This paper examines the political economy of Canada, particularly the question of why Canada's economic performance has so persistently lagged behind that of the United States. It argues that this shortfall cannot be traced to values and choices arising out of a unique Canadian "political culture," as is conventionally assumed, but instead is the consequence of poorly designed institutions. These institutions directly benefit powerful interest groups in Canada and are thus explicable in Public Choice terms. Nevertheless, they are under strain as the underlying social reality of Canada cannot be suppressed indefinitely. One symptom of this is the bilateral free trade agreement recently negotiated between Ottawa and Washington, D.C. Copyright 1988 Western Economic Association International.