Instead of diversifying, Alberta should embrace its oil economy
Special to The Globe and Mail
Published Friday, Mar. 13 2015
“How can we diversify Alberta’s economy?”
It’s probably the single most frequently asked question I get. And now that oil prices have slumped and Alberta’s economy is set to slow down, people are asking it even more. But maybe it’s the wrong question.
Here’s where the science of problem solving is instructive. Scientists who have studied various kinds of thought processes have identified two main types of thinking: convergent and divergent. The convergent thinkers look for one answer to the problem, and are quick to jump to what they believe is the correct one.
Divergent thinkers, on the other hand, consider more than one possible solution to any given problem. They see little value in arriving at a single answer and become frustrated when they’re rewarded for producing the “correct” response. They tend to reshape the question and come up with a variety of approaches to the problem.
Arguably, both convergent and divergent thinkers are required on a team, but the divergent thinkers produce the greatest potential for innovative and creative solutions.
So maybe we’ve been asking the wrong question. By asking how Alberta can diversity its economy, we assume that there’s a correct answer – that a new tax credit or some clever clustering strategy will lure non-energy companies to the province. That’s convergent thinking.
But divergent thinkers would reshape the question. Rather than ask how, they’d ask why. Why should we diversify in the first place? Tackling that question could lead us down a different road – and potentially one that leads somewhere more satisfying than where we are now.
Why diversify? The most economically diversified province in the country is Manitoba – and with all respect to the Keystone Province, I doubt many Albertans would call that their dream economy. (Although, Manitoba did fare much better in the 2009 downturn than did Alberta – just saying.)
Also, it’s easy to see that an economy can be ideally diversified, but if none of the sectors stacks up well against competing nations or provinces, nothing is gained. Diversity for the sake of diversity shouldn’t be the goal.
Most Albertans would say that the goal of economic diversity is to get the province off this notorious boom-and-bust cycle that plagues us with frustrating regularity. Admittedly, the amplitudes of the cycles are not nearly as punishing as they were in the 70s and 80s. But the province is once again bracing for another oil-induced slowdown, which will undoubtedly throw many out of work.
So maybe Alberta’s lack of economic diversity isn’t really the problem. No one complains about it when the petroleum sector is doing well. Maybe the problem is finding ways to smooth out the economic cycles and avoid job losses. That’s a different problem – and solving that will require some divergent thinking.
Part of the solution lies in figuring out why the petroleum sector is so prone to ups and downs in the first place. Oil prices are set externally by global markets, so there’s not much that can be done about that. But finding different products and new markets within the energy sector would reduce the dependence on any single commodity price. Research into new sources of energy –solar or geothermal, for example – would broaden the industry’s scope and make it less reliant on the price of West Texas intermediate.
Or maybe new practices are needed during the boom times to mitigate the worst effects of the bust times. What if energy companies disciplined themselves to set money aside in a separate fund that would be used to maintain staff when oil prices slump? Even better, what if energy companies used the downturn for labour training and skills upgrading? Or tapped into their employees’ creative ideas to identify new products and trends (which will be useful in the future when the world will be far less thirsty for oil)?
Rather than all the dead-end head scratching about how to artificially diversify the economy, perhaps Albertans need to embrace its resource dependence. Of course new industries would add to the dynamic, but energy is Alberta’s ace card. Expanding beyond hydrocarbon extraction, smoothing out commodity price cycles, and preventing job losses – those are the real problem we need to tackle.
Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.