I have thoughts and opinions. Surprise?
Hate to point this out, but diversification happens neither in a vacuum nor is it a modicum for economic stability and flourishing in and of itself. The two examples commonly used in providing remedy to Alberta include Manitoba and Ontario, neither exactly centres of Canadian economic success in recent years. Nor is this the first time Alberta would have tried diversifying; the seventies were full of capital expenditures and companies being purchased to improve Albertan economic diversity (remember Pacific Western Airlines? Your kids won't), and it failed. The eighties and nineties were full of pushes for the "Albertan advantage." It was great for oilfield derived industry and even created some newer, smaller sectors over time.
Failed in delivering significant diversification. Indeed,
there is no shortage of folks pointing out past failures to produced diversification, both now
and then. This isn't a new idea, it's not innovative, nor has Alberta been particularly successful in various fashions over 40 years of trying to figure out how to diversify our economy, meaning it's not particularly helpful. That columnists presume we should continue failed panacea is disappointing in the least, since it paints diversification as a problem of Albertan's will and not as a problem of historical reality.
It's even stranger in my view when people bring up diversification in reducing the share of the pie that is resource related. If the suggestion is not to reduce the oil economy but instead expand other sectors in contrast to it, it begins with the presumption that there is an excess of employable capacity to begin with, and some great amount of available economic capacity just waiting to be used elsewhere. It also presumes that there are sectors that could outgrow the energy industry across decades to retain that proportional slice of our economic pie. If you grow 4% but oil grows 8%, you'll be bigger, but our economy will be less diverse. Oil and gas are big in our province and as a direct result most new migrant workers from the rest of Canada and the world tend to be in relative fields when they arrive. We have a limit to just how many homes and condos can be built to house all these new workers, and how many people can even successfully move to the province to begin with. Most with skills end up in related fields. The most successful businesses are going to be those related to oil fields. There is a limited amount that fields can grow outside of a behemoth that neither Alberta nor the rest of Canada wants to slow down, especially since Ontario's expectation that manufacturing will grow with a lack of oil prices
hasn't materialized. A fact
that Ontario's government really needs to pay attention to after years of trying to keep various sectors of their own ailing economy afloat.
What it means is that, during boom times, for Alberta to be the most successful, we inherently end up with the most successful business buying out more of that economic capacity, and give bigger returns. Even those successful peripheral businesses which do exist in Alberta once again become a smaller part of the pie as a highly successful industry grows further. Any correction for diversity has to be large enough to withstand such powerful booms to retain a larger slice of the pie. Without a massive amount of available capital and labour, Alberta won't be able to swing out of that like other energy centers that have. We don't have a massive population like Texas, and we see capital transferring out of the province for remittances and various transfers at prestigious rates. It says something however that our more economically "balanced" neighbours will continue to be net recipients from a weakened Alberta.
There's also physical realities that Alberta has to deal with. Provinces sell what they have.
Alberta has essentially three sectors that Prentice will focus on; energy (26+%), agriculture (2%) and tourism/culture (5%) (values from above CBC article quoting StatsCan). Already this should show just how problematic a presumption of easy diversification is, when what we are looking to is a troubled agricultural industry and a tourism industry that essential falls into WEM/Stampede/Banff/Jasper. Strategies for how to diversify these industries, or indeed even grow them into anything to counter the behemoth on the balance sheet, are missing in action from most suggestions being offered. We have a lot of oil, wheat, cows and nice looking mountains. Guess what we can sell?
Which brings us to the next tier of suggestions, often from the same people, suggesting diversification strategies that tie directly into energy. Why not, suggests our premier, invest a ton of money into energy research (to the tune of 2.27 billion dollars) in the hopes of changing our current energy-based economy? Building a thought economy would be great; building it around a sector we're trying to diversify from is not, but it's what expertise we have in spades. Others suggest we refine oil at home, or
work on building service sectors for energy, as if those will not be tied to the same fate with world oil prices or that the latter doesn't happen organically. Even suggestions relating to how to encourage entrepreneurs falls into the idea of "
let industry guide it," as if the majority will not end up going after niches in a roaring energy sector.
Andrew Leach (Doctor of Economics, U of A) basically
speaks the truth when he says that governments don't do well at building new sectors of the economy. Energy royalties would have to be used to build a whole new sector if successful, further distorting our balance sheet. Such investment forces us to risk losing our "Alberta Advantage" and what benefits it does bring to current Alberta industry. We have a small tech sector and a renewable sector but neither show growth the same to the oil industry, which keeps it's piece of the pie.
We also have to deal with competing arguments for what to do. Diversifying our economy won't be helped if new sectors are taxed more heavily, and suggestions to raise the corporate tax to cover the revenue gap directly harm the capacity for new sectors to develop and our current sectors to grow, inclusive of those that could improve diversification. Others suggest taxes, fees or structures that bigger companies can more easily absorb but causes other sectors to struggle, like general sales taxes, significant wage hikes and so forth. Politically, the oil sands are hobbled by inaction in BC, Ontario, Ottawa and the USA, while various groups float ideas that could damage the one source of revenue Alberta has to bankroll any such diversification, whether through avoiding tax increases like corporate taxes or through taxing what industry we do have harder at the federal level.
At the end of the day, a lot of Albertans look at numbers and notice they aren't that bad. We have had incredibly low average unemployment through boom and bust compared to our neighbouring provinces. Diversity of economy there has not improved employment rates, nor economic robustness. Any existing tips are coming from economies which continue to function in a less economically successful situation than Alberta even with the oil slump.
In my own conclusion and opinion, sure, Alberta needs diversification. Saying so doesn't make it happen, nor have popularly suggested mechanisms for how to get there had the staying power in the past. Any diversification we achieve will eventually become a smaller piece of the pie as the energy economy rebounds and we end up back in our starting situation. We should, however, still support growth of new companies and industries, even if it won't lead to diversification, in my view. In line with that, I usually end up agreeing with
bootlegga; we should be putting extra money into a fund for the future and focusing now on making sure volatility pays into that fund in the good times but doesn't detract from it in the bad times. My stance is that to meet these goals we should slash corporate taxes (which makes up only roughly 10-12% of government revenue) and de-flatten our income taxes/cut some spending (although considering infrastructural frailty I'm not sure that's a viable solution to retain current standards of living, nor do Albertans in general according to that budget poll want major sectors cut) to make up the current shortfall, and perhaps a highly focused sales tax on certain goods or services that don't lend well to entrepreneurship. Federally, we'd have to lobby for a reduction in transfers expected from our coffers to help with this, which would be in the long-term interest of provinces dependent on oil exports for some revenue (I doubt any significant amount could be gleaned from this) or hope more political capital can be used to move our oil so we don't depend on a discounted rate to Americans (unlikely to change provincial stances). Albertans can sustain this longer than other provinces could and I think we will have to if we want to divorce our government and welfare from resource volatility in the long-term.
Maybe one day we will be a big enough population and consistently open economic capacity to successfully diversify, but I don't think we are going to be there for a long while. For now, it should be no surprised that organically Alberta will trend towards energy revenue as we specialize like most regions of Canada do.
Just my thoughts, interpretations, opinions and remembrances at midnight anyway.
CKA Moderator 
CKA Uber 
CKA Super Elite 
) advice being given by people from BC and Ontario on how to run a provincial economy remains endlessly hilarious.
