mr.x
August 23rd, 2006, 09:30 PM
IN DEPTH: CANADA 2020
Western separation, the time has come
Roger Gibbins | Aug. 21, 2006 | CBC.ca
What will Canada look like in the year 2020? To encourage a debate about the major challenges Canada will face in the coming decades, the Dominion Institute and the Toronto Star have invited 20 leading thinkers to write about an issue or event that they think could transform the country by 2020.
It should never have come to this. Tomorrow Albertans will go to the polls to vote on leaving Canada, and any doubt as to the outcome was removed last month when the British Columbia legislature resolved to hold a similar referendum within six months. It is likely that Saskatchewan will soon follow suit.
The legal technicalities are straightforward. Back in the late 1990s, when the Quebec sovereignty movement was still alive and well, the Supreme Court and later Parliament through the Clarity Act recognized that the Government of Canada had an obligation to enter into negotiations if there was "a clear expression of the will of the population of a province on whether the province should cease to be a part of Canada and become an independent state." Those negotiations could begin as early as next week.
Back in the 1990s, no one imagined that this option would be exercised by a province other than Quebec. The critical question, therefore, is how did we get to this sorry state of affairs? What went so wrong along the way?
Although there has always a small smattering of separatist support in Alberta, usually a very small smattering, the origins of our current mess date back to 2006 when oil prices first passed $70 a barrel. The Alberta government, having paid off its provincial debt, was then generating larger surpluses than the federal government.
At the same time, the Ontario economy was beginning to falter in the face of both intensifying international competition and weakening U.S. markets. A rising Canadian dollar, driven upwards by robust international markets for natural resources in western provinces, squeezed the vise even tighter on the traditional manufacturing sector.
For a while the growing regional divide was masked. On average, the Canadian economy was doing well, and thus regional disparities within the context of more general national prosperity attracted less attention. Unemployment rates were at record lows, and Canadians across the country were enjoying growing real-estate wealth.
It was also assumed by most Canadians that the regional disparities being generated by Alberta's energy wealth, and for that matter by the general wealth of the resource-based western Canadian economy, would largely disappear once resource markets returned to normal levels. The western boom was seen as a temporary blip, a one-off windfall analogous to a lottery win. As Ralph Klein, then premier of Alberta, noted when asked about high-energy prices, "What goes up must come down," which indeed had been the historical experience of Alberta's volatile boom-and-bust economy.
Thus Canadians waited patiently, or in some cases impatiently, for energy prices to return to normal, and for the natural order of things to reassert itself. Over time, however, it began to sink in that the new normal was $70 a barrel for oil, and then $80, and then $90. The good old days of cheap energy, and with them the older model of the Canadian economy, were gone along with hot airline meals.
Now of course the Canadian economy was not alone in being hit by higher energy prices, and indeed in some ways was better off than most given that Canada was a net exporter of oil, natural gas, uranium and hydroelectric power. The problem and the political crisis came from the unequal regional distribution of those resources.
Slowly it became clear that the accumulation of wealth in Alberta, and to a lesser degree across the West, was the new reality. At the same time, the Ontario economy continued to be squeezed by competitors from China and India, by U.S. protectionism in the face of the same competition, and by weakening American markets as Washington grappled unsuccessfully with growing debt, a deteriorating balance of payments and international obligations that could not be shed.
In response, the western provinces were scrambling to find ways by which regional wealth could be used to positive national effect. The Alberta government, for example, generously endowed the Canadian Scholarship Fund to the point where it dwarfed the Rhodes and Woodrow Wilson funds, and where it was attracting the best and the brightest international students to universities across the country.
Similar endowments for medical research, wellness programs, clean coal and sustainable energy research were pushing Canada to the forefront of the international research community. Canada, led by the western provinces, was shedding its historical underperformance in the commercialization of university research. Furthermore, the western provinces collaborated to strengthen transportation linkages between Canada and the booming Asia Pacific economies, with positive effects that rippled across the country from sea to sea to sea.
And, in Alberta, the onslaught of prosperity gave residents both the opportunity and the luxury to manage the impact of energy developments on an increasingly stressed provincial land base. The pace of development was brought within the carrying capacity of the physical environment, and the province's vast energy endowment was not being exploited at the expense of its natural capital.
These steps, however, could moderate but not bridge the growing regional divide in the national economy. As oil prices crept past $100 a barrel, and then past $110, and then $120, the divide became even deeper. Every escalation brought more wealth to the West, and more cost-pressure to central Canadian firms. As energy prices continued their inexorable climb, the regional imbalance grew in step and all this took place against the backdrop of a troubled U.S. economy.
The growing divide
There was no question that the regional concentration of energy wealth was a source of strain for the federation as Ontario and Quebec faced significant out-migration of people and head offices, and had a harder time attracting immigrants. Not surprisingly, therefore, a political reaction was inevitable.
Although the western-led national government argued gamely that what was good for the Alberta economy was also good for the Canadian economy, it lost the election to a coalition of opposition parties running under the banner "Canadian resources for Canadians."
The equalization formula, funded as it was by federal taxpayers – the great bulk of whom lived outside Alberta and even outside the West – provided little counterweight for the public wealth piling up in Alberta. The province's Heritage Savings and Trust Fund, now worth well more than $150 billion, made Alberta an easy target.
Shortly before the pivotal election, renewed military conflict in the Middle East, nuclear weapons testing by Iran, and an outbreak of civil war in the Russian Caucuses drove oil prices close to $200 a barrel. Despite a surge of migration into the West, the majority of the national electorate still lived in Ontario and Quebec and swept into power a new government determined to arrest and even turn back the energy-led tide of prosperity in Western Canada.
Many in the West, particularly those with relatives, friends and business colleagues living in other parts of the country, had some sympathy for "Canadian resources for Canadians." Western Canadians, after all, were enjoying a great deal of prosperity, and thus the change in the national government alone was not enough to push them over the national unity edge.
Unfortunately, things did not go well politically. The new federal government, led by Ontario's first prime minister in more than 50 years, introduced a draconian series of tax measures to channel energy wealth into the national treasury. The need to address global warming was used as the rationale for sweeping carbon taxes, but the regional redistribution of wealth was the real driver.
Constitutional niceties were put aside as the federal government's responsibility for peace, order and good government was expanded to include the responsibility to reduce regional disparities. Energy resources, it turned out – although not hydro resources – were now in the national interest and under the jurisdictional umbrella of the federal government.
Even then, Albertans were not pushed to the breaking point. The straw that finally broke the province's back was the environmental disaster unleashed by federal management of Alberta's resource endowment. The province was quite literally out of sight and out of mind, and as the price of oil approached $200 a barrel, the focus of the national government shifted to more and more production. The collapse of an increasing fragile environment and the destruction of iconic landscapes were seen as an unfortunate but unavoidable price to pay as the rest of the country used petrodollars as a shield to protect their economies from ever intensifying international competition.
In short, Alberta became the Canadian cash cow, the bulwark against the economic effects of international competition and weak U.S. markets. Energy revenues were used to prop up an increasingly unproductive manufacturing economy, with petrodollars becoming the new tariff wall. In the near term, Canadians were therefore able to avoid the painful economic adjustments that other countries had to endure in the face of high energy prices, but in the long term the national economy was further weakened.
It turned out, of course, that while the concentration of energy wealth in one province had dramatic effects, the distribution of that wealth across a much larger national population had correspondingly more limited effects. The expectations held by supporters of "Canadian resources for Canadians' could only be met if energy production was pushed higher and higher, and pushed beyond the carrying capacity of Alberta's environment.
The call for environmental protection comes first and foremost from those who can taste, see, touch and breathe environmental degradation, and not from distant bureaucrats or voters. This meant that as control of Alberta's resource endowment shifted from provincial to national hands, concerns about environmental damage weakened. The standards of environmental stewardship and intergenerational equity that had come to shape the provincial policy architecture were abandoned by a national government intent on maximizing energy revenues.
The result was the emergence of a new and powerful political coalition in Alberta determined to lead the province out of Canada. Environmentalists locked arms with energy producers in defence of the province; ideologically moderate urbanities joined forces with ranchers and farmers as both the urban and rural environments became even more stressed. "Canadian resources for Canadians" came to be seen as environmental degradation for Alberta, and thus the fight was joined to save both the province's economy and environment.
And now, in 2020, where do we stand as Albertans prepare to go to the polls, and to strike out on their own? The nation's energy wealth has been dispersed and dissipated without strategic impact; there is no legacy except for unsustainable regional transfers and social programming. Canada is trailing rather than leading the technological race to wean the global economy from its dependence on hydrocarbons. Alberta's population has shrunk as people fled a growing ecological disaster. And, ironically, the rest of the Canadian economy, buffered by energy revenues, is now even less able to compete globally.
The Alberta Camelot that began to emerge in 2006 has come and gone. It was the Canadian curse that the Camelot created by high energy prices was located "in the regions," that it came to be seen as a national threat rather than a national asset.
What, then, could we have done differently? We could have recognized that regional swings in the national economy are inevitable and should be accommodated rather than resisted by public policies. We could have accelerated the transition to new energy sources instead of shielding Canadian industries and consumers from high energy prices. We could have built on the wisdom of "think globally, act locally" and recognized that the delicate balance between economic growth and environmental protection is better struck provincially rather than nationally. We could have built protections for regional interests and aspirations into the institutional architecture of the national government.
We could have done a lot, and instead we stand on the verge of losing so much. It should never have come to this.
Roger Gibbins is the president and CEO of the Canada West Foundation, a public policy research group based in Calgary.
Western separation, the time has come
Roger Gibbins | Aug. 21, 2006 | CBC.ca
What will Canada look like in the year 2020? To encourage a debate about the major challenges Canada will face in the coming decades, the Dominion Institute and the Toronto Star have invited 20 leading thinkers to write about an issue or event that they think could transform the country by 2020.
It should never have come to this. Tomorrow Albertans will go to the polls to vote on leaving Canada, and any doubt as to the outcome was removed last month when the British Columbia legislature resolved to hold a similar referendum within six months. It is likely that Saskatchewan will soon follow suit.
The legal technicalities are straightforward. Back in the late 1990s, when the Quebec sovereignty movement was still alive and well, the Supreme Court and later Parliament through the Clarity Act recognized that the Government of Canada had an obligation to enter into negotiations if there was "a clear expression of the will of the population of a province on whether the province should cease to be a part of Canada and become an independent state." Those negotiations could begin as early as next week.
Back in the 1990s, no one imagined that this option would be exercised by a province other than Quebec. The critical question, therefore, is how did we get to this sorry state of affairs? What went so wrong along the way?
Although there has always a small smattering of separatist support in Alberta, usually a very small smattering, the origins of our current mess date back to 2006 when oil prices first passed $70 a barrel. The Alberta government, having paid off its provincial debt, was then generating larger surpluses than the federal government.
At the same time, the Ontario economy was beginning to falter in the face of both intensifying international competition and weakening U.S. markets. A rising Canadian dollar, driven upwards by robust international markets for natural resources in western provinces, squeezed the vise even tighter on the traditional manufacturing sector.
For a while the growing regional divide was masked. On average, the Canadian economy was doing well, and thus regional disparities within the context of more general national prosperity attracted less attention. Unemployment rates were at record lows, and Canadians across the country were enjoying growing real-estate wealth.
It was also assumed by most Canadians that the regional disparities being generated by Alberta's energy wealth, and for that matter by the general wealth of the resource-based western Canadian economy, would largely disappear once resource markets returned to normal levels. The western boom was seen as a temporary blip, a one-off windfall analogous to a lottery win. As Ralph Klein, then premier of Alberta, noted when asked about high-energy prices, "What goes up must come down," which indeed had been the historical experience of Alberta's volatile boom-and-bust economy.
Thus Canadians waited patiently, or in some cases impatiently, for energy prices to return to normal, and for the natural order of things to reassert itself. Over time, however, it began to sink in that the new normal was $70 a barrel for oil, and then $80, and then $90. The good old days of cheap energy, and with them the older model of the Canadian economy, were gone along with hot airline meals.
Now of course the Canadian economy was not alone in being hit by higher energy prices, and indeed in some ways was better off than most given that Canada was a net exporter of oil, natural gas, uranium and hydroelectric power. The problem and the political crisis came from the unequal regional distribution of those resources.
Slowly it became clear that the accumulation of wealth in Alberta, and to a lesser degree across the West, was the new reality. At the same time, the Ontario economy continued to be squeezed by competitors from China and India, by U.S. protectionism in the face of the same competition, and by weakening American markets as Washington grappled unsuccessfully with growing debt, a deteriorating balance of payments and international obligations that could not be shed.
In response, the western provinces were scrambling to find ways by which regional wealth could be used to positive national effect. The Alberta government, for example, generously endowed the Canadian Scholarship Fund to the point where it dwarfed the Rhodes and Woodrow Wilson funds, and where it was attracting the best and the brightest international students to universities across the country.
Similar endowments for medical research, wellness programs, clean coal and sustainable energy research were pushing Canada to the forefront of the international research community. Canada, led by the western provinces, was shedding its historical underperformance in the commercialization of university research. Furthermore, the western provinces collaborated to strengthen transportation linkages between Canada and the booming Asia Pacific economies, with positive effects that rippled across the country from sea to sea to sea.
And, in Alberta, the onslaught of prosperity gave residents both the opportunity and the luxury to manage the impact of energy developments on an increasingly stressed provincial land base. The pace of development was brought within the carrying capacity of the physical environment, and the province's vast energy endowment was not being exploited at the expense of its natural capital.
These steps, however, could moderate but not bridge the growing regional divide in the national economy. As oil prices crept past $100 a barrel, and then past $110, and then $120, the divide became even deeper. Every escalation brought more wealth to the West, and more cost-pressure to central Canadian firms. As energy prices continued their inexorable climb, the regional imbalance grew in step and all this took place against the backdrop of a troubled U.S. economy.
The growing divide
There was no question that the regional concentration of energy wealth was a source of strain for the federation as Ontario and Quebec faced significant out-migration of people and head offices, and had a harder time attracting immigrants. Not surprisingly, therefore, a political reaction was inevitable.
Although the western-led national government argued gamely that what was good for the Alberta economy was also good for the Canadian economy, it lost the election to a coalition of opposition parties running under the banner "Canadian resources for Canadians."
The equalization formula, funded as it was by federal taxpayers – the great bulk of whom lived outside Alberta and even outside the West – provided little counterweight for the public wealth piling up in Alberta. The province's Heritage Savings and Trust Fund, now worth well more than $150 billion, made Alberta an easy target.
Shortly before the pivotal election, renewed military conflict in the Middle East, nuclear weapons testing by Iran, and an outbreak of civil war in the Russian Caucuses drove oil prices close to $200 a barrel. Despite a surge of migration into the West, the majority of the national electorate still lived in Ontario and Quebec and swept into power a new government determined to arrest and even turn back the energy-led tide of prosperity in Western Canada.
Many in the West, particularly those with relatives, friends and business colleagues living in other parts of the country, had some sympathy for "Canadian resources for Canadians." Western Canadians, after all, were enjoying a great deal of prosperity, and thus the change in the national government alone was not enough to push them over the national unity edge.
Unfortunately, things did not go well politically. The new federal government, led by Ontario's first prime minister in more than 50 years, introduced a draconian series of tax measures to channel energy wealth into the national treasury. The need to address global warming was used as the rationale for sweeping carbon taxes, but the regional redistribution of wealth was the real driver.
Constitutional niceties were put aside as the federal government's responsibility for peace, order and good government was expanded to include the responsibility to reduce regional disparities. Energy resources, it turned out – although not hydro resources – were now in the national interest and under the jurisdictional umbrella of the federal government.
Even then, Albertans were not pushed to the breaking point. The straw that finally broke the province's back was the environmental disaster unleashed by federal management of Alberta's resource endowment. The province was quite literally out of sight and out of mind, and as the price of oil approached $200 a barrel, the focus of the national government shifted to more and more production. The collapse of an increasing fragile environment and the destruction of iconic landscapes were seen as an unfortunate but unavoidable price to pay as the rest of the country used petrodollars as a shield to protect their economies from ever intensifying international competition.
In short, Alberta became the Canadian cash cow, the bulwark against the economic effects of international competition and weak U.S. markets. Energy revenues were used to prop up an increasingly unproductive manufacturing economy, with petrodollars becoming the new tariff wall. In the near term, Canadians were therefore able to avoid the painful economic adjustments that other countries had to endure in the face of high energy prices, but in the long term the national economy was further weakened.
It turned out, of course, that while the concentration of energy wealth in one province had dramatic effects, the distribution of that wealth across a much larger national population had correspondingly more limited effects. The expectations held by supporters of "Canadian resources for Canadians' could only be met if energy production was pushed higher and higher, and pushed beyond the carrying capacity of Alberta's environment.
The call for environmental protection comes first and foremost from those who can taste, see, touch and breathe environmental degradation, and not from distant bureaucrats or voters. This meant that as control of Alberta's resource endowment shifted from provincial to national hands, concerns about environmental damage weakened. The standards of environmental stewardship and intergenerational equity that had come to shape the provincial policy architecture were abandoned by a national government intent on maximizing energy revenues.
The result was the emergence of a new and powerful political coalition in Alberta determined to lead the province out of Canada. Environmentalists locked arms with energy producers in defence of the province; ideologically moderate urbanities joined forces with ranchers and farmers as both the urban and rural environments became even more stressed. "Canadian resources for Canadians" came to be seen as environmental degradation for Alberta, and thus the fight was joined to save both the province's economy and environment.
And now, in 2020, where do we stand as Albertans prepare to go to the polls, and to strike out on their own? The nation's energy wealth has been dispersed and dissipated without strategic impact; there is no legacy except for unsustainable regional transfers and social programming. Canada is trailing rather than leading the technological race to wean the global economy from its dependence on hydrocarbons. Alberta's population has shrunk as people fled a growing ecological disaster. And, ironically, the rest of the Canadian economy, buffered by energy revenues, is now even less able to compete globally.
The Alberta Camelot that began to emerge in 2006 has come and gone. It was the Canadian curse that the Camelot created by high energy prices was located "in the regions," that it came to be seen as a national threat rather than a national asset.
What, then, could we have done differently? We could have recognized that regional swings in the national economy are inevitable and should be accommodated rather than resisted by public policies. We could have accelerated the transition to new energy sources instead of shielding Canadian industries and consumers from high energy prices. We could have built on the wisdom of "think globally, act locally" and recognized that the delicate balance between economic growth and environmental protection is better struck provincially rather than nationally. We could have built protections for regional interests and aspirations into the institutional architecture of the national government.
We could have done a lot, and instead we stand on the verge of losing so much. It should never have come to this.
Roger Gibbins is the president and CEO of the Canada West Foundation, a public policy research group based in Calgary.