What Alberta can learn from B.C.’s brush with death

Dear Alberta, As you may be aware, there's a province in our Dominion whose reliance on a single resource industry has made it rich beyond measure. Thanks to this industry, which accounts for a huge proportion of the GDP and workforce, the province has vacuumed residents from every other Canadian locale...

A letter of condolence to Alberta, from a province that’s been there, done that and come out the other side

Dear Alberta,

As you may be aware, there’s a province in our Dominion whose reliance on a single resource industry has made it rich beyond measure. Thanks to this industry, which accounts for a huge proportion of the GDP and workforce, the province has vacuumed residents from every other Canadian locale while making its citizens much wealthier than other Canadians and in fact among the wealthiest in the world. True, the industry has rendered the province a little too sensitive to economic cycles and has turned it into something of an environmental pariah, but those are trade-offs that almost everyone has been willing to make. Indeed, this is a very happy place–except that, uh-oh, that industry has just fallen off a cliff and is about to take the province with it.

Alberta, you probably think this story is about you. And true, to an extent it is, but far be it from us to focus on another’s misfortune. No, here in B.C. we’re known for our mindfulness and empathy, so let’s get it out there right now that we experienced exactly the same scenario three and a half decades ago, with our forest industry.

But enough about us. Let’s talk about you. In the bare few months since the price of oil was slashed in half, gosh have there been some things going down on your side of the Rockies.

Like layoffs that already number in the tens of thousands, and which will be followed by tens of thousands more, all along the supply chain. Projects are being cancelled, delayed or scaled way back, and suppliers asked to slash costs. Worse, lots of projects become unprofitable if oil falls below about $40, so if prices drop a little further the hurt will intensify exponentially.

In the face of this, your vaunted population growth has slowed significantly, and B.C. is currently enjoying the biggest influx of Canadians in several years, largely due to the return of people working in the oilpatch.

During February, for example, condo sales in Calgary dropped 40 percent compared to a year earlier while active listings increased by 105 percent—and this at a time when both Toronto and Vancouver continued to enjoy strong markets. An office space glut is also building, and projects are being cancelled, whereas in Vancouver developers are pressing ahead with almost a dozen new towers.

This sort of thing isn’t good for the provincial bottom line, needless to say. Wrestling with a massive reduction in petroleum revenues, your government has warned that the budget deficit in 2015-16 (your eighth in a row) could reach as high as $5 billion. Meanwhile, there’s this other province just a little west of you that expects to eke out another small surplus.

Add it all up and, according to most economic forecasters, it’s likely that you will enter into recession this year. The Conference Board of Canada, for example, predicts a contraction of 1.5 per cent compared to an expansion of three per cent for us.

That’s just the barest summary of the various troubles. And Alberta, sorry about this, but we have some very bad news. It’s entirely possible that things will get even worse—and that they’ll stay that way for a long time. Remember that forestry downturn we alluded to? Well, at the turn of the 1980s B.C. was on top of the world, exactly as you were those short months ago.

In 1981, our GDP per capita was 15 percent higher than the rest of Canada’s. And while migration from the rest of Canada was down a touch from the frantic 1960s, B.C. was still a powerful population magnet through the 1970s, inducing several thousand Canadians to move here every month. After all, jobs paid well and were reasonably easy to find. At 6.7 percent, the unemployment rate was higher than on the prairies but lower than anywhere else in Canada. Because jeez, B.C. wasn’t just a nice place to work: with its well-funded safety net and unmatched social and cultural infrastructure, it was also a nice place to not work.

At the beating heart of all this prosperity was our forest industry, which at its peak directly employed almost 100,000 people, or close to eight per cent of the workforce—a proportion that could be more than doubled with the application of multiplier effects. For context, about seven per cent of your workforce currently works directly in oil and gas. Beyond the dozens of mill towns that relied almost solely on forestry, Metro Vancouver was home to mills of its own, along with port facilities dedicated in large part to shipping pulp, logs and lumber, and a downtown sprinkled with the towering head offices of companies like Macmillan Bloedel, with its worldwide assets of more than $4 billion.

Well, within five years of the 1978-80 peak, the volume of forestry production fell by 30 percent and the dollar value a whole lot more. Forestry’s share of the economy never recovered—nor did the workforce, which ultimately saw about half of its numbers automated and rationalized out of existence. Given the industry’s dominant role, this was devastating for the provincial economy, which didn’t reach pre-recession levels again until 1985 (and which promptly fell right back into recession in 1986, Expo be damned). The attempt by Bill Bennett’s Socred government to deal with the situation by slashing spending and cutting the salaries of public employees led to massive strikes and unrest, and even contributed to the existence of terror cells such as the Squamish Five. You may have heard of them….

Over subsequent decades, the forestry industry would recover and collapse, and recover and collapse again, but its share of the provincial economy and workforce headed mostly in one direction: down. Meanwhile, the loss of all those head offices and union jobs was a significant contributor to our slide well down the national pay scale. Now we bumble along around the Canadian average, with per capita incomes about 35 percent below yours.

So yes, there have been some tough times. But Alberta, we also have a bit of good news for you. Out of all this ruin, British Columbia has emerged with a very different and surprisingly promising economy—and arguably with a sunnier, less smoky character too. And some of that is even due to the complications that prevented our natural resources from being exploited the way many people thought they should be.

Today we have the most diversified economy in the country, so it doesn’t matter as much that our own energy gambits—coal, natural gas, pipelines—are faltering just as badly as yours. Or that the complex issues that have kept our copper and gold resources from being aggressively exploited remain as confounding as ever. Ironically perhaps, only one resource industry is doing really well right now—and that’s forestry, which has grown in value some 60 percent over the past five years and is now worth in the order of $12 billion annually. (But then again, forestry too has been stumbling down a rocky clear-cut in recent months.)

Meanwhile, the evolution of that industry—precipitated in part by a war in the woods that led to the arrest of hundreds of protesters—means that we still have at least some remnants of our incredible old-growth rainforests to show off to the rest of the world. That’s one factor behind a tourism industry that today exceeds forestry as an economic contributor. Possibly as well, a help to our film industry, which is a lot smaller in the scheme of things but does chip in a billion or so dollars a year and helps with some of those cultural jobs and benefits our provincial government stepped away from.

The relatively pristine environment also played a role in Metro Vancouver’s transformation into post-industrial show pony. In the same way that our province attracted other Canadians in the 1970s and you have during the past decade, B.C.’s largest city now pulls in people from all over the globe. The place-making expertise that evolved out of this has even become an unlikely export commodity, with a large cadre of resident planners, designers and developers who are remaking cities in our image all over the planet. Have you been to Abu Dhabi recently? It’s the spitting image of Yaletown. Then again, our developers have also been busy in Edmonton and Calgary, so the trans-Atlantic inspection tour may not be necessary.

Another strange byproduct of Vancouver’s globalization is an industry that few could have imagined existing back in the 1980s. Last September, more than 17,000 children from around the world began their school terms here (paying almost $15,000 each in tuition), and over the course of the year some 50,000 adults arrived to study English. Were B.C. a country we’d rank fifth—behind the U.S., the U.K, Canada and Australia—as a study destination for those sectors. Throw in university students—which, admittedly, everyone gets—and international education is worth some $3 billion annually.

It’s obligatory as well to bring up the tech sector, even though ours has long been a bit of a mess. In terms of growth we haven’t even kept up to the Canadian norm—which itself lags the rest of the world’s—because, as they say in youth court, we made some bad choices. Had hydrogen power or console gaming worked out a little better, boy would we be sitting pretty, but as history shows, they didn’t. That said, we do seem to have found a groove in the past couple of years, with the arrival on our shores of tech behemoths like IBM, Microsoft, Amazon, Facebook, SAP and Sony. Perhaps even more important is the rapid growth of homegrown start-ups, with names like Hootsuite, BuildDirect and Global Relay, each of which has employees by the hundreds and annual revenues measured in, or rapidly heading for, the hundreds of millions. We absolutely recognize that your tech sector is just as big as ours, but yours is heavily geared to the petroleum industry—whereas ours is highly diverse, with a growing emphasis on social media and software development, and that’s going to make a big difference over the next few years.

In conclusion, dear neighbour, please allow us a baseball metaphor, since our wintertime soccer fields have now been converted to summertime ball diamonds (something that always happens this time of year just as your province is buried in spring blizzards). Let us be the first to admit that since forestry’s semi-retirement, our economy has hit no home runs, or even a stand-up triple. Instead, we have strung together so many singles and doubles (along with the odd walk and a hit batter or two) that we’re winning our share of games.

Indeed, somehow we’ve turned into the unflappable middle sibling of Canadian provinces, producing reliable annual economic growth of between two and three percent. We’ve also become the country’s most diversified economy not only in the sense of depending on lots of different industries but because we no longer rely so heavily on the U.S. market, as most other provinces do. We send our stuff around the world.

None of this has come easily, let us be the first to admit. There’s a price to be paid when a dominant industry goes down, and we paid it in the form of several decades worth of slow growth and declining incomes. Even today, beyond the boundaries of Metro Vancouver and northeastern B.C., the province remains a relatively poorer place than it was 35 years ago.

Still, back in 1980, no one would have predicted that B.C. could endure a steep, long-term decline in its dominant industry and emerge a better place. What we’re saying, Alberta, is that maybe it’s time to make some lemonade. If you’re looking for a recipe, you know who to call.

British Columbia