Critical Thinking Skills and Development Policy

It has been a truism for nearly every government that investment is good because it leads to jobs which helps a government get re-elected. This philosophy has underpinned development policy in resource economies around the world, including here in Alberta. This maxim has been accepted without critical thought and consequently the implications of uncontrolled development have never been considered.

One of the most obvious implications in Alberta is the giant Ponzi scheme that is the real estate market in Fort McMurray.

With no planning for development of the oilsands, the real estate market in Fort McMurray was allowed to develop a supply squeeze which forced prices to exorbitant levels for very modest accommodations. This also produced some bizarre spin through effects right through the regional economy, but the root cause was, and remains, uncontrolled oilsands development.

With very high prices being paid for very modest accommodations, the government now finds itself in the horrible position of trying to manage a bubble. While talking about the problem with a real estate developer here a couple of weeks ago, he stated the need for the government to release a large amount of land for development immediately. I disagreed on the principle that suddenly removing the supply shortage would cause prices to move towards normal which would leave a great many people underwater on their mortgages.

The real estate market in Fort McMurray reached bizarre levels because of a lack of foresight by the government and now the government must try to manage the situation to prevent a lot of people from getting hurt through no fault of their own, while at the same time the government must try to address the issue of supply shortages caused by government action.

The current real estate bubble in Fort McMurray is not the most insidious problem going however. The bigger problem is that the manner in which the resource is being exploited, all but guarantees that Fort McMurray will become a ghost town shortly before the oil runs out.

Real estate markets are almost purely a function of population growth. Fort McMurray is booming because an ever greater number of people are moving there to work in the oilsands projects. They are not moving there for the climate or to work in other industries: it is a one industry town. With the wages being offered by the oil companies, there is no chance that that will change.

Taken to its logical conclusion, when the oilsands stop requiring an ever increasing number of workers, the real estate market in Fort McMurray will start to go into rapid decline. This is the pattern of a Ponzi scheme: as long as ever increasing numbers of people buy in, the scheme remains solvent, once the supply of new people dries up, the scheme collapses. The lack of other industries to provide jobs guarantees that this will come to pass just as it has with so many other one industry mining towns around the world.

As the real estate market begins to decline, the willingness of workers to relocate to the region even on a temporary basis will also decline. Additionally, you will have a large number of people who bought into the market just before the decline started. They will inevitably feel betrayed by the system that they bought into in good faith.

On the bigger stage is the implications for Albertans in general.

A government has as its' sole purpose, to ensure its' own survival. To that end, it seeks to improve the lives of voters so that they will continue to support the government. The question then becomes one of: does current development policy meet the needs of voters in Alberta? I think that when you look around the province, at the multitude of social and economic problems that voters are facing, the stark truth is that current policy is failing the voters of Alberta.

As was announced here this past week, there is a severe backlog of schools that need to be constructed and taxpayers are going to have to ante up to cover construction costs.

The same can be said of roads and other infrastructure as well as human and social infrastructure. There are shortages of emergency responders as well as hospitals and medical staff.

All these problems are a direct result of development policy by the provincial government. By allowing uncontrolled development, population growth has occurred at an unmanageable pace with all the demands that places on services: both private and public.

What the government has failed to consider is that many of the people who are employed in the oilsands projects do not pay any taxes in Alberta. When a Canadian citizen takes a temporary job in the oilsands, they continue to pay their provincial income tax in their home province. They use the services here, but the taxes that are supposed to pay for those services are paid to their home province.

Temporary foreign workers are treated differently by the tax system and their taxes are paid here.

The same can be said for corporate profits. Alberta has a very favourable tax regime for corporations, and looking around the world, this is clearly the best model for creating jobs. That being said, most of the profits from these corporations, end up being taxed in other jurisdictions. Dividends and capital gains are taxed in the jurisdiction where the share holder resides, and that is seldom Alberta.

So the one benefit that accrues to the people of Alberta is the royalties that are paid to the provincial government. Unfortunately, because of an antiquated and ineffective tax policy, these royalties end up being spent to make up for tax revenue that isn't being collected, so that the government can pay for services for people who don't pay taxes here.

To make a long story short, because of the silly development policy being allowed by the government any benefit from oilsands development is spent just to prevent problems from getting worse rather than to help make the lives of Albertans better.

This is the crux of my beef with the policy. Development should be undertaken as a means of making the lives of citizens better (both those who were born here and those who choose to make Alberta their home). Current policy, to the extent that it exists at all, does not do that. If there is any real thought put into a policy it seems to be to make the lives of everyone who doesn't want to live here, better.

Development policy should explicitly pursue the objective of making the lives of citizens better within a Pareto optimum. Current development policy seems to be making only a few people better off while everyone else is forced to wait in line for basic services. It is time for the provincial government to apply critical thinking skills to their development policy, to tailor it to meet the needs of Albertans not just the interlopers who are looking to make a quick buck, then leave.