Prime Minister Mark Carney signs an MOU with Alberta Premier Danielle Smith in Calgary on Nov. 27.Jeff McIntosh/The Canadian Press
Remember when Prime Minister Mark Carney, new to the job, kept saying “I am not a politician?”
Looking at last week’s Ottawa-Alberta memorandum of understanding solely through the lens of politics – the zero-sum, province-versus-province, Canadian cage-match version of the game – a lot of pundits are now wondering if Mr. Carney is, in fact, a political naif. They are wondering if he has just written his own political obituary.
Playing Santa to naughty Alberta? Giving a lump of coal to nice British Columbia? Hunh?
The Liberals won just two seats in Alberta in the last federal election, whereas they have 20 MPs in B.C., plus another 44 in Quebec. And yet here’s the PM ticking the boxes on the premier of Alberta’s gift list, while ignoring the wishes of the progressive and Liberal-friendly premier of B.C.
What gives?
What gives is that the PM is doing economics. He can add. He can also calculate how much subtraction has been done from the Canadian economy – first by his predecessor, and now by that guy in the White House.
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Canada has an economic problem. Part of the solution – I hope you’re sitting down; you may experience dizziness – is oil.
The oil is mostly in Alberta. For those joining us late, that’s in Canada.
A Canada that produces more oil, exports more oil and in particular exports more oil to Asia rather than the U.S., is now explicit federal policy, and a pillar of the Carney government’s agenda.
Why? Because it’s economically necessary.
Canada’s major economic challenge for the last generation has been anemic productivity growth. The major source of the problem was, and is, anemic Canadian business investment. The issue became especially pronounced after 2014. Relative to our neighbours in the U.S., far less money was being invested by the private sector in raising the economy’s productive capacity – how much Canadian businesses produce, and how efficiently they produce it.
The Carney government inherited this long-standing problem, which has been recently supercharged by U.S. President Donald Trump’s trade policies.
The Trump effect on the Canadian economy is out of our hands. But the Canadian government’s impact on the Canadian economy? That’s entirely in our hands.
We can give ourselves more than others can take away, as Mr. Carney likes to say.
What his new oil policies acknowledge is that, for the last decade, Canada’s own policies were taking from Canada. Those would be the Trudeau government’s policies that effectively limited the growth of oil production and oil exports. These were an economic subtraction mechanism.
On page 55 of last month’s federal budget, there’s a chart that gives the lay of the land. From the early 2000s until 2014, Canadian business investment actually outpaced U.S. business investment. The reason, as the chart shows, was massive investment in building out the Canadian oil-and-gas sector. By one estimate, $227-billion went into the oil patch.
Prime Minister Mark Carney says a memorandum of understanding with Alberta strengthens federal-provincial collaboration in the energy sector. Calgary business leaders responded to his speech with a standing ovation, while one environmentalist says the deal throws the climate 'under the bus.'
The Canadian Press
The result was a steady boost to Canadian employment and incomes. It was centred in Alberta – again, that’s where the luck of the draw put most of the oil – but the dollars flowed across the country. People moved from other provinces for work, but jobs also came to them. That’s because the oil patch bought everything from steel and aluminum to cars and banking services from the rest of Canada.
Another happy side effect was that we had a relatively mild recession in 2008-09, whereas the U.S. had a Great Recession that lingered for years.
The Alberta government’s coffers were enriched more than those of any other province, but every province benefited through growing economic activity and higher tax receipts. So did the federal government.
The investment boom ended after 2014, when global oil prices slumped. But thereafter, the Trudeau government worked to ensure that the pre-2014 boom would not be repeated, even as prices recovered.
The world continued to invest a lot of money in new oil production, notably in the U.S., which has grown into the world’s largest oil producer. But uncertainty about how any additional oil produced in Canada could get to market, or whether an emissions cap on the sector would make additional production impossible, tamped down talk of major new investment in Canadian oil.
The Carney government intends to reverse that. It is trying to author a sequel to the last oil patch investment boom.
The Ottawa-Alberta agreement is, politics aside, an economic plan whose aim is increasing business investment in Canada. To the extent the investment happens, the result will be higher Canadian economic growth, and higher Canadian incomes.
More on that, next week.