There’s no way around it – suffering through the sore throat and stuffed-up head of a bad cold is not fun. On the bright side, we know that a cold is a temporary set-back that will eventually go away.
The same is true of the economic cold Alberta has caught in the wake of low oil prices. The aches and pains it’s causing are real, but it’s far from fatal and it too will pass.
The world still needs lots of oil, sooner or later OPEC will take action, the supply glut will eventually dissipate and prices will rebound. Despite what alarmists may believe, Alberta’s cities are not about to become ghost towns and the economic benefits of the oil sands are not about to evaporate.
But just as a head cold is a good reminder to take better care of our health, low oil prices are a giant yellow sticky note that says “diversify the economy.”
As past diversification efforts demonstrate, this is much easier said than done.
The first thing holding us back is our success. Despite the occasional bust, our oil and gas economy has served us well. Oil and gas extraction is not the only game in town, but it accounted for a whopping 24 per cent of our GDP in 2013 and 72 per cent of our international exports.
Add to this the economic activity that depends on oil and gas extraction such as construction and business services and you can see why it makes sense to keep this sector strong. You pay attention to the goose that lays the golden eggs.
Another reason why diversification is a tough slog is that free market economies in democratic countries do not respond well to central planning. Thankfully, the provincial government cannot force people to grow oranges in Lac La Biche in the name of economic diversification.
The oranges-in-Lac-La-Biche example is obviously an exaggeration, but it highlights the difficulty of translating the idea of diversification into viable economic enterprises. At the same time, past boondoggles have left us legitimately leery about using tax dollars to “pick winners.”
Does this mean that proactive diversification efforts are doomed? Should we give up the quest for an economy that is better equipped to weather the ups and down of the oil and gas sector?
Heeding what we have learned from past efforts, there is still much we can, and should, do to encourage economic diversification in Alberta.
The first thing we need to do is think long-term about the conditions that facilitate entrepreneurship, innovation and trade.
It won’t be easy, toes will be stepped on and money will have to be spent, but we need to significantly retool our education system. We need to provide Albertans of all ages and in all sectors with the hard and soft skills they need to be creative risk-takers adept at relationship building at both home and abroad.
But a good education system is not good enough. We need a mind-blowingly fantastic education system. It’s Albertans who will create the new ideas and new businesses that will keep our province prosperous in the decades ahead. This is why investing in people power is job number one.
The second thing we need to do is take a long hard look at how we can leverage scarce tax dollars and private capital to make our province a research and development powerhouse. While a new study by a distinguished panel would not hurt, what would really drive this forward is a broad coalition of business leaders and policymakers committed to taking what we already do in terms of R&D to the next level and the next level after that.
The idea here is to improve our ability to develop and commercialize new ideas and build new businesses. Some of this work is taking place, such as the efforts of groups like Start-Up Edmonton and Alberta Innovates. This will help diversify our product range and our customer base. New businesses will also be created in non-energy sectors and, in turn, move the diversification ball a bit further down the field.
Diversification works best when it arises from the grassroots of the economy where market forces are harnessed rather than repressed. But for it to really take off over the long-term, it needs to be supported by an education and business development infrastructure that unleashes the inherent creativity and entrepreneurialism of Albertans. Only then will we be able to finally solve our diversification puzzle.
Robert Roach is a Senior Analyst and Thought Leader with ATB Financial’s Economics and Research Team and a Senior Fellow at the Atlantic Institute for Market Studies. The opinions expressed in this column are his own
*This article appeared in the opinion section of the Battleford’s News-Optimist on 12 December 2014