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Balanced Economic Growth: NeitherBalanced Economic Growth: Neither

Desirable Nor AchievableDesirable Nor Achievable

Conference on Albertas FutureConference on Albertas Future

February 6, 2010February 6, 2010

Michael PercyMichael PercyAlberta School of BusinessAlberta School of Business

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Structure of PresentationStructure of Presentation

The Past What has growth looked likeThe Past What has growth looked likeand why?and why?

Current Prospects what drives ourCurrent Prospects what drives oureconomy noweconomy now

How do we position our economy for theHow do we position our economy for thefuture?future?

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Boom and Bust: A ContinuingBoom and Bust: A Continuing

Tradition.Tradition. We are a cyclical economy with a clear patternWe are a cyclical economy with a clear pattern

of expansion and contractionof expansion and contraction Energy may be the catalyst for expansion but capitalEnergy may be the catalyst for expansion but capital

investment drives the boom and subsequent run-upinvestment drives the boom and subsequent run-upof our cost structure and wagesof our cost structure and wages

Historically during booms the economy has becomeHistorically during booms the economy has become

less diversified and more dependent on energy andless diversified and more dependent on energy and

constructionconstruction During busts our competitive position improves andDuring busts our competitive position improves and

we become more diversifiedwe become more diversified

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Current GrowthCurrent Growth

Catalyst is expected oil prices in the longCatalyst is expected oil prices in the longterm driven by growth in China and Indiaterm driven by growth in China and India

37% of current real GDP is gross capital37% of current real GDP is gross capitalinvestment this is a remarkably highinvestment this is a remarkably highnumber!number!

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Oilsands (1)Oilsands (1)

Major ProjectsMajor Projects

(Billions $)(Billions $)

Oct/06 Dec/09Oct/06 Dec/09Oilsands $90 $142 (66)Oilsands $90 $142 (66)

Infrastructure $13 $19Infrastructure $13 $19

Institutional $11 $11 (1)Institutional $11 $11 (1)

Sub-total $114 $172 (105)Sub-total $114 $172 (105)

Inventory of Major Projects over $5million recently completed, currentlyInventory of Major Projects over $5million recently completed, currentlyunder construction or to projected to start within 2 yearsunder construction or to projected to start within 2 years

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Oilsands (2)Oilsands (2)

Canadian Energy Research Institute studyCanadian Energy Research Institute studyEconomic Impacts of the PetroleumEconomic Impacts of the Petroleum

Industry in Canada, July 2009 found thatIndustry in Canada, July 2009 found that

over the next 25 years for Albertaover the next 25 years for Alberta Oilsands investment would generate $156Oilsands investment would generate $156

billion in GDPbillion in GDP

Oilsands operations would generate 1.42Oilsands operations would generate 1.42trillion in GDPtrillion in GDP

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Oilsands (3)Oilsands (3)

Supply chains of plants in operation 24/7Supply chains of plants in operation 24/7 Suncor in 2007 and 2008 spent $16.5Suncor in 2007 and 2008 spent $16.5

billion on goods and servicesbillion on goods and services Syncrude in 2007 spent $2.1 billion of whichSyncrude in 2007 spent $2.1 billion of which

$1.9 billion in Canada and of that $1.8 billion$1.9 billion in Canada and of that $1.8 billion

in Alberta (50% in Wood Buffalo, 30% inin Alberta (50% in Wood Buffalo, 30% in

Edmonton and 20% in Calgary)Edmonton and 20% in Calgary)

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Growth Less Volatile NowGrowth Less Volatile Now

Benefits of NAFTA and move up the valueBenefits of NAFTA and move up the valueadded chain especially tradable servicesadded chain especially tradable services

and higher value-added goodsand higher value-added goods

Stability afforded by supply chain ofStability afforded by supply chain ofoilsandsoilsands

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Paradigm of Sustaining Growth willParadigm of Sustaining Growth will

be Completely Differentbe Completely Different

Table stakes to sustain growth will beTable stakes to sustain growth will besuccess in ensuring competitiveness success in ensuring competitiveness

this gets us in the gamethis gets us in the game So competitive tax/ royalty structures, stableSo competitive tax/ royalty structures, stable

regulatory environment, cost containment allregulatory environment, cost containment allare necessary but not sufficientare necessary but not sufficient

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Globalization and FallingGlobalization and Falling

Information CostsInformation Costs Any production process or service that isAny production process or service that is

mature can and will move to least-costmature can and will move to least-costlocationslocations

Product cycle shortening betweenProduct cycle shortening betweenintroduction and maturityintroduction and maturity

Globalization effectively deskills certainGlobalization effectively deskills certain

groupsgroups Computer programmersComputer programmers Early stage engineeringEarly stage engineering

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How Do We Position Ourselves inHow Do We Position Ourselves in

Global EconomyGlobal Economy

Success is ensuring our resourceSuccess is ensuring our resourceindustries remain competitive but that weindustries remain competitive but that we

also ride the wave of new industries andalso ride the wave of new industries and

products that may be with us for only aproducts that may be with us for only ashort-time before they move off-shoreshort-time before they move off-shore

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Our NicheOur Niche

Resources + research intensiveResources + research intensiveuniversities and an economicuniversities and an economicdevelopment strategy that attracts anddevelopment strategy that attracts and

retains foot-loose educated workers whoretains foot-loose educated workers whocan live anywhere but are attracted by ourcan live anywhere but are attracted by oursocial infrastructuresocial infrastructure Health care, education from k-12 and post-Health care, education from k-12 and post-

secondary, environemnt and quality of lifesecondary, environemnt and quality of life Social capital that enhances social well-beingSocial capital that enhances social well-being

and life-satisfactionand life-satisfaction

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Critical FactorCritical Factor

The capacity to adapt is the greatest skillThe capacity to adapt is the greatest skillour governments and labour force requireour governments and labour force require

if we are to sustain growthif we are to sustain growth

Diversification in this global economy isDiversification in this global economy isnot an industrial or sectoral strategy it isnot an industrial or sectoral strategy it isa strategy that ensures individuals and oura strategy that ensures individuals and our

institutions can adapt to changeinstitutions can adapt to change

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Where Do We StandWhere Do We Stand

Platform for competitiveness is in placePlatform for competitiveness is in place Government has focused on platform policies thatGovernment has focused on platform policies that

lets market decide who wins and who loseslets market decide who wins and who loses

Our social infrastructure outcomes especially inOur social infrastructure outcomes especially ineducation globally competitiveeducation globally competitive

Alberta is likely the best-positioned jurisdiction inAlberta is likely the best-positioned jurisdiction inNorth AmericaNorth America

Can we change the way think of economicCan we change the way think of economicdevelopment?development?