Resource curses, West and East


Ex-Colleague Coyne has an excellent column on the emerging political split between the resource-extracting parts of the country and the sentimental nationalists who think every drop of bitumen and chip of timber sent abroad makes baby Jesus cry. I noticed one snippet, though, which goes to show how even the most trend-aware and detail-oriented columnist (that’s what he is!) can be held prisoner by persistent images of the past:

Whatever its merits or demerits as policy, [the mix of economic nationalism and environmentalism found among the NDP leadership candidates] amounts to ceding the resource-producing areas of the country to the Conservatives. Once, that might have been thought to mean Alberta. Today it means most of the West—the richest, fastest-growing parts of the country. Increasingly, it will mean Newfoundland and Nova Scotia, too.

Will mean? Newfoundland’s economy is probably already more resource-dependent, and particularly oil-dependent, than Alberta’s economy has been at any point in its history. For fiscal 2011-12, non-renewable resources provided 27% of the Alberta government’s own-source revenues. In Newfoundland the corresponding figure is 46%. Here’s how the shares of total industrial GDP earned by mining, oil, and gas stack up over the last ten years in the two provinces:

Mining-oil-gas GDP/industrial GDP, Nlfd. & Alta., 2000-10

You may not realize that the energy dependence of Alberta has been in secular decline for at least 20 years now, with occasional price-driven upticks. I have to laugh when I imagine people who think of Alberta as a glorified sheikhdom getting in line to buy Mass Effect 3. A policy of “drill, drill, drill” doesn’t, on the Alberta evidence, turn everybody into drillers; but there is still a mysterious fear afoot in Canada that hewers of wood and drawers of water can’t possibly have children who become airline pilots or particle physicists.

There is a related argument, often heard here, that Alberta should be socking away more of its public revenue from non-renewable resources for the future, the way Norway does. But it’s not at all clear to me that it is smart for a non-sovereign jurisdiction that doesn’t control its borders to “save” for a totally different future populace. To be honest, it sounds a little bit like a con. Alberta’s economy began “diversifying” fairly rapidly at more or less the exact moment politicians stopped talking about centrally planned “diversification”. Centrally planned permanent “investment” of resource revenues seems somewhat likely to have the same quality.

When politicians want to spend current revenues on health and education, they’re quite happy to refer to that as an “investment”. Yet some of these same politicians would starve health and education of resource revenue today so that some of it can be used later when the “oil runs out”. As if our biggest problem right now weren’t getting that landlocked oil to market, so we aren’t left wallowing in it when technological progress eventually destroys the demand for oil and gas.

That’s the fear that keeps me up at night as an Albertan: that some a-hole in Palo Alto has already made cold fusion work on a coffee table in his garage. (In the wee hours I can see the nerdy S.O.B., hunched over a circuit board and an Erlenmeyer flask as ugly fluorescent light beats down on his shoulders.) Ideally, we would like the oil to “run out” approximately five minutes before that happens, whether it’s tomorrow or in 2100. And that “we” includes Newfoundland.


Resource curses, West and East

  1. Stewardship.

    A finite resource.

  2. I wish our journos responded to one another more often – it is like every journo is an island and none of them notice what others are writing (I know that’s not true but it is how it appears).  I am enjoying SunTV jihad on certain Canadian journos – we only gain knowledge when people point out our errors.

    “That’s the fear that keeps me up at night as an Albertan: that some a-hole in Palo Alto has already made cold fusion work on a coffee table in his garage. ”

    I first thought Alberta, and Canada, were screwed about 10 yrs ago when I started to hear about fuel cell vehicles. I naively assumed efficient hydrogen engines would be a game changer but I was not yet entirely aware that left wingers are mostly reactionary dullards. Ten years later, governments are investing billions of $$$ into useless electric engines even tho the first cars made in 19th century were battery powered but humanity was smart enough to move on to better technology. 

    Left wing types are trying to take us backwards – windmills have been around since time of Christ and yet here we are two thousand years later and people are still convinced they are answer to all our problems. Sleep easy at night, Cosh, because left wing will keep Alberta in business for long time yet – Albt oil and enviros are in bootleggers and Baptists coalition. 

    Honda FCX Clarity:
    Why do we care about fuel cells? Because they produce electricity in a very efficient manner. And when they are used in Honda’s revolutionary new fuel cell stack, they produce enough electricity to power a real-world car.

    Vehicles that use hydrogen fuel cell technology instead of gasoline are about the cleanest around because they emit only water vapor into the air. They also use hydrogen from domestic energy sources, reducing our dependence on oil. And driving fuel cell vehicles significantly reduces the amount of carbon dioxide emissions, helping to slow the increase in greenhouse gases.

    • Agreed. One reason I find political labels to be so useless, is because they often differ completely from what the word is supposed to mean. “Progressives” are now the ones who actually want to undo-progress. Liberals (big L) oppose individual liberty at almost every turn. Conservative’s are rarely conservative at all, being very progressive when it comes to economic policy, energy policy, environmental policy. Only in politics can black be white.

      • The thing I notice about so many Liberals, “social democrats” and self-styled “progressives” these days is how often they’re the ones desperately defending . . . the status quo.  They’re the ones making out as though Canada was some sort of paradise back when Trudeau was prime minister, and if only we could recapture that magic, all would be well.

  3. That’s the fear that keeps me up at night as an Albertan: that some
    a-hole in Palo Alto has already made cold fusion work on a coffee table
    in his garage.

    That might be scary in terms of Albertan employment, but for the world as a whole (including Alberta consumers) such a development would be beneficial.

    • Oh, of course. The guy would be the next thing to the Messiah. I didn’t think the humour of cursing at a great benefactor of the human race would be unclear.

  4. The world has plenty of oil….what it doesn’t have is cheap oil. And it’s never going to be cheap again.

    Also it’s unreliable.  Whenever someone sneezes in the ME the supply and price of oil changes.

    Add to that the environmentalists and you have the logic of the capitalist system kicking in.

    Whenever a product becomes too expensive, unreliable and even dangerous…people switch to something else.

    Which is why people now wish to switch to electric or fuel cell cars. The switchover will certainly take awhile because everything is geared to the oil industry but that’s where we’re going.

    The ‘west’ and the ‘east’ are both pre-industrial societies….fish, cattle, wheat, oil….it’s all the same…primary resources.

    The writing is on the wall, but you can’t force people to read it….so events and economics will simply overtake them.

    • New technology reduces the cost of extraction all the time. And there’s plenty of conventional oil that’s been locked up by government regulation (ex. ANWR)

      There is no rush to electric vehicles. They’ve had miserable sales.

      If anything we may move ot natural gas powered vehicles like much of South America.

      Honestly i’m not sure what to make of this futurist/cw babble you’re peddling. It seems at odds with the facts …

      • When cars first appeared in America, they would sometimes of course break down.

        People in buggies would whiz by, laughing all the way and yelling ‘get a horse’.

        Different time, same ‘tude. 

        • Well that’s one way to explain away lousy sales of electric vehicles – call people stupid.

          Of course, for every product that makes it there’s countless new products that go bust.

          Afters DVDs came a competition between HD DVDs and Blu Rays. HD DVDs lost and are no longer sold.

          The question is which of the two, natural gas vehicles or electric vehicles, is more like HD DVDs and which is more like Blu Ray discs ? 

          • Like I said, different time, same ‘tude.

  5. As with any boom, the issue is whether it is temporary, or long term. Temporary boom/bust (think of the late 70’s/early 80’s) can have very long term consequences. What’s your crystal ball say?

    Yeah, when there is a boom, support and spinoff service industries flourish as well. This is not diversification, however. The test is what happens to all of this activity if the bottom falls out in the price of oil?

    As always, it’s a matter of degree. And AB is developing its resources by pursuing the path of least resistance, economically. However, the assumptions that went into those unchallenged tactics are being put into play.  Why Danielle Smith is now advocating sending energy east rather than south or west.

    Coyne applies his LSE background well as a journalist. But much is textbook, and conventional wisdom among similar thinkers with similar backgrounds.

    • But you should also consider what happened with mining and mining finance in Canada.  One of the reasons we’re a leader in mining finance and all that goes with it (consider all of the jobs in Vancouver and Toronto that depend on it) is that we USED to pull a lot of minerals out of the ground.  And because we had a stable political and banking system that people trusted, the old TSX and Vancouver stock exchanges attracted money.  The situation on the ground is very different now — it’s actually very difficult to get a mine built in BC now (cough cough Prosperity Mine).  BUT the expertise and infrastructure that we developed with respect to mining finance is still there, is still producing tons of jobs and economic activity in Canada, even though most of the mines being financed aren’t actually in Canada.  It’s partly because nobody in their right mind would try financing a mine by, e.g., going to the Congo.

      Same thing goes for Alberta — even if the oil “runs out”, you don’t think all of that engineering and extraction expertise is exportable?

      • Yeah. Texas and Oklahoma still do an awful lot of that sort of thing, despite not having much oil left.

      • Well, I agree. Knowledge workers are always mobile. The infrastructure and investment required while they were there during the boom isn’t. The pejorative term in AB I believe is “buffalo hunters”.

        The AB economy is capital investment intensive. Not much on the operating side when the investments are finished.

        • Let me give you and example of a company I know very well.  It was founded by a bunch of UBC engineering grads who all knew one another and moved to Calgary many years ago shortly after they graduated.  They were computer-savvy.  As a result, they got the idea of designing software for oil exploration and particularly drilling evaluation.  The company turned into – and is today – a roaring success, and the technology is used throughout the industry, all over the world.

          When the “investments are finished”, in your words, that expertise and technology is still going to be there.  And it will have applications wherever there is oil and gas — the resource does not have to be in Alberta for this Alberta-based company to continue to benefit and prosper.

          • I don’t deny those types of industry related companies exist. But, not so many years ago, there were a number of start-up IT companies (or wannabes – not necessarily industry related) who could not get financing, and could not survive in a high cost inflationary economy, such as was the case in Calgary. Because all of the available money was flowing into junior companies that could offer short term returns (before they grew to a certain size and sold out to the Income Trusts – only to start anew). So they left, or folded.

            Have a look at AB economy. It is largely based upon building things – capital projects. And resource royalties. It’s like the Winchester House Once you stop building, it collapses, or the goblins get you.

            Oilsands projects (primary production) are very labour and capital intensive during construction. Not so much when the facilities are built and operational. But, you’re in a boom now, and expanding, so everything is going well. Once you stop building (or slow down considerably) what do the majority of the people do that now own expensive houses etc? Commute to Russia? Or retire to Kelowna?  

          • I don’t deny that there are important issues to be considered there.  But it seems to me that you’re fundamentally pessimistic about all this.  Personally, I think I have more faith than you do in the ability of people, society and markets to adapt to changing conditions.

            I know it’s a favourite indoor sport of Liberals and other “progressives” to dump all over Alberta and Albertans.  But personally I’ve always been impressed by the optimism and can-do attitude of Albertans.

            Notwithstanding the slagging of the detractors and doomsayers, not all of that petro-money has been utterly wasted over the years.  For example, Alberta’s schools and universities have been very well funded compared to their provincial counterparts, and Alberta now ranks at or near the top of the country in terms of educational achievement and performance.  There are other areas in which Alberta leads, such as proportion of the population with engineering and science degrees and post-secondary education generally.  These are assets that are likely to stand Alberta in good stead no matter what happens.  I’m not some total Chicago-school free market fanatic, but I do have faith in the regenerative and adaptive ability of people and markets, as long as they exist in more or less functional political and regulatory environments.

          • Bean,

            Been there. Done that. Have lived through the downsizing in the late 80s, early 90s. And the subsequent renaissance. 

            Time will tell.

  6. Ouch this is horribly researched, at least the part about running out of oil, and the demand for oil.

    Look, oil IS going to run out (or more accurately become uneconomical to extract because all that’s left is the hard-to-get oil). And oil is by far the most energy-rich and economic energy source. Cold fusion is not a threat, science has no miracle solution in sight. Saving for the future is a responsible idea.

    • The sources of cheap, easy, and sweet oil are running out… and that’s going to make harder sources like the oil sands LESS economical? That’s not how that works.

    • “Saving for the future is a responsible idea.”

      Higher taxes is a responsible idea.

      You realize those two statements mean the same thing right ?

      That this save for the future non-sense is just an excuse to allow the government to control a larger chunk of GDP ?

      I think leaving the money in the hands of the citizens of Alberta would be a better idea. Albertan families can invest in their own futures by buying houses and sending their kids off to university.

  7. Bitumen comes in “turds” more than “drops.” Just sayin’.