Transcript 2010 - Jason Bisbois, U Alberta - Alberta Council of Technologies

Economic Diversification
Alberta Style
Presentation to ABCtech AGM
June 24, 2010
By
Jason Brisbois, Chief Economist
Western Centre for Economic Research
Presentation Outline
• Why Diversify?
• Alberta’s Policies Since 1970
• Measuring Diversification
• Comment on Investment and Productivity
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Why Diversify?
• Debate is not new – started in the 1920s
• More intense during bust periods
• Economic view - NR extraction does not make
economy wealthier (liquidating an asset)
• Specialization is an option
• No formula for ideal diversification levels –
vertical and horizontal dimensions
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Policy Objective
Take: Aggregate and Per Capita Growth
Add: Policy Induced Structural Change that
Moderates Impact of Shocks
To Achieve: Stable Growth (GDP and Employment)
with Reduced Volatility Leading to Higher Living
Standards
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Public Misconception
• Same government, same policies
• Past 30 years suggests this is not true
• Alberta has been a textbook of different
approaches – but less consistent than
some jurisdictions
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Early Lougheed Era
• 1971 PC platform: New Directions for the Seventies
• Premier Lougheed in the Legislature, 1974:
As a province in transition, we should diversify and become
less dependent upon natural resources
• Decade of economic investment:
Pacific Western Airlines,
Alberta Energy Company, Prince Rupert Terminal, Alberta Opportunity
Company, Agriculture Development Corporation, Alberta Home
Mortgage Corporation,
• By early 1980s losses were an issue
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Later Lougheed/Getty Era
• 1982 recession – six quarters of decline
• 1984 Budget – Alberta is in a transition from a
period of super heated artificially high growth to
one of more normal, sustainable growth
• Premier reassesses economic strategy…
• 1984 Proposals for an Industrial and Science
Strategy for Albertans 1985 to 1990 – how
involved should government be?
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Klein Era
• 1993 Premier Klein – Seizing Opportunity: Alberta’s New
Economic Development Strategy
• Focus on creating the “right climate” as opposed to direct
intervention
• 1994 - Alberta Economic Development Authority created
• 1995 to 2005 – variety of consultations, strategies,
updates, target sectors and technology commercialization
initiatives
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Stelmach Era
• 2006 Premier Stelmach –
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

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Alberta’s Action Plan: Bringing Technology to Market
Productivity Alberta
Alberta Enterprise Corporation
Innovation Vouchers
Revised Sector Strategies
• 2009 – Premier’s Council for Economic Strategy
• 2010 – Alberta Competitiveness Act
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Measuring Diversification Progress
•
Easier said than done
•
External factors have big impact: recessions, policy changes,
market access, price shocks
•
Reliable time series data can be scarce: GDP, employment
(preferred measure), export products and markets
•
3 main methods
 Location Quotient – compares regional employment shares to
national level by industry
 Shift Share – compares regional employment growth rates to
national rates by industry
 Portfolio Choice – examines employment variance and covariance across industries over time within a region
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Measuring Diversification in Alberta
Three periods: 1976-1986; 1987-1996;1997-2009
Method - Portfolio Analysis/Employment Variance
within and Covariance across sectors
Data - Labor Force Survey (more detailed and
consistent than GDP)
 16 sectors of activity covered
 5 goods, 11 services
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Key Economic Changes 1976-2009
Period
Key Changes
2 recessions
1976-1986 National Energy Program
terms of trade bubble
1 recession
1987-1996 FTA and NAFTA
Crow Rate gone
1997-2009
1 recession
terms of trade bubble
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Total Variance Relative to Employment Growth
Selected Periods: 1976 to 2009 (annualized percent change)
25
Percent
20
Total variance (%)
15
Employment (%)
10
Ratio (1)/(2)
5
0
1976-1986
1987-1996
1997-2009
Period
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Total Variance Relative to Employment Growth
Two Most Recent Periods (annualized percent change)
• Terms of Trade
Bubble
7
6
Percent
5
Total variance
(%)
4
• Productivity and
Capital Spending
3
Employment
(%)
2
1
0
1987-1996
1997-2009
Period
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Productivity and Investment
• For 1987-96 Alberta’s labour productivity growth was
one-third above the national rate.
• And, private capital formation for M&E and nonresidential building was 14% of GDP.
• For 1997-2009 the rate of capital formation increased
to 24% of GDP (in the range of China).
• But growth in labour productivity was the worst of any
province and three-fifths of the national rate.
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The Policy Dilemma
• Productivity in manufacturing and the services
were at, or near the top, nationally.
• This bodes well for greater stability and future
living standards.
• Poor productivity performance is explained by the
energy sector—most specifically the oil sands
where most of the province’s investment
occurred.
• How do we explain that oil sands is not a high
productivity industry (at least at this stage)
• What future direction should economic policy
take?
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