In October, I wrote a column for Alberta Council of Technologies concerning diversification. [Tech Notes] In posts covering the Economic Outlook 2017 put on by the Economics Society of Northern Alberta, a summary of the panel on economic diversification was provided. The debate, in essence, pitted Gil McGowan who supports more government intervention to foster more value-added, commodity-based production with economist Trevor Tombe and Canada West Foundation CEO, Martha Hall Findlay, who judge that the market is the best to allocate capital.
My column sketched the “inglorious history” of economic diversification in this province. The Don Getty years were perhaps the height of poor investments but Peter Lougheed’s Heritage Fund investments in Prince Rupert, Vencap Equities, and support for Canadian Commercial Bank were, in hindsight, poor investments. Efforts to diversify the economy have generally held a back seat to the energy industry especially when the industry falls on tough times. In the Getty era, energy royalty holidays were brought in to kick-start the industry, and this policy has been followed to some extent by the NDP government.
My conclusion was-
“I have absolutely no answers to this conundrum. Well maybe three. First, history teaches us that reliance on extracting one (or two) internationally traded, and largely undifferentiated, commodities is not a viable economic strategy for the long-term. As a consequence, government policy should be always tilting away from the dominant industry. Investment managers call this portfolio re-balancing or hedging your bets. Second, don’t bet the farm on big “greenfield” projects. Think small and prove your product or service. This may be the recipe and be patient. Third, there is enormous capital (private and public) that sits idle for a long time. The sharing economy is taking off as under-utilized cars (Uber) or homes (Airbnb) are being put to use. Alberta governments and businesses sitting with so much under-utilized physical capital need to devise innovate ways to rent out this capital.”
After one month outside Alberta visiting New Zealand, I am more convinced that Alberta’s future success may be through the economic development of its communities by exporting renewable products and sustainable services. One of the major exports in New Zealand is tourism. “International tourist spending accounted for 16% of New Zealand’s export earnings (nearly NZ$10 billion). International and domestic tourism contributes, in total, NZ$24 billion to New Zealand’s economy every year.” In addition, milk products and lamb are significant contributors to New Zealand’s economy. These businesses are not highly capital intensive,but they do produce meaningful work that can be sustained.
Small businesses seem to prosper. New Zealand’s cuisine is fabulous throughout with fresh produce from land and sea. There are very few fast food outlets. The bed and breakfasts we stayed in were all viable small businesses producing gainful employment for the proprietors. While there were a number of international chains operating, notably in the petroleum industry and telecom, a variety of shops, locally owned, appeared to do a ready business.
Virtually every small town sports an Information Centre for tourism usually staffed on a volunteer basis. These centres assist tourists in booking tours and accommodation. Small centres build off their comparative advantage whether it be the art deco downtown of Napier, the late 19th century main street of Oramau (as big as Los Angeles in the 1880s), or the wonderful downtown tour of Christchurch offered by volunteers. In addition, museums in spots like Rotorua (built on the site of an old spa), Wellington, Waitangi, and Christchurch offer excellent perspectives on Antarctic expeditions, geological history, and Maori- Settler treaty relations.
Steam Punk HQ in Omarau
A final thought on economic diversification. Electricity is central to every developed economy today. Cheap, reliable, renewable electricity will become more critical to the success of modern economies. As more economic activity gravitates to the Web and through smart phones; as Artificial Intelligence and robots automate routine jobs; as 3-D manufacturing alters the nature of industrial production; electricity becomes the lifeblood of economy activity. The success of the Ontario economy up until 1990 relied, in part, on the Ontario Hydro power system providing relatively cheap and reliable electricity. This is no longer the case and this fact supports the importance of thoughtful and innovative government regulation of the electricity market.
THe federal Liberal budget promised more investment into the Artificial-Intelligence/Deep-Learning sector. The articles below: one by UofA’s Dean of Science, Jonathan Schaefer in the Globe and Mail and by David Turpin, UofA’s President, illustrate the importance of the scientific and commercial intelligence to economic development. Schaefer laments the loss of human talent to other jurisdictions while Turpin promotes the importance of more investment in university research.