I feel really sorry for Jason Kenney, the Premier of Alberta. He is hoping to restore the previous prosperity of his province but it seems the world is against him.
Consider the most important sector in the Alberta economy: natural gas and oil. The demand for oil, in particular, will shrink for the foreseeable future as electric cars become ever more popular. Further decreasing the demand for oil will be a decline in the use of plastics to produce both consumer products and their packaging. The plastics sector is under increasing pressure from consumers and governments and its growth will taper off over the next three decades.
With a shrinking global market for oil and the products derived from it, the survivors will be the lowest cost producers — which does not include the oilsands. Those oilsands producers are in a frantic search for ways to shrink their carbon footprints and their production costs, but with minimal success so far.
What probably keeps Mr. Kenney up at night is that royalty revenues flowing into provincial government coffers from sales of natural resources are nowhere near what they were 10 years ago. This has led to substantial deficits. Further, because the flow of royalties is highly cyclical even during good times, the provincial government faces recurring deficits.
The only durable solution is to fund Alberta’s public services with more predictable, less cyclical tax revenues. Mr. Kenney should have imposed a provincial sales tax at the start of his mandate but pride prevented this rational policy prescription from being implemented.
Another major economic sector is beef production. Unfortunately, cattle are major producers of methane, a really potent greenhouse gas. There are rising calls from environmentalists and millennials for the consumption of less meat. Even major fast food burger chains are promoting meatless burgers. So expanding this sector will also be tough sledding.
The significant shift in Canada’s economy away from manufacturing and towards the service sector also creates challenges for Mr. Kenney. Such growth requires a well-trained labour force. The booming oil market prior to 2010 sucked high school graduates directly into high paying but relatively unskilled jobs. So now Alberta faces a desperate shortage of skilled labour. Making up that shortage will take substantial investment in post-secondary education facilities — which is difficult to find when provincial funds are in very short supply.
So what can Mr. Kenney do?
First he should impose a sales tax to fund government services. A sales tax will undoubtedly endanger his re-election but it will put the government in a position to attack fundamental structural challenges. He can then use royalties to subsidize work to reclaim closed wells and examine the potential of these closed wells for geothermal heat generation.
Next, he needs to formulate a strategic plan to improve the skills of the labour force. It will take time to devise a plan and build public support for it, but this is essential for the long-term prosperity of the province.
Further, he needs to direct substantial government effort to attracting service sector employers to the province. But to ensure successful recruitment, he first needs to identify the features employers will find attractive by seeking input from the private sector in the province.
Alberta also needs to improve its marketing efforts with respect to tourism. The major national parks are good building blocks but there are other attractions in the two major urban centres as well as destinations such as the dinosaur museum in Drumheller. Tourism may not generate the highest-paying jobs but the need for manpower is great. Mr. Kenney might consider underwriting training programs in this sector.
With its enormous land base, agriculture is also a key sector for Alberta and will undergo substantial change in the coming decades. The province needs to determine what crops will become more important in future decades and which of these are best suited to the land and climate. The processing of these crops can also be a growth industry in the province.
Rather than trying to restore the glories of the past, Mr. Kenney needs to focus on facilitating change. Doing that successfully would be a great achievement.
David Bond is a retired bank economist who resides in Kelowna.