The Business of Alberta Separation

The greatest threat to Alberta businesses from separation may come from not supporting it.

There is a steady growing movement in Alberta toward separation as well as sporadic pushback by those who do not support Alberta independence mostly emanating from outside Alberta. The volume of information on social media is growing each day, some of it is accurate and some of it is not but the passion behind the posts is clear. Albertans are frustrated with the growing antagonism toward Alberta's energy industry from the rest of Canada as well as the heavy handed approach of the central government on issues and regulation that directly impact the lives of Albertans without any form of equitable consultation or consideration. The ever increasingly erratic tactics of the federal government regarding policies on environmental and social issues, withholding, dragging out or refusing business approvals for major projects or permitting the use of the courts to block projects solely for political purposes has been devastating to the Alberta economy.

All of these actions send a loud and very clear message to global business leaders and investment professionals that long term investing in Canada and Alberta is fraught with very high levels of political risk making for an unstable investment environment. Risk in business terms is always calculated as a cost against the investment. The higher the risk to future cashflows, the greater the discount rate applied to the investment and the higher the threshold for making investments. Under the current political environment, it makes no sense from a risk perspective to invest in Canada while the political risk is so high. Business leaders and investors have no guarantee that their multimillion dollar investments in just getting projects off the ground will not get wasted as the projects get canceled prematurely or as part of instantly changing political policy and positions. A stable political environment is essential to attract long term business investment.

The Growth of Canadian Political Risk

The unstable investment environment that is Canada, and more specifically Alberta, is fueled by the divisional, non conciliatory politics infecting Canada and the world. Separation is just one of those destabilization factors that is directly being fanned by the policies, legal maneuvers and rhetoric emanating from various jurisdictions and groups including the federal government, provincial and municipal governments, first nation governments, NGO's, foreign advocacy groups and media. But is separation really a negative for Alberta businesses?

The fundamental fuel that powers growth in all economies of the world is investment. It is investment that builds and develops the raw resources that are the feedstock of factories that manufacturing products that are sold to the world. These economic foundations also support all of an economy's service industries that are directly dependent on the exponential economic power of those initial investments. $I invested in resources or manufacturing generates up to $10 in continued annual economic growth as that $1 is spent within the year over and over. Investment in extracting energy resources is used to pay wages and buy machinery and services. Those wages are then spent at stores and within the factories that build the new resource extraction and processing machinery to pay employees and owners, who in turn buy more products and services and so it repeats as a ripple throughout the local economy. Reducing investment has the inverse effect. $1 withdrawn from the pool of investment within an economy lowers the economic output by more than $10 annually. This economic spill over aggregation effect is the foundation of economics and should be the guideline used by governments to formulate the policies and strategies to improve the economy. This is not what is happening today in Canada.

All of the wealth generated by an economy is not held exclusively by employees and owners. It is further spread to governments through the imposition and collection of taxes. The governments then use the money to provide services to the public, however this is often where the formula goes off the rails. An economic jurisdiction that pays a government in another jurisdiction will suffer economic degradation if the money flows out of the jurisdiction never to return. In Alberta's case, every dollar that flows out of the province that is not spent within the province accrues $10 in benefit elsewhere in places like Ontario and Quebec and the people of Alberta and their businesses lose the value of that $10 forever. Calgary's loss is Montreal's gain permanently.

Exporting Wealth

There are very few good reasons for sending wealth outside of a jurisdiction and it should always be evaluated in terms of cost and benefit. How much flows out and how much value is received back. If the benefit is not greater than the economic cost, it must be rejected for prosperity to grow. History is full of factual proof and the world is littered with areas where conquering foreign governments withdraw more from a jurisdiction than it provides in value. The long term effect of this economic bleed is poverty. To avoid this, people within jurisdictions, no matter how small, need to assess their membership within a greater association to ensure that economic growth is maintained.

In some cases sending funds to another economic jurisdiction is favorable when the flows go to purchase goods not available in the jurisdiction and the trade is reciprocal. or if the flows are investments generating a return for the jurisdiction. Investments in other jurisdictions only makes sense if there is excess capital within the investing jurisdiction. Alberta does not have an abundance of fruit and therefore needs to import the produce especially in the winter. In exchange Alberta has an abundance of other resource such as petroleum products that can be exported to help balance the trade to ensure economic parity is maintained. When the parity gets out of balance, it becomes impossible for one of the trade partners to maintain wealth. This is what happened to the US as China removed wealth from the American population during the first 15 years of the millennium. It is the exact position that Canada is taking today as the federal government seeks to shut down a primary engine of its global trade or the Alberta energy industry.

One offset that can help balance losses that arise from unbalanced trade is to encourage more investment within the economic jurisdiction suffering the loss. Economic investment within a jurisdiction can outweigh any loss of economic wealth as a result of a trade imbalance because the growth in industry offsets the loss. However this effect only accrues if the investment is in production and not the buying and holding of assets like land and farms. Selling fixed assets like land only accrues financial benefits to the organizations that hold the assets and if they are not resident in Alberta, the money once again flows out of the jurisdiction. To counter this negative effect, non resident investments must generate jobs to have an accretive economic effect otherwise it becomes a simple asset transfer to the wealthy. If investment in resources, plants and manufacturing is curtailed via policy, this stops the growth of the economy. If the flow of existing products to market are further strangulated by government policy or never ending court cases, then the economic future of the jurisdiction will fail. This is the case today in Alberta.

Deceit and The Diabolical - The Power of Eastern Elite

The current federal government has the option of encouraging investment and supporting the economic growth of the country but it has been performing two diabolical actions with respect to Alberta. First the federal government has implemented policy to strangulate the access of products from Alberta to the global market. Tanker bans, the end of pipeline approvals, the end of approvals for new resource developments such as the Teck mine, the constriction of other shipping options such as new terminals, the instigation of new approval processes and the addition of new hurdles to get investments approved, imposition of disproportional carbon taxes on industry intensive regions, oppressive environmental and consultation/control mechanisms and a host of other up front and behind the scenes initiatives, all work to undermine the economic viability of 30% of the Alberta economy directly and an additional 30% of ancillary services that directly depend on the economic flows from the energy industry. As well, primary government industries such as education and health care depend heavily on the economic outflows from the energy industry in taxes and subsequent exponential economic value.

Without the energy industry, Alberta's economic future is bleak and millions will need to leave to find work and businesses will close. The future economic value will be lost forever. The number one goal of the Liberal party of Canada, fueled by strong support in the largest urban centers of Canada including Toronto, Montreal and Vancouver is to eliminate Alberta's energy industry and in so doing, all the benefit that accrues to the rest of the country. These lost benefits will need to be replaced with steadily increasing taxes on society either via direct taxation or the increasing interest on successively greater levels of debt. The use of debt is of no consequence to the ruling wealthy elite of eastern Canada who hold the debt but to Canadians, every dollar of interest paid on debt is lost economic value magnified by 10X per year. On the opposing side, the receipt of interest by the wealthy can be invested anywhere in the world to magnify their wealth by ten times. It is a simple fundamental economic rule, the creation of wealth must be equally offset by the loss of wealth somewhere else. Wealth is a fixed element within the world based on the fact that all of our resources in the world are a fixed amount. Although the numbers used to identify economics may constantly inflate, the same underlying value remains. We can only grow so much food and we only have a finite level of resources.

Separation - The Right Economic Choice for Alberta Businesses

If the economic jurisdiction of Alberta is guaranteed to suffer economic hardship under the unfair policies of the government of Canada, what should the people of Alberta do? The first option is nothing. Alberta businesses can continue to operate at a disadvantage on a unlevelled economic playing field where those who operate in 'regulation lite zones' such as Quebec gain wealth and then use that wealth to buy up assets such as the land and resources of Albertans for the benefit of their own regions. Or Alberta can choose to do something else. Alberta businesses can choose to operate outside the control of the central government of Canada by supporting separation. But what exactly does that mean?

First it does not mean the end of business in Alberta. A separate Alberta has no impact on the status of businesses that operate in Alberta. The world is a global economic market and since so few Alberta businesses 'compete' globally this is not an significant issue. A more significant issue is the vast number of businesses in Alberta that rely on the economic fuel of the energy industry to stay in business. Restaurants, stores, real estate and most government services rely on a healthy robust energy industry. If Canada wants to end that economic engine through regulation and taxation, then the people of Alberta and their businesses need to decide if the arrangement called 'Canada' is financially beneficial or not. An honest cost benefit analysis needs to be done. What does Canada provide to Alberta that Alberta cannot do on its own? The answer has always been very little in a growing global market where commerce is conducted online and global transportation is ubiquitous. Gone are the days where borders were sealed and supply lines complex an onerous. Today, commerce is electronic and global and the better the transportation infrastructure, the more prosperous the jurisdiction. In Alberta we provide in demand resources to a global market. We do not manufacture products to compete with China like Quebec and Ontario. We simply do not receive any significant benefit from paying into Canada.

Alberta's two primary exportable products are in demand energy resources and in demand agriculture products. As a province, Alberta is subject to extensive behaviors and actions of a federal government in which we have no say or influence. Were Alberta a global nation, Ottawa could not 'block' our ability to export our products to the world. It would be against international trade law and Ottawa could no longer 'landlock' Alberta's international trade. But within the country of Canada, Ottawa and their eastern power base can block access with simple policy and inaction. It is within the right of the government of Canada to shut down the economy of any province. As well, every dollar that is currently sent outside of Alberta through the imposition of taxes or transfer payments could be reinvested back into Alberta and the economic value of that investment would be 10X the actual dollar value annually. That value would accrue directly to the businesses within Alberta and not into other jurisdictions. 10X the dollar value in transfer payments alone is a +$200 Billion dollar boost to Alberta's economy. Counting income and other taxes, the numbers are magnified. The effect on 4.5 Million people would be astounding making them instantly one of the most wealthy jurisdictions on the planet and drawing the best of the world's talent to the jurisdiction in science and technology in the same way that Alberta transfer payments are being used to draw talent and investment in STEM to Montreal.

The question that business leaders in Alberta need to ask themselves is not whether the risks of an independent Alberta are worth it, but how long they can survive within the confines of a country of ever increasing and erratic political risk that is Canada?

They also need to step up and support Alberta independence both explicitly and financially. An investment in Alberta separation is important and necessary if Alberta businesses are to have any future.

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