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SSLL
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From: http://www.theglobeandmail.com/servlet/story/LAC.20060508.COSTAN08/TPStory/National
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A tale of two economies

JIM STANFORD

It's conventional political wisdom that the West is finally "in." The West -- and more specifically Alberta -- is now calling a lot of the shots in Ottawa, from Prime Minister Stephen Harper's office on down.

And politics tends to follow economics. Alberta's new power in Ottawa reflects its growing clout in the economic arena. The economic gap between Alberta and the rest of Canada -- long a source of mutual enmity -- has become a humungous chasm, thanks to soaring oil prices and massive investments in Alberta's oil sands.

Indeed, it's not a stretch to conclude that Canada's economic personality has been utterly split. One part of the country is experiencing a resource boom, with many spin-offs, both positive (job-creation, rising incomes, government surpluses) and negative (inflation, labour shortages and an overvalued exchange rate). The other part experiences sluggish growth, deteriorating trade performance and deficits.

Suppose, in fact, that Canada did split into two countries: the former Alberta, renamed the Republic of Gushmore (oil sands don't actually "gush," they're strip-mined, but you get the picture) and the remaining provinces, now called Hasbeenia. Let's compare their crucial indicators.

Gushmore enjoys GDP per capita of $66,000, almost twice as high as the $35,000 in Hasbeenia. Gushmore ranks as the second-wealthiest country in the world (behind Luxembourg), while Hasbeenia places about 15th. Gushmore's real GDP grew 4.5 per cent last year (among the fastest in the OECD), while Hasbeenia lumbered along at 2.7 per cent (well below potential).

Some of the benefits of Gushmore's boom trickle down to its workers. Unemployment is 3 per cent (half the rate in Hasbeenia). Employment grew in 2005 by 3.4 per cent (versus 1.5 per cent in Hasbeenia); indeed, migrants from Hasbeenia crowd the border crossings into Gushmore every day. Real average earnings in Gushmore (after inflation) grew more than 3 per cent last year, versus a stingy 0.7 per cent real raise for their less-prosperous neighbours.

But Gushmore is an especially lucrative homeland for corporations. Corporate profits in Gushmore eat up 25 per cent of GDP (versus 14 per cent in the other provinces). Of all new corporate profits generated across Canada last year, a stunning 70 per cent were in Alberta. (To find out why, just go to the gas station.) Huge profits mean huge investment: Non-residential capital spending by Gushmore's businesses grew 19.3 per cent in 2005 (versus an unimpressive 5.6 per cent in Hasbeenia).

In international markets, too, Gushmore is a star. Exports boomed 19 per cent last year (compared to 3 per cent for Hasbeenia). Gushmore enjoys an annual trade surplus of $64-billion. Hasbeenia, on the other hand, incurred a trade deficit of $8-billion.

Government finances also reveal the divergence of the two economies. The most recent official data on this score is from 2003, when Gushmore accumulated a combined surplus (for all levels of government) of $14-billion, compared to a combined Hasbeenian deficit of $6-billion. With oil at $70 per barrel, this fiscal gap is a lot wider today.

The economic outlook for Gushmore is certainly peachy, at least until oil prices collapse again, the resource runs out, or the United States invades the fledgling state (to ensure future supplies, fight terrorism or whatever). For Hasbeenia, it's a different tale: sluggish growth, trade and budget deficits, stagnant incomes. If Hasbeenia's policy-makers, given this context, suggested raising interest rates, cutting taxes or boosting the currency, they would be fired -- and rightly so.

It behooves Canadians to consider that the tectonic shift in the makeup of Canada is being driven by largely speculative global pressures, yet will shape our economy, and our politics, for decades to come. And over here in Hasbeenia, we will certainly complain if our key economic policy-makers -- from Finance Minister Jim Flaherty to Bank of Canada Governor David Dodge -- allow crucial decisions to be unduly influenced by an unprecedented, focused and, ultimately, temporary resource boom concentrated in one province.

Not counting Alberta, there is no case whatsoever to be made that Canada should raise interest rates or cut taxes. And the Hasbeenian dollar would be happily back in the doldrums were it not for Alberta's oil. I am not interested in trying to "confiscate" Alberta's wealth (I was born there, and my family has shared well in the prosperity). But I don't want my economic destiny to be a sidebar to their boom.
 

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The things is if oil prices collapse the big cities in Alberta will be alright because they have other industries but the small towns would suffer hard. Like how certain ontario towns have fallen in decline due to the manufactering sector declining. However, the big cities like Toronto and area are still in good shape and expanding rapidily.

Its like how Dubai has moved away from oil.
 

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Canada has ALWAYS been a tale of 2 economies its just that now its Central Canada that is hurting.
When times were booming in the late 80s in Ontario, Alberta was in the tank.
 

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Eastern Canada may have slowed it's decline, but Northern Ontario is going full speed reverse. :)

We gotta start looking for those diamonds. We know they're out there, just.. where??
 
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