Have you ever heard of the Dutch disease? No, it isn’t a product of Amsterdam’s legendary red-light district; the concept originates with economists, who are in every imaginable way the opposite of a red-light district. One could even imagine the red light district going dark for the duration of an economists’ conference; some things just aren’t worth it.
The term Dutch disease refers to an economic condition that can confound nations when an abnormally successful industry tilts the table disproportionately and causes mayhem in other industries. An example would be a small-ish country that discovers massive petroleum deposits, which sends its currency skyrocketing, which then destroys other industries that may have relied on exports. It is called the Dutch disease in honour of the implosion of the Netherlands’ manufacturing industry with the discovery of a massive offshore natural gas field, a situation which made the country’s currency very popular. The phenomenon attracted economists like moths.
A related disease, sort of a milder version, is one that has impacted Alberta in the past. In periods where the oil patch was successful, the demand for labour drove up wages and salaries to such heights that the industry attracted workers from across the country. An often-quoted example was of truck drivers in the oil sands making over $150,000/yr; there were many similar examples.
While such developments create extreme joy in Porsche dealerships and for boat salespeople, a negative affect occurs as well, one that is like carbon monoxide poisoning – it sneaks up on you without even knowing it’s happening.
The downside of these huge incomes is that other industries never consider these jurisdictions as places to launch new businesses. Yes, anything related to the oil patch would do well, as would anything the workers choose to spend money on. But what doesn’t happen is the development of entirely new industries, which are necessary to successfully diversify an economy, and is an oft-cited dream of politicians. For example, during the last oil patch boom, office rent in Calgary was outrageous, and it was difficult to find any employees at all, never mind good ones. A criminal record went from being an insurmountable obstacle to employment to an annoyance and a request from employers to promise to not do that stuff anymore and the job is yours. Well, not quite, but close. When wages are that high and decent workers scarce, it is not the best time to jump in with a new business enterprise and compete for talent with the rich incumbents.
The point of all this is to put a stick in the spokes of all the semi-literates that are now abusing Alberta, or any resource-rich jurisdiction, for not properly and previously diversifying their economies away from petroleum. You think it’s easy, you try it. OK, I don’t really mean it; anyone that makes such criticism is so far removed from job creation that they would understand nothing about the challenges of actually running a business or building something.
Reinventing an economy is a formidable challenge. Every city, municipality, province, state, and country on earth wants to be the next Silicon Valley. Good luck. At the same time, the Silicon Valley region would be hard-pressed to get a manufacturing sector off the ground, but at present no one cares because high-tech billions are being thrown around like confetti.
Western Canada’s energy sector was brought to its knees by the commodity price crash in 2014, then was subsequently pepper-sprayed when it was down by the growing movement to land-lock its petroleum resources. Before that, diversifying the economy was a common platitude but never took off in a meaningful way because of the Dutch disease. Yes, there are pockets of high-tech and other growth, but not of the scale to come close to replacing petroleum.
The flip side of this issue is that perhaps now the table is set for a feast of new industries. In boom times, when no one cared about “thinking outside the box” because they were too busy picking out Maserati seat-stitching patterns, it was hard to get people thinking about rewiring the way the petroleum business operates. It was enough trouble keeping up and finding good employees.
But now, necessity may be the mother of invention. Canada’s petroleum sector is no longer the economic dynamo it was, and job prospects are few and far between. The ripple effect from this situation may set the table for dynamic new economic growth in areas that are related to the energy sector but that no longer find themselves running flat out. Let’s hope the current difficult environment offers a cure for the disease, or at least a respite.
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