“We will diversify the economy and get off the oil and gas roller coaster.”
Ninety per cent of Alberta’s elected politicians could have spoken those words over the last 69 years. Since we first struck oil at Leduc #1 in 1947, Albertans have bemoaned the attachment of our economy to commodity prices, and for good reason. The fluctuations of oil and gas prices not only lead to spikes in government revenues and economic activity, but also to their accompanying declines.
From time-to-time, this will lead to well meaning but misguided calls for the directing hand of government to intervene and forcefully “diversify” the economy. As an elected official, I am grateful that some people may believe me capable of doing so if I only willed it, but the simple truth is that politicians have an extremely poor record of success with direct economic interventionism.
The poor taxpayers of Newfoundland found this out the hard way. Long tied to the dominant cod fishery industry, the government of Newfoundland and Labrador in 1987 believed that it was smart enough to pick winners and losers in the economic diversification game.
Newfoundland’s government bought into a Calgary businessman’s plan to build a series of revolutionary hydroponic greenhouses that would grow cucumbers, which would diversify the economy and provide a new revenue stream for the government (sound familiar?). All that the plan needed to succeed was $12.4 million in grants and land costs from taxpayers.
Long story short, it was a fiasco. The greenhouse technology turned out to be less successful than the government had been led to believe, and Newfoundland’s lack of sunshine and soil made it difficult to grow much of anything. The greenhouse company requested and received another $2.6 million in loan guarantees before it could even get off the ground.
Another problem was that there just was no market for more cucumbers; the average Newfoundlander ate on average just half a cumber per year. The government-sponsored company was forced to ship the cucumbers to other provinces at a massive discount, triggering a regional trade war and driving prices down prices.
In the end, the experiment in government-directed economics cost the people of Newfoundland and Labrador $27.50 per cucumber and $27 million in losses.
Don Getty tried similar – although less amusing – experiments with taxpayers’ money here in Alberta around the same time, and failed just as badly. The cost to Alberta taxpayers ran into the billions of dollars.
By the early 1990s, Albertans had also learned the hard way that try as they might, politicians just don’t make good investments with other peoples’ money, and Ralph Klein got government out of the business of business.
By the mid 2000s however, Ed Stelmach launched yet another round of well intentioned but poorly thought out economic interventions. This included $100 million for the Alberta Enterprise Corporation, and a massive commitment to the North West Refinery.
As desirable as it may sound to force refining in Alberta – much like growing cucumbers in Newfoundland – there just isn’t a business case for forcing it against market conditions. But the government pushed ahead nonetheless and made more than $1 billion in loan guarantees, and locked taxpayers into an agreement that guarantees the refinery $63 per barrel in refining costs for the next 30 years, or $26 billion. With oil hovering at less than $30 per barrel right now, this has the potential to be the greatest misadventure with taxpayers’ money in the history of our country.
The NDP are now beating the drum of government-driven economic diversification even louder, promising still more loan guarantees, free royalty credits, and a raft of other corporate welfare programs.
One has to wonder if there are plans underway for a cauliflower greenhouse program.
The NDP’s goals are just as laudable as the governments of Newfoundland and Ed Stelmach, but the hard truth is that politicians are never as good at investing your money as you are. It isn’t that Rachel Notley would have better business sense than Ed Stelmach or a better insight into market conditions; it’s that no politician – regardless of personal ability or partisan affiliation – is suitable to direct private capital to its most productive outcome.
It may not fit the political zeitgeist to say so, but Alberta’s economy has never been as diversified as it is today. In 1985, Alberta’s GDP was $66.8 billion, of which 36.1 per cent was made up by the energy sector. By 2013, Alberta’s GDP was $331.9 billion, of which 24.6 per cent was made up by the energy sector. Both the tremendous expansion of the overall economy and its diversification in the non-energy sector has been driven by a formula we once proudly called the Alberta Advantage.
This advantage has been battered and bruised by irresponsible government – and by multiple parties – over the last decade, but it served us well. The challenge for Alberta now is how we can build a new Alberta Advantage that restores our self-confidence as a land of entrepreneurs and the best destination in the world for investment.
Alberta’s Wildrose Official Opposition is committed doing just that.
Derek Fildebrandt is the Wildrose Shadow Minister of Finance and the MLA for Strathmore-Brooks. This is a guest column, and The BOE Report is happy to publish guest columns from any MLA’s or MP’s of any political stripe.