Varcoe: Diversification programs worthless without measurable objectives

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For decades, Alberta has been seen as the land of boom or bust.

When oil prices surged above US$100 a barrel, the economy took off like a rocket. When it sagged, jobs and investment in the oilpatch vanished.

From premiers Lougheed to Notley, the remedy to this dizzying roller-coaster ride has been rolled up into a single, elusive tonic: diversification.

And yet …

What if I told you Alberta has the greatest diversification among Canada’s provinces when it comes to direct employment, ahead of the manufacturing heartland of Ontario, Quebec or even British Columbia?
Even factoring in all of the indirect jobs — positions that aren’t directly connected to oil and gas production but tied to it, such as engineering, manufacturing or construction work — Alberta’s employment picture still is relatively diversified compared to our peers.

These are some of the conclusions in a new report from economists Robert Mansell and Trevor Tombe at the University of Calgary’s School of Public Policy.

The report’s title should be a mantra that governments across the country memorize each time they think of offering a subsidy: If It Matters, Measure It.

In other words, rather than simply offering incentives or spitting out slogans of building a brighter future through diversification, figure out what it means.

“It seems to be a policy agenda that is driven entirely by a buzzword, rather than by data or evidence,” says Tombe.

“We shouldn’t just throw around the word diversification as though it’s meaning is self evident. It’s not.”

The report also points out spending money on diversification efforts may do more harm than good, distorting economic activity, displacing workers, while potentially wasting taxpayers’ money.

For Alberta, this has real-life applications — see the historical record of failed taxpayer investments into NovAtel, Gainers or MagCan.

With another recession underway, the NDP government has picked up the mantle of diversification with new programs designed to create jobs.

The province is offering $500 million in royalty credits to the petrochemical industry to attract investment and build facilities, aiming to create more than 1,000 jobs once operations begin.

The government also announced the Alberta Investor Tax Credit to refund 30 per cent of investments made by small businesses.

Yet it’s only focused on several hand-picked areas such as tourism, clean technology and interactive digital media development. The program is designed to create 4,400 new jobs.

The report recommends governments set their objectives and then measure what they’re trying to do.

Let’s start with jobs.

We all know Alberta’s unemployment rate has surged since the recession began two years ago, hitting 8.5 per cent in October.

In the province, 14 per cent of employment is tied to activities directly or indirectly connected to the oil and gas industry.

Statistics Canada figures show that in October, 146,000 direct jobs in Alberta were in the natural resources sector, including forestry, mining, oil and gas.

The health-care sector and construction industries each had more than 250,000 jobs, while there were 332,000 people employed in wholesale and retail trade.

Alberta leads the country in employment diversity and ranks middle of the pack once indirect jobs are included in the mix, according to the study.

However, it found resource-rich provinces such as Saskatchewan and Alberta do indeed have much more economic concentration than other jurisdictions.

Oil and gas production is still the key driver of the economy.

“It’s true a lot of our income is driven by oil and gas — our GDP share is almost 20 per cent from that sector alone,” Tombe said.

“The boom-bust cycle is real … Where we are much more volatile is on GDP, on our income, and that is primarily government revenues but also corporate profits.”

One only need look at the sharp drop in business revenues — Alberta forecasts corporate operating surpluses will fall 27 per cent this year — and the government’s mammoth $10.9-billion budget deficit to see the fiscal impact of the recession.

We’re also susceptible to the lack of diversification within our export markets, as virtually all of the province’s crude oil and natural gas exports head south.

Alberta ships a whopping 86 per cent of our exports to the United States, second highest only to New Brunswick, at 90 per cent.

The report notes it is important to stay focused on reducing volatility, rather than just chasing diversification for its own sake.

This means pursuing insurance-type policies, such as better employment insurance benefits and initiatives to help facilitate worker adjustments, or encouraging more savings during the good times.

“I don’t think the economy is the problem, it’s how we handle the income volatility that our economy generates — that’s the problem,” Tombe adds.

Pursuing diversification is not a faulty target on its own. But like the old carpenter’s rule advises, measure twice, cut once.

For Alberta, it’s time to start measuring.

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

Source: Calgary Herald