BOE Report


Yogi Schulz


Published: April 25th, 2016


Whenever Alberta experiences the stresses and strains associated with a downturn in the oil & gas sector, many beat up our government for not diversifying the Alberta economy faster. We forget that we’ve been making steady diversification progress.

When diversifying the Alberta economy, slow and steady wins the race. By contrast the big, flashy government investments that I described in my last article were a bust for taxpayers and for economic diversification.

The main problem is that the successful actions and deliberate inactions to diversify an economy are all so boring. These ideas provide little for politicians to proclaim with great fanfare, to powerfully demonstrate they’re acting in the economic interests of their constituents and to assure their re-election.

As citizens we need to communicate to our politicians that we want them to invest more time in ensuring these economic diversification ideas are considered in all their political decisions.

Allow Business to Function

Governments need to restrain their propensity to over-regulate. As citizens, we need to quit pushing governments for more regulation. The over-regulation of secondary suites in Calgary is a great example. A similar web of over-regulation is hampering innovation such as Uber, undermining our competitiveness compared to other countries and even strangling inter-provincial trade.

The importance of restraining regulation was powerfully demonstrated recently when the Unites States economyrecovered much more quickly from the recent major recession while the European economies are still strugglingunder the weight of heavier regulation.

Keep Taxes Modest

Higher taxes lead to lower investment and lower employment. We forget there is only one taxpayer. Even business taxes are not magically paid by plutocrats but are largely built into the retail prices of goods and services that you and I buy. As citizens, we need to quit lobbying governments for more public services that are funded by more taxes.

Raising corporate income taxes, as the Alberta government announced recently, is not helpful to encouraging economic activity. Unfortunately, this action is politically appealing, because it gives the impression of sharing the tax burden between corporations and individuals. In fact, most corporate taxes are paid indirectly by consumers.

Develop New Technology and Knowledge

Modest public investment, when partnered with private sector capital, is useful in enhancing technology and knowledge that can diversity an economy. Alberta Innovates and its affiliates consume only modest taxpayer dollars and can point to promising technology successes. Similarly, the Petroleum Technology Alliance of Canada (PTAC) helps the oil & gas industry collaborate to further develop promising technologies that reduce cost to make more production viable.

Enhance Human Capital

We strengthen Canada economically when we enhance human capital. We achieve this by increasing education levels and by importing skilled talent. We ask students to pay for only a fraction of their post-secondary education. Accepting refugees from failed states produces a net economic benefit. Canada can make it easier and cheaper to immigrate.

Build and Maintain Infrastructure

Economic activity relies on a functioning public and private infrastructure consisting primarily of roads, bridges, railroads, ports, electricity, telecommunications, and financial services. While we are fortunate in Canada that the infrastructure is mostly working well, we are facing an infrastructure deficit.

We need to resist a tendency to undermine our infrastructure with strange interference such as fining railways for failing to “transport the minimum required grain volumes as set out by the federal government” or second-guessing AESO on the need for electrical transmission capacity.

Avoid Subsidies

Whenever we subsidize specific economic activity, we penalize consumers. Our dairy marketing boards are a great example because the cost to Canadian consumers far exceeds the value to the dairy producers. “The OECD estimates dairy prices in Canada are more than double the world market”.

The Western Economic Diversification Canada Programs are a fascinating example of a subsidy. While the program name obviously aligns with economic diversification, its description sounds more like a distorting subsidy program. Its primary benefit, fortunately at a modest cost, may be to provide bragging rights to politicians.

What do you think will help Alberta continue its economic diversification?

Read more insightful analysis from Yogi here.