Canada’s Entrepreneurship Dilemma: Decades Of Anemic Research Investment

UPDATE: May 21, 2015.  As if to drive home the Canadian economic crisis, Goldman Sachs has just released an oil price forecast suggesting that North Sea Brent crude will still be $55 in 2020, five years from now.  As Alberta Western Canadian Select (WCS) bitumen is valued lower on commodity markets this is extremely bad news for Canada. Further, the well-known Canadian economic forecasting firm, Enform is predicting that job losses across all of western Canada, not only Alberta, could reach 180,000. 

---

This issue has driven me absolutely nuts since I first arrived in Canada from Silicon Valley.  It did not take me long to figure out that things did not work they way they did in California, and that there wasn’t much of a true entrepreneurial economy here.  Since then, I have also been appointed to the Canada Foundation for Innovation grant process, providing me with insight into how R&D funding works in Canada. I have seen many issues in Canada that have impaired the nation’s ability to develop an entrepreneurial culture,  among them is the inherent Canadian conservatism and short term horizon of investors unfamiliar with technology venture investment.  But none has been worse than Canada’s decades-long neglect of adequate funding for research and development nationwide.  A review of the OECD data on Canada’s investment in R&D compared to other industrialized nations paints a sorry picture.  This has led directly to a poor showing in industrial innovation and productivity. This is further compounded by the current government’s myopic focus on natural resource extraction, Canada’s so-called “natural resource curse.” The result now is an economic train wreck for Canada.  The fossil fuel based economy has collapsed and is not forecast to recover anytime in the near future.  During the boom time for fossil fuel extraction, there has been essentially no rational strategy to increase spending on R&D and innovation, and hence no increase in economic diversification.  Now the problem is nearly intractable, and may take decades to reverse.

 ASLEEP AT THE WHEEL, by Bruce Smardon, McGill-Queens University Press

ASLEEP AT THE WHEEL explains that since 1960, Canadian industry has lagged behind other advanced capitalist economies in its level of commitment to research and development. Asleep at the Switch explains the reasons for this underperformance, despite a series of federal measures to spur technological innovation in Canada. It is worth noting that Arvind Gupta, President of The University of British Columbia, and former head of MITACS, the organization at UBC tasked to promote R&D, has also been an outspoken proponent for increased R&D, at one point editorializing in the Vancouver Sun, that Canada needed an innovation czar, to promote innovation in the same manner as the 2010 Seize the Podium program to enhance gold medal performance for Canada.

Also, as a member of the 2012 Canada Foundation for Innovation Multidisciplinary Assessment process, and the University of British Columbia 2015 CFI grant preparation process, I can say without reservation that the Canada suffers from inadequate R&D funding and its consequences.

ANALYSIS From CBC News

Canada’s research dilemma is that companies don’t do it here

Ten-year study says repairs needed for rebound will be costly and difficult

REBLOGGED: By Don Pittis, CBC News Posted: May 15, 2015 5:00 AM ET Last Updated: May 15, 2015 6:31 AM ET

Northern Electric was a domestic Canadian technology success story that became the telecom equipment giant Nortel Networks. But when Nortel failed, the lack of an R&D hub meant there were no startups to replace it. (The Canadian Press)

As Stephen Harper handed out more tax breaks for Canadian manufacturers in Windsor, Ont., yesterday, you might ask, “With that kind of support, why is Canada’s industrial economy in such bad shape?” Political economist Bruce Smardon thinks he has the answer.

Smardon says companies operating in Canada just aren’t spending enough on domestic research and development, and the Harper government is only the latest in a long line of governments, stretching back to that of John A. Macdonald, that have contributed to the problem.

As China’s resource-hungry economy goes off the boil, taking Canada’s resource producers with it, everyone including Bank of Canada governor Stephen Poloz, has been waiting for a rebound in Canada’s industrial economy.

But there are growing fears such a Canadian rebound is not on the cards. As the Globe and Mail’s Scott Barlow reported last week (paywall), despite having the top university for generating new tech startups, Canada has repeatedly failed to become a hub for industrial innovation.

Best in North America

Interviewed by the New York Times, the president of the startup generator Y Combinator, Sam Altman, called the University of Waterloo the school that stood out in North America for creating new ideas that turned into companies.

But as Barlow reported, there is statistical evidence that Waterloo’s success has not translated into R&D success, as Canadian industrial innovation continues to decline.

After 10 years of research, Smardon thinks his recent book, Asleep at the Switch — short-listed this year for one of Canada’s most prestigious academic book awards — provides the answer.

Political science professor Bruce Smardon’s book, Asleep at the Switch, examining Canada’s R&D failure, has been short-listed for one of Canada’s most prestigious academic prizes. (McGill-Queen’s University Press)

And, believe it or not, Smardon traces the chain of events back to Canada’s first prime minister and his tariff policy of 1879. Paradoxically, those rules were put in place to protect Canadian manufacturers from cheap U.S. goods, that were in turn protected by U.S. tariff walls.

Central Canadian boom

For the industries of central Canada, the tariff barriers worked. In the years before the First World War, says Smardon, Canada was second only to the United States in creating an economy of mass production and mass consumption, where workers could afford to buy the products they produced.

However, prevented by tariffs from exporting U.S. goods to Canada, American companies did the next best thing. They started, or bought, branch plants north of the border, wholly- or partly-owned subsidiaries that used U.S. technology in Canadian factories.

Smardon says that started a trend that continues today. The majority of R&D was being done in the home country of the industrial parent, not in the Canadian subsidiaries. And in the Mulroney and Chrétien era of free trade, he says, relatively high-tech branch plants, such as Inglis and Westinghouse, started to close as products were supplied more efficiently by the U.S. parent factories.

There were Canadian R&D stars such as Nortel and Blackberry, says Smardon. But they were exceptions. And when those stars began to set, the lack of a traditional R&D hub in Canada meant there were few young research-based companies ready to come up and replace them.

Tax credit paradox

The paradox, he says, is that Canadian taxpayers have spent a fortune on R&D tax credits. The 2011 Jenkins report showed that as a percentage of GDP, Canadian R&D tax incentives were higher than anyplace else. But as Barlow showed, Canadian R&D still lags behind.

The reason, Smardon concludes, is that while taxpayers fork out for R&D, industrial R&D doesn’t happen here but in traditional R&D hubs abroad. He says that free trade agreements and a longstanding view by Canadian governments that business knows best mean it’s very difficult to put conditions on how that money is spent.

“If we are concerned with developing a manufacturing base in the more advanced research intensive sectors, we’re going to have to have incentive programs at the very minimum, that are clear in insuring that any incentives are used to develop products and processes in Canada,” says Smardon. “They’ve got to think through how that can be done.”

But Smardon is not optimistic. He says that free trade and the free market philosophy has become so entrenched in Canadian thinking that it’s impossible to change.

Market rules

He says that is why the Harper government became so enamoured with the business of pumping and exporting unprocessed oil and gas while the Canadian industrial economy crumbled. It was exactly what the global free market wanted.

It may indeed be that global market forces decide Canada is an icy wasteland that is best at producing raw materials. It may decide that the best way to use our brilliant young people is to send them to California to develop their business ideas there.

But if we want more than that, perhaps handing out ineffective tax incentives is not going to be enough.

CNN Money: Canada’s Economy Is A Disaster From Low Oil Prices

The evidence of a Canadian economic train wreck just keep rolling in. This report from CNN Money mentions last week’s Bank of Canada dismal report on the Canadian economy, and goes on to add additional economic data and comment from respected investment banks around the World. The one glaring omission is any political discussion of how Canada got into this mess, and who is responsible for it.

Canada’s economy is a disaster from low oil prices

By Nick Cunningham for Oilprice.com @CNNMoneyInvest

Low oil prices are threatening the health of Canada’s oil and gas sector, which in turn, is causing turmoil in Canada’s economy as a whole.

The fall in oil prices is forcing billions of dollars in spending reductions for Canada’s oil and gas industry. In February, Royal Dutch Shell (RDSA) shelved plans for a tar sands project in Alberta that would have produced 200,000 barrels per day. Last year, Petronas put off plans to build a massive LNG export terminal on Canada’s west coast.

Moody’s recently predicted that very few of the 18 proposed LNG projects in Canada will be constructed. Most will be canceled. The oil industry is expected to lose 37% of its revenues in 2015, or a fall of CAD$43 billion.

That is bad news for Canada’s oil and gas sector. But even worse, Canada’s overdependence on oil and gas will threaten its broader economy now that the sector has gone bust.

The severe drop in oil prices has made the Canadian dollar one of the worst performing currencies in the world over the past year. The “loonie” used to trade at parity to the U.S. dollar, and even appreciated to a stronger level a few years ago, but now a Canadian dollar gets you less than 80 U.S. cents.

Disaster levels: While a weaker currency has complicating effects on the economy (it will also boost exports, for example), on balance low oil prices have been an unmitigated disaster for Canada’s economy.

Canada’s GDP “fell off a cliff” in January of this year, according to a report from Capital Economics, a consultancy. Canada’s economy could be shrinking by 1% on an annualized basis. For the full year, Capital Economics predicts growth of 1.5%, followed by a weak 1% expansion in 2016.

“Overall, unless oil prices rebound soon, the economy is likely to struggle much longer than the consensus view implies, even as the improving US economy supports stronger non-energy exports,” Capital Economics concluded. Other economic analysts agree.

Nomura Securities worries about “contagion,” as the collapse in oil prices lead to less drilling, declining demand for supporting services, falling housing prices, a sinking stock market, and weakness in other sectors like construction and engineering. The pain could be concentrated in Alberta in particular, where household debt averages CAD$124,838, compared to just CAD$76,150 for the rest of Canada. Now with the rug pulled out beneath the economy, there could be a day of reckoning.

High-cost oil: Much of Canada’s oil production comes from high-cost tar sands. When they are up and running, tar sands operations can produce relatively more stable outputs than shale, which suffers from rapid decline rates. But, nevertheless, tar sands are extremely costly, with breakeven prices at $60 to $80 per barrel for steam-assisted extraction and a whopping $90 to $100 per barrel for tar sands mining.
Even worse, Canada’s heavy oil trades at a discount to WTI, which makes it all the more painful when oil prices are low. The discount is nearly $12 per barrel below WTI right now. Some of that discount is the result of inadequate pipeline capacity, trapping some tar sands in Canada. The stalled Keystone XL pipeline is the most controversial, but not the only pipeline that has been blocked. The head of Canada’s Scotiabank recently warned that the inability to build enough energy infrastructure, plus Canada’s near total dependence on the U.S. market, puts Canada’s economy at risk.

The Bank of Canada surveyed the top executives at Canada’s 100 largest businesses found that two-thirds of them think it is critical to diversify the economy away from oil. With such a dependence on commodities, the oil bust has rippled through the economy, forcing layoffs and increasing unemployment. Consumer confidence is low, and hiring is at its lowest level since 2009, during the immediate aftermath of the global financial crisis.

Of course, diversification can only be achieved over the longer-term. In the near-term Canada’s fate is tied to the price of oil.

Naomi Klein: Shocks, Slides and Shifts Make This The Perfect Time to Invest In Renewables

Imagine if Canada was implementing environmental policies like those proposed by one of its own, author & filmmaker Naomi Klein. What if Canada were to restore its historical image as a progressive country leading the World with its policies?  In the following video published on the UK Guardian website, Ms. Klein argues that making policy moves now to increase investment in renewable energy makes economic sense, while oil prices are at very low levels, and likely to remain low for the longer term.

Plummeting Oil Prices Set To Continue As Canada Cringes

 

 

Regrettably, this week’s events in the oil market, provide further evidence of the dire consequences ahead for the Canadian oil economy.  Oil industry bulls who have been betting on a quick rebound in oil prices are likely to get severely burned, and the prospects for the local tourism based economy are only worsening.

In the same week that local gasoline prices mysteriously spiked up nine cents per liter, blamed on the weakening Canadian dollar, and a refinery fire in Los Angeles (of all places), the Wall Street Journal reported that the global oil glut has consumed more than 80% of the available storage capacity. The WSJ report went on to state that with production levels still not likely to decline, oil supply would continue to grow well beyond demand, driving prices into another sharp decline, perhaps as low at CitiBank‘s forecast of $20 per bbl.   Now the International Energy Agency has corroborated the WSJ forecast with its own dire oil market forecast. Both do not see any early end in sight. Crude prices plunged Friday on this news, to below $45 per bbl.

 

Oil Prices Tumble After IEA Warning
Energy watchdog warns that recent rebound in prices may not last

REBLOGGED from the WSJ

By TIMOTHY PUKO And BENOÎT FAUCON
Updated March 13, 2015 5:09 p.m. ET

The benchmark U.S. oil price tumbled to a six-week low Friday, thwarting hopes for a sustained recovery after an influential energy watchdog said U.S. production growth is defying expectations and setting the stage for another bout of price weakness.

Investors and oil producers should brace for further declines in oil prices, the International Energy Agency said in a monthly report. Prices haven’t fallen far enough yet to cut supply, and some signs of rising demand are just temporary—bargain buyers using cheap oil to fill up stockpiles, the agency said.

That outlook weighed on sentiment in the oil-futures market, which has stabilized in recent weeks following a seven-month selloff that saw the benchmark price on the New York Mercantile Exchange plunge 59%. Behind the selloff, which by some measures was the steepest in decades, was a global glut of crude spurred by rising production in the U.S. and Libya.

“This IEA report today confirmed a lot of things bears had been talking about,” said Todd Garner, who manages $100 million in energy commodity investments at hedge fund Protec Energy Partners LLC based in Boca Raton, Fla. “It is a big deal.” His fund is slowly adding to a bet the growing supply will keep bringing down gasoline futures, he said.

The IEA’s report echoed growing concerns in the market that the amount of available oil storage is dwindling, which potentially could weigh further on prices if output continues unabated.

Many barrels are building up in U.S. storage tanks and behind drilled but idled wells. That overhang can flood the market any time prices rise, acting as a cap on prices, Mr. Garner and others said.

Light, sweet crude for April delivery fell $2.21, or 4.7%, to $44.84 a barrel on the New York Mercantile Exchange. The contract closed within 40 cents of the 6-year low closing price of $44.45 a barrel set on Jan. 28.

Brent, the global benchmark, fell $2.41 a barrel, or 4.2%, to $54.67 a barrel on ICE Futures Europe. Both Brent and U.S. oil had their biggest one-day percentage losses in about two weeks.

Oil prices fell sharply Friday. Late last year, workers on a Texas drilling rig grappled with equipment.
Financial markets have been closely watching oil prices, which had recovered to more than $60 a barrel for Brent crude. Oil prices had traded in a fairly narrow range for about a month, raising the question of whether the market had stabilized after a historic collapse.

Rig counts, one closely watched metric, fell for a 14th straight week, Baker Hughes said Friday. The U.S. oil-rig count fell by 56 to 866 in the latest week.

That is down 46% from a peak of 1,609 in October, but hasn’t led to a commensurate cut in production because producers are still completing previously drilled wells and focusing on the highest producing areas to trim costs. Rig counts in the country’s biggest three shale oil fields, the Bakken, Eagle Ford and Permian, haven’t fallen nearly as fast, according to Citigroup Inc.

Today’s oil industry compares to the natural-gas bust of 2011 and 2012 when a dramatic price collapse led to massive cuts in rig activity, but no slowdown production, the bank said in a note this week. Producers got more efficient and left a backlog of wells to connect later. Prices fell by half and took more than a year to fully rebound. Citi expects U.S. oil production this year to grow by 700,000 barrels in 2015 under almost any scenario, it said.

“If you don’t complete wells now, that just means you have more later,” Citi analyst Anthony Yuen said. “When the price is supposed to get high, it will just get dampened” when the uncompleted wells get tapped.

The IEA said U.S. oil production was up 115,000 barrels a day in February, some of it going into bulging storage inventories whose capacity may soon be tested. “That would inevitably lead to renewed price weakness,” the report said. The IEA called the appearance of stability a “facade.”

“Production’s through the roof,” said Tim Rudderow, who oversees $1.6 billion at Mount Lucas Management in suburban Philadelphia. “You’re going to fill up every jar and bottle from here to Europe.”

As oil prices consolidated in recent weeks, Mr. Rudderow bought options that would pay off if June futures fell back to a range between $43 and $50 a barrel, he said. He has about 15% of a $600 million fund on oil bets and might add to it if oil keeps falling, potentially setting off a panic, he added.

Another oil-market contraction could spell good news for motorists, who had begun feeling rising crude prices in higher costs at the pump in the past two months. The average retail cost of a gallon of gasoline in the U.S. was $2.49 this week, compared with $2.04 on Jan. 26, according to the U.S. Energy Information Administration.

Front-month gasoline futures closed down 2.6% to $1.7623 a gallon. Diesel futures closed down 3.7% to $1.7130 a gallon.

Others on Friday echoed the IEA’s view, saying that, in the short term, the oil market is fundamentally weak. “U.S. production growth has not yet slowed enough to balance the oil market,” Goldman Sachs said in a note to investors.

Investors did take heed in the week ended Tuesday, pulling back on a bullish bet on oil prices, according to the U.S. Commodity Futures Trading Commission. Hedge funds, pension funds and others added to their short positions, or bets on lower prices, by 4,763 and added to their long positions, or bets on rising prices, by just 731. It pulled back the net bullish position by 2.5% to 160,278.

UBC Faculty Joins Other Prestigious Universities Calling for Fossil Fuel Divestment

The University of British Columbia is following the lead of faculty and students at Harvard University, the University of California, Stanford University and many other universities across North America.  Also of note, Norway’s sovereign investment fund, the largest in the World @ $1.3 Trillion, has already made the decision to divest. The current fossil fuel market collapse and likely long term instability is prima facie evidence of the need for divestment, and to prevent further increases in carbon emissions.

UBC Faculty Open Letter Here: UBC Faculty Call For Fossil Fuel Divestment

This Big Idea is sweeping public and private institutional investment funds globally in the belief that it is overdue to begin more demonstrative action against human caused climate change.  Canadians have a particularly important role to play in this.  Current government policy has focused the economy on fossil fuels, at the expense of a broader based economy, and is now experiencing the wrath of the “natural resource curse. Canadian innovation and productivity have plummeted on the OECD scale, and Canada is entering a highly volatile and uncertain recessionary period, as forecast by The Conference Board of Canada, the International Monetary Fund, and numerous Canadian banks.

From the Canadian Broadcasting Corporation:

Faculty at the University of British Columbia have voted in favour of the institution divesting its existing fossil fuel holdings and forgoing further investments in companies connected with fossil fuels.

“Students have spoken. Faculty have spoken. It’s time for UBC to act,” George Hoberg, professor in forest resources management, said in a statement. “Climate change presents an urgent crisis for humanity.”

The results of the referendum were released Tuesday, with 62 per cent of voters supporting divestment.

A fossil-free portfolio

Of UBC’s $1.2-billion endowment fund, more than $100 million is invested in oil, natural gas and coal. The faculty vote is calling on the university to divest completely from those holdings within five years.

“Just as UBC has pledged to use its campus as a ‘living laboratory’ for sustainability, we call on our university to apply its expertise with the same vigour to the endowment,” said Kathryn Harrison, professor of political science and a climate policy expert.

“UBC should devise a profitable, fossil-free portfolio that can serve as an inspiration for sustainable investing by other institutions.”

The faculty will now put their proposal to the university’s board of governors.

“UBC is a place of academic dialogue and debate, and we welcome our faculty members’ interest in our investment policies,” the university said in a statement responding to today’s result. “As the trustee of the endowment, UBC has a fiduciary obligation to ensure that it is managed prudently.”

A growing movement

The fossil fuel divestment movement started in the United States and has spread across North America and Canada.

Last year, UBC students held their own referendum on the issue, with an almost four-to-one vote in favour of divestment.

Today’s vote comes just before Global Divestment Day on Friday when, the UBC campaigners say, a divestment campaign will be launched at the University of Calgary.

Norway Sovereign Wealth Fund Drops Coal and Tar Sands Investments

World’s biggest sovereign wealth fund dumps dozens of coal companies

Norway’s giant fund removes investments made risky by climate change and other environmental concerns, including coal, oil sands, cement and gold mining

The world’s richest sovereign wealth fund removed 32 coal mining companies from its portfolio in 2014, citing the risk they face from regulatory action on climate change.

Norway’s Government Pension Fund Global (GPFG), worth $850bn (£556bn) and founded on the nation’s oil and gas wealth, revealed a total of 114 companies had been dumped on environmental and climate grounds in its first report on responsible investing, released on Thursday. The companies divested also include tar sands producers, cement makers and gold miners.

As part of a fast-growing campaign, over $50bn in fossil fuel company stocks have been divested by 180 organisations on the basis that their business models are incompatible with the pledge by the world’s governments to tackle global warming. But the GPFG is the highest profile institution to divest to date.

A series of analyses have shown that only a quarter of known and exploitable fossil fuels can be burned if temperatures are to be kept below 2C, the internationally agreed danger limit. Bank of England governor Mark Carney, World Bank president Jim Yong Kim and others have warned investors that action on climate change would leave many current fossil fuel assets worthless.

“Our risk-based approach means that we exit sectors and areas where we see elevated levels of risk to our investments in the long term,” said Marthe Skaar, spokeswoman for GPFG, which has $40bn invested in fossil fuel companies. “Companies with particularly high greenhouse gas emissions may be exposed to risk from regulatory or other changes leading to a fall in demand.”

She said GPFG had divested from 22 companies because of their high carbon emissions: 14 coal miners, five tar sand producers, two cement companies and one coal-based electricity generator. In addition, 16 coal miners linked to deforestation in Indonesia and India were dumped, as were two US coal companies involved in mountain-top removal. The GPFG did not reveal the names of the companies or the value of the divestments.

Advertisement

“One of the largest global investment institutions is winding down its coal interests, as it is clear the business model for coal no longer works with western markets already in a death spiral, and signs of Chinese demand peaking,” said James Leaton, research director at the Carbon Tracker Initiative, which analyses the risk of fossil fuel assets being stranded.

A report by Goldman Sachs in January also called time on the use of coal for electricity generation: “Just as a worker celebrating their 65th birthday can settle into a more sedate lifestyle while they look back on past achievements, we argue that thermal coal has reached its retirement age.” Goldman Sachs downgraded its long term price forecast for coal by 18%.

On Wednesday, a group of medical organisations called for the health sector to divest from fossil fuels as it had from tobacco. The £18bn Wellcome Trust, one of the world’s biggest funders of medical research , said “climate change is one of the greatest challenges to global health” but rejected the call to divest or reveal its total fossil fuel holdings.

In January, Axa Investment Managers warned the reputation of fossil fuel companies were at immediate risk from the divestment campaign and Shell unexpectedly backed a shareholder demand to assess whether the company’s business model is compatible with global goals to tackle climate change.

Note: The first line originally said 40 coal mining companies had been dropped, instead of the correct number of 32. A further eight companies were dropped due to their greenhouse gas emissions: five tar sand producers, two cement companies and one coal-based electricity generator.

Preparing For The Long Term Consequences In Texas And Western Canada

UPDATE: January 20, 2015. Target announced this week that it will be closing all 133 stores in Canada, including the Vernon and Kelowna stores. eliminating at least a couple of hundred local $10/hr jobs and a handful of slightly better paid management jobs. The Wall Street Journal is reporting that Target’s 17,000 + Canadian layoffs of low income workers will be the largest in Canadian history.

OPEC Report Downgrades Demand for Its Oil as Prices Fall Again

The growing downturn in the fossil fuels industry has extraordinary implications globally.  While some are proposing theories that this downturn will be short-lived, there simply isn’t much evidence to support an optimistic forecast.  Saudi Arabia is openly executing a long term strategy to squeeze “high cost oil producers,” using its unquestioned leverage and the lowest production costs in the World.  Europe is facing potential deflation, and the current European recession is forcing the European Central Bank to begin “quantitative easing,” beginning this week, essentially printing money.  The Russian economy is in shambles as the ruble weakens, something Putin did not plan on occurring.  The Chinese economy has weakened sharply and will likely remain weak into the near foreseeable future. Meanwhile Canada is at the mercy of these global forces, with little in the way of economic reserves to defend its economy, having bet the entire Canadian economy on oil. Somehow Joe Oliver promised he would balance the Canadian budget in 2015, and then the next day, Oliver ate crow, and walked back his promise.  In a surprise move, The Bank of Canada then reduced the lending rate to 0.75%, causing the loonie to plummet below 81 cents. Things are not what the government wants us to believe.

There are significant hedge bets in the market that oil will soon return to $100 per barrel. A prominent optimistic theory suggests that Saudi Arabia and the United States are collaborating to squeeze Putin and the Russian oil economy, and oil will bounce back within 90 days. However, most economists and oil industry analysts are projecting a much longer and deeper petroleum industry recession than in the 1980’s, for example.  The predominant view is that it will persist for at least five years or longer.

In Texas, Hunkering Down for the Oil Bust

Reblogged from The New York Times

By CLIFFORD KRAUSSJAN. 19, 2015

MIDLAND, Tex. — With oil prices plummetingby more than 50 percent since June, the gleeful mood of recent years has turned glum here in West Texas as the frenzy of shale oil drilling has come to a screeching halt.

Every day, oil companies are decommissioning rigs and announcing layoffs. Small firms that lease equipment have fallen behind in their payments.

In response, businesses and workers are getting ready for the worst. A Mexican restaurant has started a Sunday brunch to expand its revenues beyond dinner. A Mercedes dealer, anticipating reduced demand, is prepared to emphasize repairs and sales of used cars. And people are cutting back at home, rethinking their vacation plans and cutting the hours of their housemaids and gardeners.

Dexter Allred, the general manager of a local oil field service company, began farming alfalfa hay on the side some years ago in the event that oil prices declined and work dried up. He was taking a cue from his grandfather, Homer Alf Swinson, an oil field mechanic, who opened a coin-operated carwash in 1968 — just in case.

Photo

Homer Alf Swinson, left, an oil field mechanic, opened a coin-operated carwash in 1968 — just in case oil prices declined. CreditMichael Stravato for The New York Times

“We all have backup plans,” Mr. Allred said with laugh. “You can be sure oil will go up and down, the only question is when.”

Indeed, to residents here in the heart of the oil patch, booms and busts go with the territory.

“This is Midland and it’s just a way of life,” said David Cristiani, owner of a downtown jewelry store, who keeps a graph charting oil prices since the late 1990s on his desk to remind him that the good times don’t last forever. “We are always prepared for slowdowns. We just hunker down. They wrote off the Permian Basin in 1984, but the oil will always be here.”

It’s at times like these that Midland residents recall the wild swings of the 1980s, a decade that began with parties where people drank Dom Pérignon out of their cowboy boots. Rolls-Royce opened a dealership, and the local airport had trouble finding space to park all the private jets. By the end of the decade, the Rolls-Royce dealership was shut and replaced by a tortilla factory, and three banks had failed.

There has been nothing like that kind of excess over the past five years, despite the frenzy of drilling across the Permian Basin, the granddaddy of American oil fields. Set in a forsaken desert where tumbleweed drifts through long-forgotten towns, the region has undergone a renaissance in the last four years, with horizontal drilling and fracking reaching through multiple layers of shales stacked one over the other like a birthday cake.

But since the Permian Basin rig count peaked at around 570 last September, it has fallen to below 490 and local oil executives say the count will probably go down to as low as 300 by April unless prices rebound. The last time the rig count declined as rapidly was in late 2008 and early 2009, when the price of oil fell from over $140 to under $40 a barrel because of the financial crisis.

Unlike traditional oil wells, which cannot be turned on and off so easily, shale production can be cut back quickly, and so the field’s output should slow considerably by the end of the year.

The Dallas Federal Reserve recently estimated that the falling oil prices and other factors will reduce job growth in Texas overall from 3.6 percent in 2014 to as low as 2 percent this year, or a reduction of about 149,000 in jobs created.

Midland’s recent good fortune is plain to see. The city has grown in population from 108,000 in 2010 to 140,000 today, and there has been an explosion of hotel and apartment construction. Companies like Chevron and Occidental are building new local headquarters. Real estate values have roughly doubled over the past five years, according to Mayor Jerry Morales.

The city has built a new fire station and recruited new police officers with the infusion of new tax receipts, which increased by 19 percent from 2013 to 2014 alone. A new $14 million court building is scheduled to break ground next month. But the city has also put away $39 million in a rainy-day fund for the inevitable oil bust.

“This is just a cooling-off period,” Mayor Morales said. “We will prevail again.”

Expensive restaurants are still full and traffic around the city can be brutal. Still, everyone seems to sense that the pain is coming, and they are preparing for it.

Randy Perry, who makes $115,000 a year, plus bonuses, managing the rig crews at Elevation Resources, said he always has a backup plan.

“We are responding to survive, so that we may once again thrive when we come out the other side,” said Steven H. Pruett, president and chief executive of Elevation Resources, a Midland-based oil exploration and production company. “Six months ago there was a swagger in Midland and now that swagger is gone.”

Mr. Pruett’s company had six rigs running in early December but now has only three. It will go down to one by the end of the month, even though he must continue to pay a service company for two of the rigs because of a long-term contract.

The other day Mr. Pruett drove to a rig outside of Odessa he feels compelled to park to save cash, and he expressed concern that as many as 50 service workers could eventually lose their jobs.

But the workers themselves seemed stoic about their fortunes, if not upbeat.

“It’s always in the back of your mind — being laid off and not having the security of a regular job,” said Randy Perry, a tool-pusher who makes $115,000 a year, plus bonuses, managing the rig crews. But Mr. Perry said he always has a backup plan because layoffs are so common; even inevitable.

Since graduating from high school a decade ago, he has bought several houses in East Texas and fixed them up, doing the plumbing and electrical work himself. At age 29 with a wife and three children, he currently has three houses, and if he is let go, he says he could sell one for a profit he estimates at $50,000 to $100,000.

Just a few weeks ago, he and other employees received a note from Trent Latshaw, the head of his company, Latshaw Drilling, saying that layoffs may be necessary this year.

“The people of the older generation tell the young guys to save and invest the money you make and have cash flow just in case,” Mr. Perry said during a work break. “I feel like everything is going to be O.K. This is not going to last forever.”

The most nervous people in Midland seem to be the oil executives who say busts may be inevitable, but how long they last is anybody’s guess.

Over a lavish buffet lunch recently at the Petroleum Club of Midland, the talk was woeful and full of conspiracy theories about how the Saudis were refusing to cut supplies to vanquish the surging American oil industry.

“At $45 a barrel, it shuts down nearly every project,” Steve J. McCoy, Latshaw Drilling’s director of business development, told Mr. Pruett and his guests. “The Saudis understand and they are killing us.”

Mr. Pruett nodded in agreement, adding, “They are trash-talking the price of oil down.”

“Everyone has been saying `Happy New Year,’” Mr. Pruett continued. “Yeah, some happy new year.”

To See The Future Of The Western Canadian Economy Look To Texas

UPDATE: May 21, 2015.  Goldman Sachs has just released an oil price forecast suggesting that North Sea Brent crude will still be $55 in 2020, five years from now.  As Alberta’s Western Canadian Select (WCS) bitumen is valued lower on commodity markets this is extremely bad news for Canada. Further, the well-known Canadian economic forecasting firm, Enform is predicting that job losses across all of western Canada, not only Alberta, could reach 180,000. 

UPDATE: January 15, 2015. Target announced today that it will be closing all 133 stores in Canada, including the Vernon and Kelowna stores. eliminating at least a couple of hundred local $10/hr jobs and a handful of slightly better paid management jobs. The Wall Street Journal is reporting that Target’s 17,000 + Canadian layoffs of low-income workers will be the largest in Canadian history.

To Understand Alberta’s Future, Look to Texas

Brace yourself. I haven’t gotten the sense that the coming economic bust in western Canada has yet sunk in with all Canadians. The problem is centered in Alberta, but radiates throughout western Canada, and even well beyond in complex ways. If you want to get a credible sense of what we are facing, you need only look to journals like The Wall Street Journal, CNN Money, Bloomberg and many others to get the evidence you may seek.  Kelowna Now‘s recent story on jobs in Kelowna noted a key issue locally: many of the employed in Kelowna work up north in the oil patch. Then there is the matter of the Nova Scotia workers in Fort MacMurray and their future. Closer to home than Texas, we should also consider the radiant job loss effect in places like North Dakota and Wyoming.  SF Gate has also reported 700 layoffs by a Canadian oil company in Bakersfield, California.  The “pollyanna’s” who are denying that this is happening are “whistling in the graveyard.”

Reblogged from The Wall Street Journal Blog:

Plunging Oil Prices Test Texas’ Economic Boom

Downturn Has Many Wondering How Lone Star State Will Weather a Bust

Oil tankers are loaded with crude in Corpus Christi, Texas, in December. The area has prospered in recent years due to the energy boom in the Eagle Ford shale formation, but falling prices could test that.

Retired Southwest Airlines co-founder Herb Kelleher remembers a Texas bumper sticker from the late 1980s, when falling energy prices triggered an ugly regional downturn: “Dear Lord, give me another boom and I promise I won’t screw it up.”

Texas got its wish with another energy-driven boom, and now plunging oil prices are testing whether the state has held up its end of the bargain.

The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole.

The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate.

One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average.

But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large countries: 9% in the 12 months ending June 2014.

Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

Mr. Kelleher is among the Texans predicting this won’t be a replay of the 1980s oil bust and banking crisis, which drove the state unemployment rate to 9.3%. As evidence, he and others cite a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources.

“Texas has become a well-rounded state,” Mr. Kelleher said. “People did remember not to overextend themselves.”

Michael Feroli, a New York-based economist at J.P. Morgan Chase & Co., is one of the skeptics of the “this-time-is-different” camp. Although the oil-and-gas industry today makes up a smaller share of Texas’ workforce than it did in the mid-1980s, it accounts for roughly the same share of its economic output, he said. So a decline in oil prices similar to the plunge of more than 50% seen in the mid-1980s, he said, could have a similar result: recession.

“If oil prices stay where they are, Texas is going to face a more difficult economic reality,” Mr. Feroli said.

Oil exploration companies already are scaling back drilling plans for next year. Oil-field-service companies that provide labor and machinery, such as Halliburton Co. andSchlumberger Ltd. , are laying off workers. The number of oil and gas rigs in Texas, which had grown 80% since the start of 2010, has been dropping over the past few weeks. The rig count in the state stood at 851 at the end of December, down from 905 in mid-November, according to oil-field-services firm Baker Hughes Inc., which compiles the data. Meanwhile, yields on junk bonds tied to energy companies have soared as investors brace for financial fallout from the oil-price bust.

Yet Dallas Fed President Richard Fisher likens the J.P. Morgan report to bull droppings. He noted that sectors including trade and transportation, leisure and hospitality, education and construction all have produced more new jobs in recent years than energy. Houston has experienced fast growth in the medical sector, Austin in technology.

“This is a test,” Mr. Fisher said. “Is Texas indeed as diversified as people like me say it is?”

ENLARGE

Analysts at the Federal Reserve Bank of Dallas estimate that a 45% decline in the price of oil—from $100 a barrel to near $55—will reduce Texas payrolls by 125,000, all else being equal. Payrolls were up 447,900 in November from a year earlier, or 3.9%. The Dallas Fed estimate implies growth of more than 300,000, or nearly 3%, even with a lower oil price, still faster than the national average of 2%.

Pia Orrenius, a Dallas Fed regional economist, sees the price bust washing through the Texas economy in both positive and negative ways. It could help the booming petrochemicals sector and manufacturing by lowering costs. A construction boom centered on petrochemical plants is already under way along the Gulf Coast, a source of blue-collar jobs. Yet the price bust will hurt sectors like construction, transportation and business services that have expanded to serve the oil industry, and consumer spending more broadly as workers lose their jobs.

“We will see significant spillovers,” Ms. Orrenius said.

Nowhere is the evolution of the Texas economy more apparent than in Houston, the nation’s fourth-largest city, with 2.2 million people.

After oil-and-gas prices crashed in the mid-1980s, energy companies in the city laid off thousands of petroleum engineers and other well-paid industry workers, and the real-estate market crumbled, helping trigger a regional-banking collapse. One in six homes and apartments in Houston stood vacant at the beginning of 1987, and the county tax rolls dropped by $8 billion, according to a history of the bust by the Federal Deposit Insurance Corp. That prompted civic leaders to push for an expanded medical sector and more diversified economy.

Today, the Texas Medical Center is the world’s largest medical complex, with more than 20 hospitals, three medical schools and six nursing schools, employing 106,000 people. Health-care and social-services companies made up 10.4% of jobs in the greater Houston area in 2013, compared with 5.9% in 1985, according to Labor Department data. Roughly 4.3% of jobs in the county were in the oil-and-gas industry last year, down from 5.9% in 1985.

Still, most of the 26 Fortune 500 companies based in Houston are in energy, includingPhillips 66 , Halliburton and Anadarko Petroleum Corp. , and energy employees flush with cash recently spurred a run-up in real-estate prices in the region that has raised red flags among some economists. Fitch Ratings recently declared that Houston home prices were the second-most overvalued in the country, behind Austin, when compared with historical averages, and that current prices may be unsustainable, citing the current oil-price drop.

The energy boom has strengthened the state’s budget. Revenues are expected to take a hit with falling levies on oil and natural gas production, but less than previously. The levies accounted for 9.4% of state tax revenue in 2013 compared with 20.2% in 1985, according to data from the Texas state comptroller’s office.

Texas banks also appear to be in better shape to handle a shock than they were in the 1980s. Between 1986 and 1990, more than 700 Texas banks and thrifts failed. During the worst of the last financial crisis in 2008 and 2009, seven Texas banks failed, according to the FDIC. Fewer than 1% of state banks have high measures of nonperforming loans now, compared with 20% in the late 1980s, according to the Dallas Fed.

Texas is the only state that limits home-equity borrowing to 80% of a home’s value, a provision enshrined in its state constitution. The rule helped keep Texas homeowners from piling up debt against their homes during the national real-estate boom of the 2000s. Only 10% of nonprime mortgages were underwater in 2011 in Texas, compared with 54% in the rest of the U.S., according to the Dallas Fed.

“Even though we saw our banking brethren in other states doing these crazy deals, we refused to do so because we remembered the ’80s,” said Pat Hickman, chief executive of Happy State Bank, a community bank in the Texas Panhandle. “We learned lessons.”

Texas has something else going for it: A bounty of resources other than oil and natural gas, most notably, land and people.

The state’s population grew 29% between 2000 and 2014, more than twice as fast as the U.S. as a whole, according to the Census Bureau. The median age in Texas was 34 last year, 3 1/2 years younger than the nation overall. Growth has come from a combination of migration from other states, immigration and a higher birthrate than the national average.

The U.S. economy has been restrained in recent years by slow labor-force growth. Texas, on the other hand, has more young people entering their prime working years and fewer elderly residents, as a percentage of the population, than does the nation overall. That has given its economy a solid foundation of available workers.

Workforce and land were two factors that drew Firefly Space Systems, a manufacturer of low-orbit rockets, to the Austin area earlier this year. The firm needed a place to launch test rockets and chose Texas over Los Angeles for an expansion. It found a supply of tech-savvy workers in the Austin area and plentiful land.

“It was the geography, and it was making sure our employees were comfortable there,” said Maureen Gannon, the firm’s vice president for business development. The firm plans to hire 200 people in coming years.

Norway Deals With Its “Natural Resource Curse” While Canada Does Nothing

CBC’s The National has tonight broadcast a public debate titled “The Politics of Oil” on the current oil economy crisis in Canada. A key issue exposed tonight was the contrast between Canada’s national policies on oil wealth and Norway’s.  In the 1990’s both Canada and Norway debated how to manage oil wealth and created funds to invest for future economic development. Today, Norway’s national saving fund is worth $1.03 Trillion while Canada’s, actually Alberta’s fund, is worth only $17 Billion, and has barely increased since the late 1990’s.

I blogged on this topic on May 27th of 2013. My original post is republished here:

INDUSTRY ANALYSIS: NORWAY DEALS WITH IT’S “NATURAL RESOURCE CURSE” WHILE CANADA DOES NOTHING

In my earlier post on March 11th, 2013 , “Alberta Bitumen Bubble and the Canadian Economy: An Industry Analysis Case Study,” I reported the stark facts of Canada’s current economic crisis as announced by Canada’s Minister of Finance, Jim Flaherty, and Alberta Premier Allison Redford, directly resulting from pricing forecasts for “Western Canada Select” (WCS) from the oil sands. In that post I also explored the now well-established economic conundrum known as the “natural resource curse.”  This simply means that economies that rely heavily on natural resource exploitation, have historically underperformed more diverse economies. This is now most certainly the case in Canada.Read more: http://mayo615.com/2013/03/11/alberta-bitumen-bubble-and-the-canadian-economy-industry-analysis-case-study/In another excellent Globe & Mail article published May 16th, the author details how Norway dealt with its “natural resource curse,” and has diversified its economy with the government proceeds of its oil wealth.  By contrast, Canada’s current Conservative government prefers a laissez-faire approach to the future, taking no action.  In the opinion of most economists who monitor natural resource based economies, this is a recipe for disaster in Canada.  So again the discussion question is: in such a situation, what would you do to address this crisis for the Canadian economy?Read more: http://www.theglobeandmail.com/report-on-business/economy/canada-competes/what-norway-did-with-its-oil-and-we-didnt/article11959362/When oil was discovered in the Norwegian continental shelf in 1969, Norway was very aware of the finite nature of petroleum, and didn’t waste any time legislating policies to manage the new-found resource in a way that would give Norwegians long-term wealth, benefit their entire society and make them competitive beyond just a commodities exporter. “Norway got the basics right quite early on,” says John Calvert, a political science professor at Simon Fraser University. “They understood what this was about and they put in place public policy that they have benefited so much from.”This is in contrast to Canada’s free-market approach, he contends, where our government is discouraged from long-term public planning, in favour of allowing the market to determine the pace and scope of development.“I would argue quite strongly that the Norwegians have done a much better job of managing their [petroleum] resource,” Prof. Calvert says.While No. 15 on the World Economic Forum’s global competitiveness rankings, Norway is ranked third out of all countries on its macroeconomic environment (up from fourth last year), “driven by windfall oil revenues combined with prudent fiscal management,” according to the Forum.Before oil was discovered, the Act of 21 June 1963 was already in place for managing the Norwegian continental shelf. This legislation has since been updated several times, most recently in 1996, now considered Norway’s Petroleum Act, which includes protection for fisheries, communities and the environment.In 1972, the government founded the precursor of Statoil ASA, an integrated petroleum company. (In 2012, Statoil dividends from government shares was $2.4-billion). In the same year, theNorwegian Petroleum Directorate was also established, a government administrative body that has the objective of “creating the greatest possible values for society from the oil and gas activities by means of prudent resource management.”

In 1990, the precursor of the Government Pension Fund – Global (GPFG), a sovereign wealth fund, was established for surplus oil revenues. Today the GPFG is worth more than $700-billion.

While there’s no question that Norway has done well from its oil and gas, unlike many resource-based nations, Norway has invested its petro dollars in such a way as to create and sustain other industries where it is also globally competitive.

The second largest export of Norway is supplies for the petroleum industry, points out Ole Anders Lindseth, the director general of the Ministry of Petroleum and Energy in Norway.

“So the oil and gas activities have rendered more than just revenue for the benefit of the future generations, but has also rendered employment, workplaces and highly skilled industries,” Mr. Lindseth says.

Maximizing the resource is also very important.

Because the government is highly invested, (oil profits are taxed at 78 per cent, and in 2011 tax revenues were $36-billion), it is as interested as oil companies, which want to maximize their profits, in extracting the maximum amount of hydrocarbons from the reservoirs. This has inspired technological advances such as parallel drilling, Mr. Lindseth says.

“The extraction rate in Norway is around 50 per cent, which is extremely high in the world average,” he adds.

Norway has also managed to largely avoid so-called Dutch disease (a decline in other exports due to a strong currency) for two reasons, Mr. Lindseth says. The GPFG wealth fund is largely invested outside Norway by legislation, and the annual maximum withdrawal is 4 per cent. Through these two measures, Norway has avoided hyper-inflation, and has been able to sustain its traditional industries.

In Norway, there’s no industry more traditional than fishing.

“As far back as the 12th century they were already exporting stock fish to places in Europe,” explains Rashid Sumaila, director of the Fisheries Economics Research Unit at the University of British Columbia Fisheries Centre.

Prof. Sumaila spent seven years studying economics in Norway and uses game theory to study fish stocks and ecosystems. Fish don’t heed international borders and his research shows how co-operative behaviour is economically beneficial.

“Ninety per cent of the fish stocks that Norway depends on are shared with other countries. It’s a country that has more co-operation and collaboration with other countries than any other country I know,” Prof. Sumaila says.

“That’s [partly] why they still have their cod and we’ve lost ours,” he adds, pointing out that not only are quotas and illegal fishing heavily monitored, policy in Norway is based on scientific evidence and consideration for the sustainability of the ecosystem as a whole.

Prof. Sumaila cites the recent changes to Canada’s Fisheries Act, as a counter-example: “To protect the habitat, you have to show a direct link between the habitat, the fish and the economy,” he says, adding, “That’s the kind of weakening that the Norwegians don’t do.”

Svein Jentoft is a professor in the faculty of Bioscience, Fisheries and Economics at the University of Tromso. He adds that Norway’s co-operative management style, particularly domestically, has been key to the continued success of the fisheries.

“The management system [for fish stock] is an outcome of the positive, constructive and trustful relationship between the industry on the one hand and the government on the other hand,” Prof. Jentoft says. “They have been able to agree on issues that you and many other countries haven’t been able to, largely because the government has listened to the fishermen.”

However, Prof. Jentoft isn’t on board with all of his government’s policies. He’s concerned about how the quota and licensing system is concentrating wealth and the impact that this will have on fishing communities.

He predicts that Norway’s wild stocks will remain healthy in the foreseeable future and that the aquaculture industry (fish farms), where Norwegians are world leaders, will continue to grow.

In 2009, Norway’s total fish and seafood export was $7.1-billion, $3.8-billion was in aquaculture. By 2011, Norwegian aquaculture exports grew to $4.9-billion. In Canada, total fish and seafood exports in 2011 were $3.6-billion, with approximately one-third from aquaculture.

Norway’s forests are another important natural resource, and its pulp-and-paper industry has many parallels to Canada’s. Both nations are heavy exporters of newsprint. With much less demand since the wide adoption of the Internet and competition from modern mills from emerging markets, both nations have suffered through down-sizing and mill closures over the past decade. Both have been looking for ways to adapt.

The Borregaard pulp and paper mill in Sarpsborg has become one of the world’s most advanced biorefineries. From wood, it creates four main products: specialty cellulose, lignosuphonates, vanillin and ethanol, along with 200 GWh a year of bioenergy.

“You have a diversified portfolio of products,” explains Karin Oyaas, research manager at the Paper and Fibre Research Institute in Trondheim. “The Borregaard mill uses all parts of the wood and they have a variety of products, so if one of the products is priced low for a few years, then maybe some of the other products are priced high.”

She feels this is a key change in direction for the industry in Norway. She doesn’t want to see the industry putting all of its eggs in one basket, as it did with newsprint.

Dr. Oyaas also thinks that rebranding the industry is key to its survival and success in Norway. The forestry industry doesn’t get the same kind of attention as the oil industry, nor does it have the high-tech image. But it is just as high-tech, and it has the bonus of being a renewable resource.

“You can make anything from the forest. You can make the same products that you can make from oil,” explains Dr. Oyaas.

Canada’s “Natural Resource Curse” Will Wreak Economic Havoc For A Decade

Oil’s “new normal” will be global oil prices at or below $70 per barrel, say John Mauldin of equities.com, and many other analysts.  Western Canadian Select (WCS) closed at $55 per barrel this week. The impact on the Canadian economy will be ugly and prolonged. Fasten your seatbelts.

Suncor’s Fort McMurray Facility

Those following international events have probably already seen the stories on Putin’s Russia, and the combined impact international economic sanctions, and now, the unexpected and unwelcome plummet in World oil prices. The Russian economy in 2015 will likely see a budget deficit of $20 Billion or more as the ruble collapses and oil prices plummet. The problem is global and expected by analysts to persist for the foreseeable future. Lesser developed countries like Venezuela and Nigeria, which are more dependent on their oil economies, are expected to see even greater impacts.  Economists commonly refer to this as the “natural resource curse.”  Put simply, it means that national economies that elect to depend on their natural resources for economic prosperity, have consistently underperformed economies that emphasize greater economic diversity and prepare for the wild swings of commodity prices. A key missing element in these economies is a lack of investment in innovation which causes a deterioration of productivity.

Canada’s involvement in this same scenario is getting limited attention.  As the other major industrialized country with a “natural resource exploitation” based economy, fueled by the support of the current federal government which includes known climate change skeptics, Canada is running into the same buzz saw as Russia.  The Prime Minister is keen to put a brave face on all of this, which to many seems to have the feeling of “whistling in the graveyard.”  Last week, the government announced a program to allegedly fight the higher prices many Canadians pay for goods priced much more cheaply in the United States. Long a thorn in the side of Canadians, the move is seen as political arm waving with no teeth. The declining Canadian dollar and economic impact of our “natural resource curse” will make Harper’s plan to eliminate higher Canadian prices a sad joke on Canadians. The full impacts of these economic realities will be far wider: significant loss of jobs, chronic government budget deficits, a decline in industrial investment. Canada’s OECD productivity has fallen sharply behind the other industrialized countries. There will most certainly be a further decline in productivity due to Canada’s decades long failure to invest in innovation, preferring instead to offset poor productivity with windfall dollars from natural resource exploitation.

There is one industrialized nation that has recognized the reality of this Doomsday scenario: Norway. Norway has taken bold national action to protect the nation from the whipsaw impacts of the “natural resource curse.”  I have previously written about Norway’s plan to protect its economy, as has The Globe & Mail, while the Harper government prefers to do nothing.

READ MORE: Norway Confronts Its Natural Resource Curse