Canada Should Share its Wealth – and Jobs

Oil refinery canada

 Open borders and open minds benefit everyone

By Mark Milke : It seems everyone has advice on how Western Canada should manage its resources.

NDP leader Thomas Mulcair blames the oil sands for “Dutch disease,” the notion that high resource prices cause a hollowing out of manufacturing. It’s a largely mistaken claim, given that manufacturing in Western economies has been under pressure from more competitive emerging economies for some time. Nevertheless, Mulcair would slow down the energy sector by adding a carbon tax (though he’ll skip the same as applied to the automotive industry).

Another New Democrat, Brian Topp, wants sovereign resource funds to invest in uneconomic projects too expensive for the private sector instead of shipping “raw unprocessed resources to Texas and to China.” Topp mentions Norway’s resource fund as an example. Of course, Alberta has its own resource fund, the Alberta Heritage Savings and Trust Fund, which he’d like to see used for such ends.

Robyn Allan, formerly the NDP-appointed head of the government-owned Insurance Corporation of British Columbia, asserts that Canada should “keep the oil sands wealth at home,” by stopping the export of unrefined crude oil products.

That’s the left side of the spectrum. Even some conservatives think government should offer subsidies or tax credits for more at-home refining. In February Alberta’s Wildrose leader, Danielle Smith, mused about making it “more attractive for the private sector to invest in locally upgrading our bitumen product.” Former Alberta Premier Peter Lougheed has urged the same.

These are all bad suggestions. For starters, some critics from the left are often the foremost critics of the energy sector. So why demand that energy companies now be given subsidies?

Topp may also be unaware that Alberta’s Heritage Fund was once used to support uneconomic projects. The result was a costly misallocation of money belonging to Albertans. Back in the 1980s (and started under then-Premier Lougheed), the Heritage Fund and government itself began to loan and guarantee loans to all sorts of risky business ventures, all in the name of diversification and job creation. When many companies went belly up by the early 1990s, Alberta lost $2.3 billion in financial fiascos on everything from high-tech start-ups to meatpacking plants. No government should repeat that corporate welfare boondoogle.

It makes no sense to offer incentives to resource-based companies, whether in energy, forestry or mining to refine more of their products in Canada. That bad idea is akin to stuffing one’s retirement account only with shares from the company for whom one works. In a down market, such a person can lose their job and their investments (think Nortel). Similarly, provinces shouldn’t become more reliant on one sector by subsidizing even more involvement in it.

Lastly, and what is most disconcerting about the “subsidize-big-oil-for-more-‘Canadian’ jobs” rhetoric, is how provincial and anti-foreigner it is.

Alberta and Saskatchewan have two of the lowest unemployment rates in North America. In contrast, plenty of people in Asia are in need of work or better and higher-paying jobs. The same holds true in the United States, where the official unemployment rate is 8.1 per cent but is much worse if you count those who dropped out of the labour force. (In comparison, Canada’s rate is 7.3 per cent).

It borders on xenophobic to demand tax-subsidized jobs be produced in this or that province, or in this or that country. Besides, open borders and non-politically managed trade already massively benefit Canada. That changes the moment politicians decide who can or cannot import or export certain products.

Instead of this narrow, protectionist and, frankly, selfish approach, here’s an idea: Western Canada, and indeed all of the country, already benefit tremendously from natural resources with direct jobs in the West and indirect manufacturing jobs elsewhere in Canada. Governments also reap tax revenues either directly or indirectly (through federal transfers).

Everyone benefitting

These benefits are bound to grow as bitumen production from the oil sands increases and raw and upgraded bitumen is shipped from Alberta to oil refineries in British Columbia, Ontario, Quebec, New Brunswick and overseas. If some of those refineries are in able to export refined petroleum products, that would, of course, bring additional benefits. But whether and to what extent this occurs should be left to market conditions.

Albertans shouldn’t begrudge those in other provinces which benefit from secondary uses of “Alberta’s” oil; nor should Canadians in general carp if those in other countries also gain some benefit from Canada’s resources – any more than citizens of other countries should complain about American or Chinese corporations which employ “foreigners,” i.e., Canadians. Everyone should cheer up. Open borders and open minds benefit everyone.

Mark Milke is a Senior Fellow with the Fraser Institute.

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