|Smoke 'em if you got 'em|
is not a long game strategy.
Canada is falling victim to the resource curse. Recent back and forth comments about Alberta's natural resources between Ontario Premier McGuinty and Alberta Premier Redford make this clear.
McGuinty claims Ontario's manufacturing sector would benefit from a lower dollar, and oil exports make the dollar go up. A lower Canadian Dollar would make Canadian manufactured goods more competitive abroad. A Canadian dollar at 70¢ U.S. would feel like 30% off on Canadian manufactured goods.
Redford, of course, is the oil sands booster in chief, and points out equipment Ontario has been able to manufacture for the megaprojects.
Canada's oil exports drive up the value of our Dollar. There's lots of investment in those industries, and that focus and investment can stifle existing industries. In Canada's case, it's the eastern manufacturing that's feeling the pinch.
Norway, rich with oil, found a way to avoid the resource curse. It's a way that involves acting counter to human nature at every turn, but it works. It's left Norway in an enviable financial position.
Here's how they prevented the oil from destroying their other industries:
Go slow:Norwegian industry wanted to go full speed ahead, but Norway strictly limited the drilling permits.
Save the money:
Instead of spending their riches, they put it in their oil fund (Statens pensjonsfond - Utland), now worth about
$573 Billion (edit: Wikipedia reports: "As of September 30th 2013 its total value is... $783.3 billion"). They recognize that their oil wealth won't last forever, and are taking steps to make sure they can make it last, only spending the interest.
Don't talk about it:
Norwegian political parties agree to leave it off the table as an issue for elections. It's not a political football. It doesn't disrupt their economy, and they'll maintain their oil wealth for generations.
The bickering between Alberta and Ontario demonstrates the tension. We're flouting all of Norway's guidelines, and that could come back to haunt us.
The full speed ahead approach diverts investment money from other projects. Spending the money means it won't be there later on. The use of the resource revenue as a political football combined with the short term views of the electorate means election promises of spending rather than saving.
It's clear we don't have the self-discipline to adopt a Norwegian style strategy for managing our oil wealth.
When it's all gone and we have nothing to show for it at least now you'll know why.
(Originally published March 2012)