Why Calgary will not become Detroit on the Bow

Special to The Globe and Mail
Published Friday, Jun. 12, 2015 

Burned out buildings. Abandoned neighbourhoods. Whole blocks of urban terrain, bulldozed and turned over to nature. Could this be Calgary in 30 years?

It seems hard to imagine that Canada’s fastest-growing business city will become the Detroit of the North in a few decades. But even before this year’s economic downturn, Calgary has been compared to Detroit in very unflattering ways. Both cities seem addicted to one industry – in Detroit it was automobiles; in Calgary, petroleum. Because of this lack of diversity, some predict Calgary will go the way of the Motor City.

While the comparisons are hard to ignore, the contrasts between Calgary and Detroit are even stronger. Unlike Detroit in its heyday, Calgary has always been a highly entrepreneurial city. The image of “the Alberta maverick” is folklore in this province. Plucky oil barons in the 1920s, with nothing more than optimism and a huge appetite for risk, built Canada’s petroleum industry out of nothing. A whole wing of a major Calgary museum is dedicated to them.

Empirical evidence shows that Alberta’s entrepreneurial tendency is no myth. In fact, Alberta embraces small business more than almost anywhere. And that will go a long way in preventing long-term economic demise.

The recently released 2014 Global Entrepreneurship Monitor calculates how pervasive and highly valued entrepreneurs are in 24 innovation-driven nations. The “total early state activity” rate (TEA) is a gauge of entrepreneurship based on several measurable criteria. The report focuses on the importance of entrepreneurship in promoting four key goals: economic growth, job creation, sustainability and quality of life.

Canada and Australia are essentially tied for second place in the world. With a score of 13.0, Canada ranks very closely behind the first-place Americans who scored 13.8. Other countries of the world perform quite poorly. With scores of 4.4 and 3.8 respectively, Italy and Japan rank as the least entrepreneurial places in the industrialized world. (This could partly explain their stubborn economic stagnation.)

The rankings of the Canadian provinces are particularly striking. Alberta was in top spot with a TEA score of 18.1 – almost a third higher than the top-ranked United States. British Columbia came in second place with a score of 17, while both Ontario and Quebec placed close to the Canadian average.

While it’s not quite statistically correct to compare national and sub-national rankings, the general conclusion is that Alberta is one of the most entrepreneurial places on Earth. It’s also the key ingredient for a city wanting to avoid a Detroit-style economic death. We don’t have data for Detroit in the years before its decline, but it isn’t a stretch to believe its degree of entrepreneurship was lower than Calgary’s is today.

The joke in Alberta goes like this: What do you call an unemployed Calgarian? Answer: a consultant. There’s a long tradition of unemployed oil and gas workers becoming self-employed consultants, picking up contract work here and there (often with the companies that laid them off), or partnering with other recently unemployed peers to strike out and start something new. This is why, nine months into an economic downturn, Alberta’s unemployment rate remains well below the national average. Self-employment is counted by Statistics Canada as “currently working.”

The nature of Detroit’s auto sector made this impossible. Unemployed middle-aged workers in Detroit, with nothing more than a high school education and 25 years on an auto assembly line, cannot become consultants. They can hardly take the skills and knowledge they’ve learned in the industry and strike out on their own. To put it bluntly, they’re doomed.

It’s true that most of Calgary’s consultants probably wished they had not lost their jobs. They are almost certainly earning less money, and will actively seek permanent employment with a company when energy prices rebound. But out of the seeds of today’s entrepreneurial efforts will grow new companies, stronger and better and more resilient than ever.

Calgary still has a problem with its dependence on petroleum. But the entrepreneurial spirit is alive and well, showing that the city’s labour market is remarkably adaptable. Sitting at home moping is not in the DNA of out-of-work Calgarians. They don’t wait for opportunity. They create it.

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