Alberta's 'Natural Governing Party' and Abject Failure

The "natural governing party" of Alberta for the past THIRTY-EIGHT YEARS has utterly failed to create an economy for its citizens that is robust and diversified.

Need any more proof that "Tory management" of an economy is an oxymoron? See below.

Diversification: Not Just For Your Portfolio Anymore

by Enlightened Savage

As originally posted on: The Enlightened Savage
January 18, 2009

"Nation, we've seen all too well the effect that the precipitous drop in resource prices, particularly oil, has had on the Albertan economy.

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:

1. When did the Bloods and Crips move into the house next door?
2. When did Alberta Tory move into my neighbourhood?
3. Do I trust my realtor?
4. 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."