In 2 years, we've gone from record surpluses to having to muse openly about running "technical deficits" and dipping into the Sustainability Fund.
Now, there's a temptation in this post to lash out on political grounds against the people who are using this as an opportunity to attack Ed Stelmach, who has been running this province for all of 2 years. Premier Ed, as the Man In Charge, is SURELY to blame for the economic situation we find ourselves in, right? On December 15th, 2006, he should have instituted a sweeping reform of the entire government in this province, to recession-proof us. The price of Crude was, at market's close that day, $63.43 per barrel. Remember that number.
Here's the rub - these people aren't attacking Ed Stelmach because of the economy. They're USING the economic slow-down as a pretense for attacking him, because they don't like Ed. They'd attack him if he bought ice cream for every kid under 14 in the neighbourhood, because "there are some 15 year-olds who really like ice cream".
Ed Stelmach didn't cause a global economic melt-down. He didn't do it, his cows didn't do it, the change in royalty rates - now officially 18 days old - didn't do it. The entire world is undergoing a polar shift in the financial sector, and that is trickling down through every industry the financial sector touches - which is ALL of them. Any industry that borrows, saves, spends or invests money, particularly credit, is feeling the pinch. In just about every country in the world.
Ed Stelmach didn't do that.
The problem comes in that these critics of Stelmach, as I said, are just using this crisis as a pretense for attack. When Ed announced that we may have to dip into the Sustainability Fund and run a technical deficit, the critics were falling all over themselves with barely-concealed glee. "SEE!", they screamed. "He's a bumbling fool, can't even turn a profit in the cash-cow of the provinces, and he's breaking his own government's anti-deficit law! We need the Liberals in power!"
But, what if the Stelmach government had announced that, rather than maintaining the public service and the public programs and investing in infrastructure, cuts across the board would be coming? Taxes and user fees going up, spending going down, mandatory public sector roll-backs, all with an eye towards keeping the bottom line "in the black", no matter what? THEN those same critics would be crawling all over each other to get in front of a camera to declare "Ed Stelmach is the new Ralph Klein! He's attacking the elderly, the young and defenceless, the working poor, and every man and woman in the province with his cuts! He values money more than human life! We need the Liberals in power!".
Critics, you're nothing if not consistent in your hypocrisy.
NOW... let's get past the politics, and look at the cause of Alberta's problem, in particular.
- Price of oil, per barrel, Dec. 15, 2006: $63.43 USD
- Price of oil, per barrel, Dec. 14, 2007: $91.27 USD
- Price of oil, per barrel, July 4, 2008: $145.29 USD
- Price of oil, per barrel, Jan. 16, 2009: $36.51 USD
Yes, Nation, the price of oil - this province's bread-and-butter, has dropped nearly 75% in the past 6 months.
If your only real asset, the only thing you fully owned of any significant monetary value, was your $400,000 home and the market dropped so steeply that 6 months from now your home was worth $100,000... well, you'd be paying a lot less in city taxes, but I think you'd have to ask yourself several very important questions:
- When did the Bloods and Crips move into the house next door?
- When did Alberta Tory move into my neighbourhood?
- Do I trust my realtor?
- Is it maybe just possible that I want to diversify my assets, and stop carrying all my eggs in this one basket?
THIS is the problem Alberta faces - 27.2% of our Gross Domestic Product is directly related to the energy sector, and much of the rest relies on the money generated BY the energy sector. Oilmen, after all, buy trucks, eat in restaurants, stay in hotels, and go to movies - just like the rest of us. All of those industries suffer when an oilman gets laid off. Energy remains Alberta's Golden Goose - and yet, through no (or little) fault of own own, that Golden Goose has taken ill. What has gone wrong?
We're witnessing the power of the free market.
The global price of oil per barrel has dropped like a rock not because of something Ed Stelmach did or didn't do, but because the DEMAND has gone down... drastically. People are buying less oil, so the price goes down in the hope that they'll buy more now that it's so affordable. You'd rather sell it at a low price, making little or no profit than sit on it at high prices and suffer a total loss. It's basic economics.
And if you think things are bad NOW, wait until they come out with the first commercially-available and practical, mass-produced and marketed fully-electric car for less than $15,000. Whether it be the "targeted for 2010 launch" Chevy Volt or something else entirely, when North America and its affair with the "open road" no longer require petroleum to consummate their love, we're going to be waxing reminiscent about the salad days of $36-per-barrel oil.
It's entirely possible that, within a decade or 2, the only places that will even be remotely interested in petroleum as an energy source will be heavy industry and the developing world. And don't assume that China and India are going to keep us afloat, either. If China is ALREADY so aware of their pollution problems, it's a lot more reasonable to assume that they'll continue to dam their rivers and go with a car running on electricity than to hope they'll get a billion people into SUV's to keep our economy running smoothly.
Demand is down, demand is going to fluctuate in the short term but continue to trend downwards as technology renders the resource increasingly obsolete. So, what do we as a province do to stay ahead of the curve?
Diversify. Diversify our economy, as quickly as is reasonable. Follow the lead of jurisdictions like Newfoundland & Labrador, which realised that economies that are completely dependent on one resource are doomed to fail when supply, or demand, for that resource dries up (of course, in N&L's case, they diversified by ADDING oil and gas, which isn't looking too good right now). Learn from the mistakes of jurisdictions like Ontario, who rely so heavily on one sector (auto manufacturing) that when it starts to fall, the rest of the economy follows like a line of dominoes. It's not too late, Alberta - but we need to start preparing TODAY for the eventual reality of an Alberta in which we can rely on the energy sector for 5-10% of our GDP, at most.
Medical technology; the next big thing in clean, possibly renewable, energy; desalination technology... THESE are the types of things we should be putting our collective energies into working on. Things the world needs and will continue to need, that our well-educated workforce can help invent, perfect, and manufacture.
There's been resistance to work too hard at alternative energy, because it's hastening the death of our Golden Goose. But I've got news for you, folks... the Goose is going to die anyway. If you're under 60, it's got a decent chance of dying within your lifetime. And by the time it does finally kick the bucket, it will be too late to start looking at these things, because this province is going to be a barren economic waste-land. A Ferrari up on blocks with no engine. Someone else will have made the "big discovery", and whether it's Manitoba, Mumbai or Mazatlan, that's where the money will be, the investors will be, and the jobs will be.
I'd rather they be in Morinville, Millet or Magrath.
So let's get to work.
8 comments:
Are you maybe letting Stelmach off the hook a little to easily though? Diversifying our economy to insulate against future oil and gas price shocks is not a new idea - just one that the government hasn't made a high priority in the past.
We've always known that Alberta's revenue was subject to unpredictable swings as oil and gas prices changed. But rather than plan for the current downturn by saving a large portion of resource revenue, the government chose to spend most of it. That wasn't an accident, it was a decision. Stelmach has been in Cabinet since 1997. He was at the table when the spending decisions were made, and he should take some of the responsibility for the effects of those decisions.
The argument that the poor guy is getting blamed for things beyond his control is a little disingenuous. It's partly true, as he can't control commodity prices, but partly not true, as he was part of the previous regime too.
Justin: I'll readily admit that Ed has been sitting in cabinet for over a decade. However, I firmly believe that the "sitting at the cabinet table" argument is far too often used to blame people who move from cabinet to the Big Chair. Sure, he sat in cabinet as the Minister of Infrastructure, and Transportation, and Agriculture, etc. But does Ralph strike you as the sort of Premier who would walk into a cabinet meeting with his mind made up about something, and have it changed by what he heard in the meeting?
In situations like that, "having a seat at the table" just means you get to be told in PERSON what legislation and policies you're being instructed to support, regardless of your personal opinions. You can still argue for your point of view - but if it's shot down, no-one outside the room will ever know what it was. For all we know, Stelmach went into every meeting arguing forcefully for mandatory pink, ruffled school uniforms across the province. When you're in Cabinet, you come out of the room and say what you were told to say by the Premier - nothing more.
Let's not forget: Stelmach was a member of the "Deep Six". As a back-bencher, free to disagree with the cabinet (to a degree), Ed seldom saw a spending cut or savings plan he didn't like. When he was at his free-est to speak his true mind, he wanted to save, save, save. The suggestion that he's as guilty for the current government's spending problem as is Klein and his group of advisors is just wrong. He inherited a bloated system full of inefficiencies and long-term commitments, and faced with $100-per barrel oil couldn't justify cutting program spending to Albertans in the middle of a boom.
To whit: Ed was as much a part of the "Klein Regime" as I am of the "Stelmach Regime" - we both just worked for the Premier, and said what we were told to say while we were on-the-clock.
The difference is, I'm not on-the-clock right now. And cabinet members make a bit more per year than... whatever it is that *I* do for the government. ;)
I can't remember my place - are we supposed to be talking about
(a) how we should have saved more, or
(b) how we should have spent more on infrastructure (hospitals, interchanges, light rail, etc.)?
It just seems to me that the critics alternate between those two, mutually exclusive alternatives.
At the risk of sounding like an unabashed defender, I would point out that most individuals pay off their mortgage before buying GICs. That is, in essence, what the gov't had done. If we had had a larger Heritage Savings account, but also retained significant gov't debt, after this financial market decline we would still have the debt, but our savings would have been mutilated along with everyone else's.
The largest budget items are health and education, by far. We have become a victim of our own success, and gov't are loathe to tell people they can't have something. I remember not very long ago outcries over crowded hospital hallways, university/college affordability and spaces (still ongoing). By all means, let's get a handle on spending, but tie a ribbon around your finger to remember the next time you write a letter to the editor angry at the fact Auntie May couldn't get her hip replaced for six months.
With respect to the economy, I think E.S. is right. Alternative energy is one way to diversify the economy. We are geographically disadvantaged with respect to hydro resources, but we have wind (more than other province already, but much more can be done), and we get a heck of a lot of sunshine as well. And it is not all about energy... we can build upon what we have in the financial and biotech industries as well.
As GOA public servant who reads Daveberta and the new Journal Blog, I've since realized:
1) Alberta is doomed
2) I'm an evil bad person because of my job
Talking about diversification is easy. Getting the private sectors to diversify; very hard. There's a saying about leading a horse to water.
But, if Alberta really wants to get serious about new technologies and business sectors (like health science in Edmonton) then I would say that almost every jurisdiction in the world would love to trade places with a province that has a massive supply of a resource that's highly sought after - today. Even if the oil sands aren't developed for, um, oil, think of how useful they will be for other resource development.
But, the gov can only do so much, even if David Swan is running the show.
It's not just about Stelmach.
Albertans like to pretend that everytime the Tories get a new leader, we somehow have a new government. But that's bull - there has been no 'regime change' in Alberta. The Tories have been in charge for a couple of generations.
Stelmach may have only been one voice at the cabinet table, but at least half the current cabinet have been at that table for some time.
The Tories don't get to wipe the slate clean just because Ralph left. They didn't diversify the economy, they didn't save for a rainy day, and god knows what they blew the money on - because it wasn't on things that last (like schools, roads, hospitals and other infrasturctre).
Thanks Andy, I loved the (a) and (b) comment.
TPB, where do you think the money went? [I know a big number went to paying off the teachers' pension liability]. Maybe we all need "WWMD" buttons to wear (What Would Mason Do).
I find it sadly funny when a supporter of the NDP tries to mention "saving for a rainy day" in the same sentence with spending more on infrastructure, healthcare, and education. Would an NDP gov't get to use a magical buy-1-get-1-free coupon for roads, bridges and schools to make them cheaper?
We can all join the pity party, but as Andy implied, there are very few jurisdictions where we would rather be during this time of global recession (I can't think of any). Virtually debt-free, with cash in the bank and resource wealth, and abundant space for expansion. Low taxes, and the highest paid public sector employees in the country means a lot more take-home pay if you are a nurse or a teacher.
Where would you rather be? France, that bastion of socialist thought, where the President is now trying to dismantle the friction costs of operating a business in that country. Germany, an industrial society, but one with terrible demographics. Italy, Spain? don't get me started. Even mighty Norway isn't doing so well these days I should think.
Great Points E.S., I have found your posts to be well informed and always entertaining! We are in interesting times and it is always great to see some perspective from my own generation!
Actually, I'd love to live in France. But that's more to do with the food. And the wine. Perhaps the women. Where you hang your hat isn't just about the GDP.
Now, I wonder if the great Enlightened Savage will translate to his Tory friends that if Stelmach can't be held responsible for this, what about Bob Rae? Rae, of course, drove the Ontario economy into the ground in the early 90s when the rest of the Canada and North America was doing fine and it was only this province that suffered.
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