Alberta’s moves to diversify ignore impact of the oil patch

(Larry MacDougal/THE CANADIAN PRESS)

This column originally appeared in The Globe and Mail on April 25, 2013.

His company is just the thing Alberta needs – a local sportswear designer and producer. In an economy dominated by the oil patch, his 50-person manufacturing business seems to bring some welcomed industrial diversity.

But when asked about his intentions for capital investment in the coming year, his answer caused my jaw to drop: “Well, that depends on where oil prices go.”

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The reason is that 90 per cent of his customers are Alberta’s corporate oil and gas producers and drilling service providers. He manufactures the golf shirts and windbreakers emblazoned with corporate logos, handed out at the Calgary Stampede and Alberta’s endless golf tournaments. When oil prices plunge, the first things to get cut are the free golf shirts.

So much for diversification.

Alberta’s economy can seem like a house of cards – remove the energy card at the bottom and it might all come crashing down. Programs in the 1970s by which the provincial government established and owned diverse companies didn’t really work out. Neither did the “Alberta Advantage” in the 1990s; low taxes and level playing fields were popular with the business community, but it’s hard to argue that they enticed diverse industries to move here.

The quest for economic diversity in Alberta is almost an obsession. How can we move away from being completely dominated by the energy sector? How can we generate more value-added industries? And how can we get off the boom-and-bust roller coaster?

But in the spirit of journalist Amanda Lang ’s latest book, The Power of Why, the question shouldn’t be how, but why? Why does Alberta’s economy need to diversify?

The answer isn’t so straightforward.

The province with the most nicely diversified economy in Canada is Manitoba. It’s a mix of heavy manufacturing, agriculture, resources, financial services and hydro utilities. Still, I have never heard one Albertan say, “Gee, I wish we could be more like Manitoba.” (No disrespect for the Keystone province: It was one of the few provinces to avoid a recession in 2009. Its economy never booms and never busts. It’s less roller coaster and more kiddy-train ride – and no one ever gets sick on the kiddy train.)

Some would argue that economic diversity would pave over the fiscal potholes that Alberta’s government suffers. A more predictable revenue stream – one not so dependent on the price of oil and gas – would be fantastic. Yet that is already within the province’s reach. Putting more resource royalties into savings and limiting spending to non-resource tax revenue solves the problem. (Sales taxes are tremendously predictable. Just saying.)

Some look for diversification to prevent the ups and downs in the labour market. Of course, it’s the downturns that we don’t like. But it has been nearly two decades since Alberta’s unemployment rate hit an uncomfortable 8 per cent (August 1995). Is fluctuating between 3 per cent and 7 per cent really such a hardship? Greece would scoff.

While energy dominates Alberta’s economy, there has been a tremendous growth in diversity within the energy sector. In the 1980s, conventional crude was the only show in town.

Today, it’s conventional crude, bitumen, unconventional oil, natural gas and gas liquids – all of which have different supply and demand dynamics. That alone has smoothed a lot of the economic vagaries.

I’m not against more economic diversity in Alberta, but diversity for diversity’s sake isn’t enough. It’s important to constantly ask: Why diversify?

I once spotted a cheeky T-shirt that made me laugh with its sarcastic call for action: “Stop Plate Tectonics!” Of course, we can’t stop the shifting movement of the Earth’s crust. But we can build better cities, and preparedness programs, to mitigate the worst effects of earthquakes.

Maybe it’s the same for Alberta. Maybe the effort to artificially diversify the economy is folly. Maybe the best we can do is prepare for the ups and downs and continue to build diversity within the energy sector (Hello? Renewables?). And as we always do, hope for the best.

Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.