The Albatross of Natural Resources

Natural resources are an important part of the western Canadian economy, but they shouldn’t crowd out other sectors.

Western Canada is routinely described as a "resource-based" economy. This is true as far as it goes; natural resources are major industries in the region and they drive all sorts of other economic activity.

But this observation obscures the fact that western Canada, like most post-industrial societies, is largely a service economy. "Resource-based" conjures images of rig workers, loggers, farmers, and miners, but misses the fact that most westerners live in cities, doing jobs far removed from these industries. More westerners work in the health and education sectors than in the resource sector.

The real problem is the effect that the resource-based image has on how people think about the western Canadian economy and its future. As important as resources are to the West, they poison creative thinking about other aspects of the economy.

In meeting after meeting that I have attended about the western Canadian economy, at least one well-intentioned participant either starts the meeting or ends it with the same proclamation: "This is all well and good, but remember that natural resources are our bread and butter."

In one fell swoop, this mantra downgrades the status of economic strategies that do not focus on natural resources. As a result, creative thinking is treated like a little kid – it may be indulged to some degree, but rarely is it taken very seriously.

This, of course, is a big mistake for two reasons. First, it hamstrings our ability to diversify the economy – not away from natural resources, but in addition to them. The point is not to abandon our bounty of natural resources, but to expand beyond them.

Second, the traditional emphasis on natural resources perpetuates our overreliance on the bottom end of the economic value chain. Pulling stuff out of the ground, whacking down trees, and growing grain all contribute to the western Canadian economy, but they also rely on highly volatile commodity markets and do not capture the value that can be added to them further down the line.

To counter this, we have spent a lot of time and energy on figuring out ways to add value to our natural resources before we sell them to other countries. This is worthwhile, but it only takes us so far in the global economy of today and tomorrow. The big problem with this is that we do not have the comparative advantage of jurisdictions who can add the value at lower cost. Our true comparative advantage does not lie in natural resources or value-added processing; it lies in our brainpower.

This is why it is useful for us to engage in a thought experiment. What we need to do is imagine that western Canada suddenly has no natural resources. Would we fold up our tents and move on? Or would we take the advantages that remain – such as the rule of law, an open society, great cities, modern infrastructure, and highly educated citizens – and apply these to other economic pursuits? After all, these are the reasons we have escaped the fate of other places that have natural resources but not the broad prosperity we enjoy here in western Canada.

I would like to think that we would not fold up our tents. Instead, we would find ways to leapfrog over whole sections of the value chain. We would become, as we are to some degree already, the designers of new technology, the owners of international enterprises, the teachers of others and the brains behind all sorts of new and profitable ventures. Creativity, research and development, and commercialization all have to be put on economic steroids for the West to prosper over the long-term. This is a tall order, but it can be filled with creative thinking, hard work, and risk-taking.

Despite this, our thinking seems to always come back to "but we have natural resources and we ignore them at our peril." This is the albatross around our economic neck – not a lack of ideas, capital or foresight.

Natural resources are part of the future of the West, but they have to stop crowding out other ideas.