Sole-resource economy subject to price volatility.
by Trevor Harrison
Recent statements by federal Finance Minister Jim Flaherty that the government’s budget plans have been thrown into disarray by a decline in Alberta’s oil revenues should come as no surprise. The differential between the North American benchmark price for crude and the price Alberta gets for its thicker brand of oil has been played up in recent months by the provincial Progressive Conservative government as a major cause of its fiscal woes. Now its federal counterpart is using the same argument to explain its declining revenues.
Certainly the differential rate is part of the story for both governments. And complaints of insufficient pipeline access to new markets hold some merit. But the differential rate is not something new, and the idea that more pipelines would solve Alberta’s and Canada’s growing revenue problems is, one might say, a pipe dream.
The bigger, more important story is the narrowing of Canada’s economy in the interest of petroleum development. Historically, Alberta’s economy has been the most unstable in all of Canada, but the volatility was largely confined to its own borders. Today, aided and abetted by the federal government, Alberta has exported its instability to the rest of the country.
Historically, Alberta’s economy has been the most unstable in all of Canada. Today, the federal government has help export Alberta’s instability to the rest of the country. Those familiar with staples theory will recognize the pattern.
Pioneered by Canadian economist Harold Innis, staples theory emphasized the dilemmas associated with single-resource production. When the world price of a commodity is high, the allure of riches can be so great that people throw all of their effort and money into riding the resource boom. But the price of staples is unstable, subject to, among other things, over-production, replacement technologies, the vagaries of climate, transportation glitches and even fashion.
Just as the price of a staple commodity can rise quickly, it can drop, bringing economic, social and political ruin. Canada’s landscape is dotted with this story, from towns (Uranium City) to regions and provinces (Newfoundland and cod). Sometimes, of course, the good times return, but often they don’t. In any case, the result is growing economic and political dependency, what Innis referred to as the “staples trap” — easy to get into, hard to get out of. That’s where Alberta and Canada find themselves now.
Prime Minister Stephen Harper is on record as declaring Canada an emerging energy superpower. The efforts his government has made to promote this vision — the passing of omnibus legislation to eliminate perceived roadblocks to oil development, the politically motivated attacks on individuals and organizations who oppose further petroleum expansion — have been unprecedented.
Far from being a superpower, however, Canada increasingly looks like a hundred-pound weakling, a single-resource producer, buffeted by pricing and other factors over which we have no control.
Far from being a superpower, however, Canada increasingly looks like a hundred-pound weakling, a single-resource producer, buffeted by pricing over which we have no control, technological innovations that portend a reduction in the value of oil and environmental issues that threaten all of us.
Like Montreal’s fur trade magnates 200 years ago, who suddenly found that the market for beaver pelts had disappeared, we find ourselves today sending emissaries here, there and everywhere, pleading, begging and cajoling others to save us from the fate unfolding before our eyes. But, as Shakespeare said, the fault lies not in the stars, but in ourselves — and the governments we have elected, which too eagerly have opened the doors leading to the petroleum trap.
About Trevor Harrison
Trevor Harrison was born and raised in Edmonton. He holds a B.A. from the University of Winnipeg, an M.A. from the University of Calgary, and a Ph.D. in sociology from the University of Alberta. His areas of specialty include political sociology, political economy, and public policy. He is currently professor of sociology at the University of Lethbridge and Director of the Parkland Institute.
Dr. Harrison is best known for his studies of populist politics in Canada and the political culture of Alberta and the Canadian west in particular. In addition to numerous journal articles and book chapters, he is the author, co-author, or co-editor of eight books dealing with politics, economics, and sociology. His op-ed columns frequently appear in national newspapers.
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