We need to diversify the economy part 3
It’s one thing to envision a new Silicon Valley forming in Alberta; it’s quite another to actually make it happen.
By ATB Economics 29 May 2020 1 min read
In yesterday’s Owl, we explored the rationale behind the quest for economic diversification in Alberta. In a nutshell, diversification is intended to address the boom-bust cycle associated with our heavy reliance on oil and gas and as a hedge against the possibility of the sector falling into decline.
Economic diversification (a.k.a. economic development) is also pursued as a way to grow an economy and “skate to where the puck is going to be.”
The desire shared by almost every jurisdiction in the world to capture the investment, good jobs and future growth associated with a vibrant tech sector illustrates why economic diversification is easier said than done. It’s one thing to envision a new Silicon Valley forming in Alberta; it’s quite another to actually make it happen.
After all, whether it’s enlarging your tech sector, expanding your refining capacity, increasing food exports, developing new manufacturing capacity or attracting more tourists, someone else is trying to do the same thing and may even be better at it.
Another reason why economic diversification is hard to achieve is that it often requires creating a competitive edge that doesn’t “naturally” exist. Oil and gas is such a large sector in Alberta because we have lots of oil and gas. This was not enough to ensure success (just look at Venezuela). But it set the stage for us to develop the expertise, infrastructure, relationships and public policy that has turned hydrocarbons trapped in the ground into decades of economic prosperity. Creating and sustaining these sorts of advantages in other areas is a massive undertaking.
Scale is also important. If we want to prepare for the possibility of a smaller oil and gas sector, we need to come up with billions and billions of dollars of new annual economic activity to replace what will be lost.
None of this means that we should abandon economic diversification! From Artificial Intelligence to agri-food, we have made all sorts of progress toward a more prosperous and more resilient economy in Alberta. The point, rather, is that economic diversification is not as easy as some make it out to be and that it doesn’t happen overnight. It’s a slow, iterative and often risky process.