rather than enjoying it, recall that it might well be winter that keeps you rich. As we head into Canada's season of chilliest weather, it is a good thing to remember, something to smile about while waiting for a Winnipeg bus.

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