Ottawa Is No Caracas
Debating what it means to be a "rogue petrostate."
I wish I could turn a phrase like Andrew Nikiforuk, who makes the case for Canada as a “rogue petrostate” (“Oh, Canada,” July/August 2013). No, you are not misreading that — it is Canada he compares to Saudi Arabia or Venezuela. Instead, I have to rely on evidence, and unfortunately, the evidence in Nikiforuk’s case is far from convincing.
Canada has not bet its entire economy on resource industries — far from it. In fact, the share of GDP from oil, natural gas, and mining has, with a few interruptions, largely decreased since the 1960s. In April 2007 (the earliest date for which the Canadian government provides a direct comparison to current economic figures), oil, gas, and mining collectively accounted for 8.34 percent of GDP. In April 2013, that number was 8.30 percent. Nikiforuk would have you believe that Canada’s oil sands petroproject has led to a rapid increase in economic dependence on unconventional oil. He’s right in a sense: Dependence has increased 40 percent since 2007 — but from just 1.3 percent to just 1.8 percent of GDP. The share of Canadians working directly in mining, oil, and gas has also increased, from 1.1 percent of employment a decade ago to 1.5 percent today. Even if oil and gas production were to increase drastically to account for half of export revenues, more than a fifth of GDP, and a quarter of government revenue, that would put Canada on par with Norway, which could hardly be called a petrostate in the pejorative sense.
Nikiforuk suggests that these small increases, like a canary in a coal mine, are but a preview of a disastrous future for Canada, carved out by policy changes intended to ease access to the resources driving this dependence. Some laws have done so, but to focus on them alone is to ignore many recent decisions that have done just the opposite. For example, the federal government has curbed tax incentives for oil and gas companies, placed further limits on asset sales to foreign companies (including those from China), and refused, despite heavy lobbying from the oil industry, to give favorable tax treatment to liquefied natural gas plants. Alberta, home to Canada’s oil sands, has significantly increased royalty rates and even introduced a carbon-pricing regime. These changes cost the industry and those who invest in it.
Canadians could be forgiven for believing industry and government rhetoric and concluding that their economy is or will be dominated by resource development. But is Canada a petrostate? Hardly. The national economy is less dependent on resource extraction today than it has been at almost any time in the last 50 years, and that trend is likely to continue. Canadians should scrutinize their national energy and environmental policies, particularly with regard to the fast-growing oil sands sector, but that scrutiny must focus more on the evidence and less on the noise.
Alberta School of Business
Andrew Nikiforuk replies:
Andrew Leach not only misses the point of my article but avoids the central issue: the corrosive influence of oil revenue on the political character of oil-exporting countries.
Petrostates occupy a continuum of dysfunction that includes everything from Vladimir Putin’s Russia to Sarah Palin’s Alaska. And yes, Norway is a petrostate, too. Canada, which now supplies the United States with 28 percent of its oil, most closely resembles Britain during its ugly foray into its North Sea reserves: Prime Minister Margaret Thatcher used the proceeds from offshore petroleum not only to fund a right-wing political revolution, but also to create a charming myth of economic well-being based on the rapid spending of oil wealth.
Canadian Prime Minister Stephen Harper, a genuine petrolista, has followed in Thatcher’s footsteps and is spending oil dollars to socially re-engineer Canada in his own frightful image. Like an untidy tin-pot regime, his government offers no fiscal plan to deal with oil wealth, no coherent energy plan, and no realistic targets on climate change. You know you live in a petrostate when the federal government obsessively talks about pipelines and bitumen as the country’s economic engine — or when status quo economists such as Leach try to minimize the political side effects of resource dependence with numbers that can’t capture the dysfunction now undoing Canada.
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