Can Alberta learn from Norway and Ireland?
by Paul Delany
Alberta’s economy has been growing about twice as fast as that of the rest of Canada, and if oil prices remain high it will continue to do so. The province is turning into a separate kingdom, with per capita income more than 50 per cent above the Canadian average.
But what is the right strategy for managing a prosperity that stems from a finite endowment of oil and gas? One traditional Canadian answer has been to cut the tall poppy down to size. Pierre Trudeau tried to do this with his National Energy Program in the 1980s, and we do it on an ongoing basis through equalization. While there have been calls for a more generous equalization program, Ottawa will probably do no more than tinker with equalization in coming years, while Alberta continues to pull away from the rest of Canada. When we consider its future, we might do well to look at two other societies transformed by recent wealth: Norway and Ireland.
Saving for the future
Their envious neighbours like to call the Norwegians “blue-eyed Saudis,” but the two countries could hardly be more different when it comes to spending their oil money. Saudi Arabia is a country of spectacular consumption by a feudal elite, while everyday work is left to foreign workers with no rights. Norwegians now have the highest per capita GDP in the world; yet as a society, they have been reluctant to enjoy their wealth. More precisely, they plan to spend it later, after most of their oil has gone. Norway’s great fear has been of the “oil curse”: wealth that has done more harm than good in the countries possessing it.
Oil was discovered in the Norwegian sector of the North Sea in 1969 and production began in the mid-1970s. Possession of oil contributed to Norway’s vote against joining the European Union in 1972, a decision reaffirmed in 1994. By 2000, Norway had become the third or fourth largest exporter of oil in the world, at more than 3 million barrels a day. Norwegian oil production peaked in 2001 and has been slowly declining. But in terms of revenue, this decline has been more than offset by the quadrupling of oil prices since 9/11. Most of the profits from Norwegian oil flow directly to the state, thanks to the dominant position of the national champion, Statoil.
By the beginning of this century Norway had paid off its national debt, and still the money poured in. In 1990 the Norwegian parliament, the Storting, voted to establish a Government Petroleum Fund to receive excess oil revenues. The fund reached US$240 billion by the spring of 2006, and it is now growing at about $3 billion per month. There is $52,000 in the fund for each Norwegian man, woman and child, and this amount is projected to double by the end of 2009. After that the fund’s value is expected to level off as oil reserves are depleted. When the oil is gone, Norway will have the fund as a cushion, a permanent benefit from the fat years of North Sea production.