Despite frequent calls by activists and politicians to diversify Alberta’s economy, recent research has shown that the oil and gas sector does not control the state’s economy. On the contrary, its economy is as diversified as any other state.
“Edmonton’s demand for active diversification of the Alberta economy is often based on myths and misunderstandings of the status quo,” said Ben Eisen, a senior researcher at the Fraser Institute, co-author of the study. Said in a press release on March 10th.
“Four myths about Alberta’s economic diversification”Examines the general notion that Alberta’s economy and finances are largely dependent on natural resources and that the government can implement top-down policies that revert the state’s economy to other sectors.
“Despite the misunderstanding, the state’s oil and gas production is not significantly more diversified than other states and other advanced industrial economies such as Germany and Japan. It does not control the state’s economic activity or employment, “the author said.
“In fact, when it comes to employment, Alberta was Canada’s most diversified state economy in 2020.”
Using the Herfindahl Index, which measures the concentration of employment and economic production, the study found that Alberta was “more diversified” than any other state.
For example, if the index is calculated based on 16 industries Labor force data According to a 2021 Statistics Canada survey, Alberta has the lowest concentration of employment at 0.031, 0.027, and 0.025, respectively, compared to Quebec, Ontario, and British Columbia.
In terms of economic outcomes, the authors pointed out that Alberta is not unusually concentrated in any particular industry. Rather, according to their calculations, the state is ranked as the fourth most diversified state economy when measured by GDP concentration (more diversified than Ontario and British Columbia) over 20 sectors in 2020. rice field.
The “second myth” that the author argues is the recognition that economic diversification is needed to stabilize public finances.
“It’s true that Alberta’s finances can fluctuate, but we don’t need further economic diversification to curb Alberta’s fiscal fluctuations,” they said.
The authors suggested that the state focus taxation on consumption rather than on more volatile sources of income.
“The most obvious example is sales tax,” the study said. “But personal income tax can also be designed to tax primarily on consumption, which excludes tourists and other people who do not pay income tax, but the personal income tax system is still primarily on consumption. It can be designed to focus. “
The authors also suggested that the state direct some of its non-renewable resource revenues to sovereign wealth funds such as Alberta’s Heritage Fund and use some of that revenue to pay dividends to its citizens.
“It may help limit the government’s tendency to increase program spending to unsustainable levels when there is a large influx of natural resource revenues,” they said.
The authors have different views on the idea that government’s top-down diversification efforts are “essentially effective.”
The study cited efforts made by several state governments, including a government led by Prime Minister Peter Lougheed in the early 1970s. In 1972, the government established two royal companies (Alberta Agricultural Development Corporation and Alberta Opportunity), acquired shares in energy and materials companies, and purchased commercial airlines.
However, diversification efforts range from “losing hundreds of millions of dollars in telephone companies” to “qualified successes such as buying shares in Alberta Bank, which subsequently became part of the Western Bank of Canada.” Produced results. ..
The authors acknowledged the success of several diversification efforts by the government at different times, but emphasized that they did not substantially contribute to the overall level of economic diversification in the state.
The study also challenged the notion that economic diversification is “essentially good.”
“It may seem obvious, but it isn’t. In fact, economic theory suggests that jurisdictions should pursue comparative advantage rather than deliberately diversifying the economy. “There is,” the study said.
The authors argued that many of the most successful economies are highly specialized economies, such as San Francisco and Toronto in the fields of technology and finance, and Germany and Japan in the advanced manufacturing industry.
“Government shouldn’t choose winners and losers, but it should promote an economic growth environment that gives businesses and entrepreneurs in all sectors the best chances of success,” Eisen said.
“Alberta’s economy is more diversified than is generally understood, and top-down efforts to further diversify the economy require skepticism.”