Go diversify yourself
Here’s the choice. You take a job that pays $ 50,000 a year for life. Or you take a job that pays $ 120,000 one year, zero the next, and repeats the pattern year after year after year. Which will it be?
The $ 120K- one- year- zero- the- next j ob averages $ 60,000 a year, which is obviously better than $ 50,000 every year. But the income is variable. What do you do?
If you’re Judith Guichon, lieutenant- governor of British Columbia, you go for the $ 50K job. In her speech from the throne last week, she — or rather Premier Christy Clark ventriloquizing through her — chided Alberta for assuming its resource boom would never end, failing to diversify its economy and losing control of government spending. But look how well we’re doing, the B.C. Liberals in effect bragged, exhibiting that classic Canadian syndrome of never missing a chance to badmouth a Confederation partner when it’s down. (“The hatreds between regions in Canada have become important vested interests,” wrote Harold Innis, Canada’s preeminent social scientist, way back in 1945.)
Enforced diversity isn’t just for universities these days. It’s all the rage for economies, too. In response to B.C.’s throne speech, Alberta’s NDP government not unreasonably deflected criticism to the Progressive Conservative dynasty that had run the place since 1971. But it also asserted it was already taking measures to diversify the province’s economy. “Taking measures.” Uh- oh.
In our little example would it really be irrational, as the lieutenant- governor’s comments imply, to take the zero/$ 120K job? With its $ 60K average income, if you manage the fat years right, by saving, you can actually live better than if you get the same $ 50K a year every year from now to forever.
Yes, Alberta’s resource economy is “swingier” than other economies. But the payoff in its good years can be spectacular. True, if in those good years it always forgets that bad years are possible, it sets itself up for very hard times when its income does plummet, as happens from time to time. But is it really so obvious that a higher- average variable income is worse than a lower- average steady income?
The example is flawed, of course, as simple examples always are. With resources you never actually know what the path of your future income will be. Income is on the far downside now, we know that for sure. But will it be back up next year, the year after, or — as people are prone to think in the depths of a downturn — maybe never?
On the other hand, even highly diversified economies also go through ups and downs. The U. S. is pretty diversified — a lot more diversified than boastful B.C. — and yet has been infamously swingy over the last couple of decades. China isn’t nearly as diversified as the U. S.: it’s topheavy with manufacturing. But though would- be diversifiers always point to manufacturing as the most stable hull for a modern economy, China isn’t immune to volatility, either. In fact, doldrums in Chinese manufacturing are a large part of why commodities are doing so poorly these days.
When it comes to this subject, there’s always the implicit assumption that economic diversification is something for governments to take charge of. You get the impression that, like a mutual fund manager, Alberta’s new government is going to move the province’s economy into a completely different investment mix. Unfortunately, as with real- life mutual funds, the management fees are likely to be steep. And, unlike in real- life mutual funds, if the investment choices end up being political — and how could they not be? — what prospect is there that industries artificially grafted onto the province’s economy will be economically sustainable? That is, that they won’t require never- ending injections of public money or protection?
If Albertans, or any other group, really don’t like variability in their incomes, they will be reluctant to work in industries where incomes are historically volatile. That reluctance will raise the cost of labour to these industries and make it more difficult for them to survive. Nonvolatile industries, by contrast, will have an easier time finding labour, which will give them greater prospects of establishing themselves and prospering. That would be true even if Alberta were government- free.
If oil and gas are well and truly done — a view that, looking back over these industries’ histories, is at the very least premature — Albertans themselves will have to diversify no matter what their government thinks or plans. There’s always the danger some will seek their fortunes elsewhere, as they or their parents or grandparents did in coming to Alberta in the first place. But many love their Alberta lives and will want to stay. If they are as resourceful as the prime minister insists all Canadians are ( and if anything they’re probably more so) they’ll diversify the place in ways the would- be economic planners in our federal and provincial ministries of industry could never even imagine, let alone successfully foster.
IF OIL AND GAS ARE WELL AND TRULY DONE … ALBERTANS THEMSELVES WILL HAVE TO DIVERSIFY NO MATTER WHAT GOVERNMENT THINKS OR PLANS.