Image: Flickr/Dave Courneyer

On May 5, the earth moved in Alberta (we have pictures from outer space). The tremors spread all the way to Ottawa, where I live close enough to feel them, and they felt good.

So here’s the question: can the Tar Sands ever be the same?

Bitumen is one of your Canadian staples — or resources-for-export.  So let’s think about what staples do and don’t do.

They can help you and they can hurt you. On the helpful side, there is economic growth and jobs. That, understandably, is their lure. In the case of bitumen these have been significant for the Alberta economy — though not necessarily for the rest of the country; think Dutch disease.

Staples can, however, hurt you, trap you. You get stuck on the same path (economists call it “path dependency”) You get economic growth (rising incomes, more jobs) but not transformative economic development.  A monoculture rather than a diversified economy with strong sectors independent of the staple.

Call it a staples trap. We’ve experienced that in the past in Canada.  Bitumen has put Alberta in one — and, with a little help from Harper, all of Canada.

You get governments that make a dominant staple even more dominant and entrap you even more. There is, we’re told, no alternative (Margaret Thatcher’s TINA). It’s bitumen or bust. The new NDP government permits other possibilities.

The spread effects of the staple can be thought of as linkages to the rest of the economy. The most obvious, the easy one you might think, is forward linkage: further processing of the raw resource.

What is amazing is how it doesn’t happen more or less across the board in Canada’s resource sector. It doesn’t result through “the market” because the market isn’t “free” but controlled, constrained, rigged. There’s the power of corporations and the grip of empire.

And, ironically, if the staple-exporting region does get jobs from further processing of the resource, like oil refineries, then it risks being locked in, trapped, even more dependent on oil.  It may sound like diversification but it isn`t. 

This can be a hard pill to get unions representing workers in the oil sector to swallow. They must be offered a real alternative.

There’s potential backward linkage, like producing machinery used in staple extraction, but Canada’s machinery sector is notoriously second-rate. 

There’s possible infrastructure linkage, like building and operating railways to move the staple that then can have pervasive further effects on the wealth of the economy. Certainly true of railways to move western wheat which also carried passengers and goods in general.

But oil and gas get moved either by railways already built, or by pipelines which have no further spread effects. Few jobs from building,  approaching zero from operating. To conjure up an east-west pipeline as somehow comparable with the transCanada railways or highway is nonsense.

The third linkage, and the potentially big one from oil and gas, is fiscal linkage. Economics has taught us from the time of David Ricardo in the early nineteenth century that resources generate so-called economic rents, beyond “normal” or necessary returns to capital. The question is: who gets these rents?

Unless there is an efficient regime for taxing corporate profits and collecting royalties, the corporations get them — the workers, being unionized are well paid but over time fewer and fewer are needed in today’s highly machine-intensive resource industries – and since they are multinational there’s no guarantee they’ll be invested where they were generated.  These are revenues foregone  by the governments where the staple is located, a not very hidden form of subsidy.

It means no sovereign fund that might help in diversification, not even a reserve fund to cushion the swings, the boom and bust, of resource prices.

As soon as the price of oil plunges — which, in willed ignorance of history, no-one foresaw – the Alberta government’s budget goes from riches to rags and it has to impose austerity measures. Meanwhile the companies feign poverty. That’s clear evidence of bad resource management from all concerned.

That’s how a staple can also hurt you. You do get caught in a staples trap. The forces that put you there aren’t going to take you out. That’s where government with a new agenda comes in.

Past governments provincially in Alberta, past and present governments federally, have been too responsive to corporate wishes and not responsive enough to citizens’ wishes. The corporations lobby, the citizens vote. In a democratic society it’s the votes that count, and in Alberta they’ve given thumbs down to existing policy.

Not just this economist who supports the NDP in and out of office, but Don Drummond as well – your insightful but still orthodox mainstream economist; former bank vice-president, advisor to the Ontario Liberal government — say that the election of the NDP in Alberta provides opportunity for diversification.

That can’t be my last word because we all know that as well as a the long standing staples trap there is now a carbon trap, which just keeps spewing out more carbon in the atmosphere.  

Bitumen, as a fossil fuel, hurts and hurts us badly. This is a genuine game changer unlike anything any other staple (asbestos excepted, but it was never a dominant staple even in Quebec) has posed. Whatever else is done by government this has to be kept in mind, given the highest priority.

We’re getting economic growth and jobs now but we’re feeding extreme climate change with horrific consequences. Nobody should want to do that.

Governments at all levels in Canada, the new reformist government in Alberta in particular, must cut carbon emissions ASAP.  That famous judgment of history will surely condemn those who have not done so.    

The good news is that we can escape both the staples trap and the carbon trap by going green.  That’s the rabbit, alive and kicking, that’s waiting to be pulled out of the hat. It displaces that elephant in the room that keeps trumpeting that nothing can be done.

There’s a children’s book here with a message for all of us. I’ve got the title: Serendipity. I want it to be dedicated to Premier Notley.


Image: Flickr/Dave Courneyer

Mel Watkins

Mel Watkins

Mel Watkins is Professor Emeritus of Economics and Political Science at the University of Toronto. He is Editor Emeritus of This Magazine and a frequent contributor to Peace magazine. He is a member...