Economic Outlook 2017- Conference Wrap

Economic diversification has been a major challenge for Alberta policy-makers for at least half a century.  Indeed going back to the days of Ernest Manning’s Social Credit administration, the support for pipelines and the oil industry was a means of diversifying away from agriculture commodity production.

In the afternoon panel, Gil McGowan, President of the Alberta Federation of Labour, Martha Hall Findlay, President and CEO of the Canada West Foundation, and Trevor Tombe from the University of Calgary spoke to the challenges of economic diversification. McGowan was recently appointed as Co-Chair of the Economic Diversification Advisory Committee with a mandate “to engage Albertans and explore opportunities to increase the value of energy resources, create jobs and attract new investment. This includes such value-added ideas as partial upgrading, refining, petrochemicals and chemicals manufacturing.” McGowan began his presentation with a quote from the late Premier Peter Lougheed who in 1974 had also pushed a diversification agenda.

Image result for Gil McGowan
Citing polling data, he observed that the concept of adding value to raw resources is easy for the public to grasp. Indeed, the absence of any job losses in the “downstream” sector (that is refining, processing and petrochemicals) demonstrates that a value-added strategy makes sense. In supporting the case for government assistance to bring major investment in processing to Alberta, the AFL president stated that practically all refinery complexes throughout the world enjoyed some form of government support, whether that be roads, feedstock guarantees, or tax holidays.
Trevor Tombe is an Assistant Professor at the University of Calgary and Research Fellow at the School of Public Policy. He began by saying that the trouble with the notion of economic diversification is it is rarely defined as a precise goal. What is it that the government is trying to achieve? Is it more “good jobs” or less economic volatility or less volatility in government revenue,  or in economic output?  Should not government policy aim to support economic activities where Alberta has a clear comparative advantage? Citing recent research by Robert Mansell which examines a measure of labour market diversity, Alberta by one measure is more diversified than Ontario and Quebec.  However, other measures show that in terms of GDP volatility or employment volatility, Alberta is closer to other resource provinces such as B.C., Saskatchewan, and Newfoundland and Labrador.
A key difficulty for economists and policy-makers in assessing the case for any expenditure to enhance social or economic well-being is the “opportunity cost” of not doing something else. As Professor Tombe noted, instead of the recent announcement to forego up to $500 million in royalties to bring new petrochemical projects to Alberta, what about the merits of an across the board income tax cut; corporate income tax cut; or increases to day-care programs.(see Petrochemical Announcement.)
Ms. Findlay, a former Liberal M.P., noted that economic diversification is usually talked about when times are tough- she would encourage businesses and governments to consider the topic when times are good. She cautioned policy-makers and decision-makers not to chase the “shiny things.”  Rather, companies and governments should support locally-known economic opportunities, such as “Agtech.”
Image result for Martha Hall FIndlay
She emphasized that with a new American administration lowering costs of doing business, especially in the energy field, “Canada got a lot more expensive – and the U.S. a lot less expensive.” Looking on the bright side perhaps, she observed that the empty office towers in Calgary might be a good way to attract business.
During the question period, Findlay made a convincing case for innovative regulatory approaches.  Instead of government regulators rejecting innovation in their industry (the Uber case was cited), regulators should be seeking new ways to regulate in a rapidly changing competitive environment. Tombe and McGowan debated the question of whether there is evidence of “market failure” that would support the case for government intervention. McGowan basically argued that barriers to entry in these industries are high and since every government is attempting to lure investment, Alberta policy should follow.
Avi Lewis’s speech was entitled “The Economic Case for LEAP Manifesto- A Canada based on Caring for the Earth and One Another.”  In a disarming and amusing manner, Lewis spoke about the personal attacks he endured as a “downtown Latte socialist” from Toronto at the April 2016 NDP national convention held in Edmonton. Noting the manifesto was the product of extensive consultations by anti-poverty, indigenous, and labour groups, its guiding principle is a call for social justice.
The Leap Manifesto calls for an “industrial transformation” to address, among other things,  climate change, income inequality, and living conditions for our First Nations. Mr. Lewis also stressed that the Manifesto calls for a halt to new, not existing, energy infrastructure. This industrial transformation is based on building renewable power projects, strengthening local control over energy infrastructure, enhancing public infrastructure, including public transit, and vastly improving energy efficiency in dwellings.
In making the case for meaningful action on climate change, Lewis referred to work done by the Insurance Bureau of Canada on the rising cost of climate change being imposed on the property and casualty industry.  In the United States, Freddy Mac, a large mortgage insurer is concerned that people with homes along coast lines will start leaving their mortgaged homes en masse.
Lewis then returned to what he called the “grand bargain” that was expected to be agreed to by first ministers in Ottawa the next day (9 December).  The bargain consists of the approval of various energy projects (a tripling of the existing TransMountain pipeline; a doubling of the Clipper pipeline project, and the approval of the Petronas LNG project in B.C.), the introduction of minimum national carbon price; and a l phase out on coal-fired electricity by 2030.  Mr. Lewis calculates that if Canada wishes to meet the Paris commitments made by Trudeau (to lower carbon emissions by 200 megatonnes), these measures will only get the country to 10 per cent of the goal. Of concern to Lewis is that if these projects go ahead, and if Canada wants to meet its targets, then the burden will fall heavily on the non-carbon-intensive segments of the economy to reduce carbon emissions thus setting up a very divisive political fight   (Go to a report by David Hughes Lewis cites- January 2016 Parkland Institute report.)


The first take-away for me is the conclusion that Alberta is really a by-stander.  We do not make our history; rather we react. Alberta’s economy in the 1930s was decimated by events taking place in world capitals and financial markets, which caused grain prices to collapse and provincial finances to implode. In 1973 and in 2007, OPEC’s emergence and the financial crisis, respectively, were external shocks to Alberta’s economic system.  Even more recently, the technological changes leading to the oil price plunge of 2014-16, were shocks to Alberta’s political economy.

This leads to a second point- the backwash into Canada of the Trump victory and his unabashed ability to sow divisions with every tweet he makes. Avi Lewis alluded to Trump’s genius (?) to persuade blue collar workers to vote against their class interests. Trump has clearly tapped into a deep distrust, perhaps paranoia, mainly among rural Americans, Americans with a distrust of government, and those whose employment security has been threatened. Hilary Clinton, by ignoring these concerns and omitting to propose real change to the political system (gerry- mandering, term limits for Congress, restrictions on elections for judicial office), confirmed she was seeking power, not public service.

So Albertans will be hearing more about “competitiveness” with the Trump cabinet trying to reverse environmental protections and reducing corporate tax rates.  Watch for the Trudeau and Notley government to come under assault from business groups advocating Canadian jurisdictions to follow suit. While these measures are not a “slam dunk,” the shift towards tribal thinking and away from the desirability of polite, democratic discourse will cast its shadow northward.

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About albertarecessionwatch

Former Director, Institute for Public Economics, University of Alberta and currently Fellow of the Institute. Former executive with Alberta Treasury Branches. Worked for the Alberta government for 12 years with Federal and Intergovernmental Affairs and Alberta Treasury. Areas of focus: financial institutions legislation and policy, government borrowing, and relations with credit rating agencies. Ph.D in Political Science (Uof A), Masters of Public Administration and BComm. (Carleton University). Author of Politics and Public Debt: The Dominion, the Banks and Alberta's Social Credit. Presently working on study of Alberta provincial agency board appointments.

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