The Need to Diversify Albertas Economy - Term Paper Example

? The Need to Diversify Alberta’s Economy Introduction According to recent surveys, statistics claim that Alberta and its neighbors in the North and South have been having stagnant economy in recent years. Alberta’s current labor force is ranging at 1.35 million, and the economy added about ten thousand jobs last year1. Alberta’s retail trade sector is also under crisis as well as the construction industry. The ironic fact about the construction industry is that despite the large construction project in the Caroline Gas Fields that are near Calgary and two other larger projects near Edmonton. In 1991, the overall industry construction had risen to thirty six percent. In addition, Alberta’s energy companies have also been affected by downsizing among Alberta’s oil and gas firms. The positive news about the energy sector is that their balance sheets are improving through debt reduction. Job insecurity is another factor that is affecting Alberta’s economy2. According to a recent research, statistics show that one out of four Canadians is concerned with the increasing job security. This job insecurity concern extends to both the white collar and the blue collar workers, which in turn reduces economic recovery. More intense research about Alberta’s work force claims that Albertans are the most highly educated workforce in Canada. The research went ahead to reveal that thirty eight percent of these individuals hold on the same job for over two years while the other percentage change jobs within the same period of time. Human resource capabilities are the most important factor that should arise to determine the long-term welfare of Alberta’s work force welfare. This paper will outline Alberta’s diversification progress and review other areas that are still lagging behind that needs improvement. Summary This article presents how Alberta’s economy gradually evolved. As the author presents the article, this is evident in the labor force market which showed only an increase of only 10,000 jobs, which is an increase of less than 1%. This confirms that there are several sectors that have not been growing like the construction industry, tourism industry and the energy industry as noted by the author. These issues are not badly off because the government is strategizing measures of improving them. Ideally, the article presents how these economic set backs are affecting the society and the government has embraced these facts because the government is trying hard to curb these issues. Alberta’s poor economic growth is mainly contributed by poor infrastructure because it is only through proper infrastructure that the other economic sectors will open up. The best change to fix this problem is reconstructing all the necessary transportation roads. This will be possible if the concerned parties pile up pressure on the government to allocate a certain percentage of revenue to fix infrastructure. In contrast, the article “Alberta’s perspective”, seems to base its facts on the necessity of improving infrastructure because it is the gateway to the other economic developments. However, other alternatives are needed to collaborate with infrastructure to improve Alberta’s economy. Most of Alberta’s economic sectors depend on each other and that is why infrastructure alone cannot solve Alberta’s poor economy. For instance, agriculture will depend infrastructure and marketing skills in order to venture into the market. Therefore despite the fact that the author is basing his facts on infrastructure, I believe that other alternatives are needed. Therefore, the government should act fast by forming a delegation that will discuss Alberta’s reforms like, taxation system, reduce government spending and diversify Alberta’s energy global markets. Further, the supply of labor and the wage rate help determine the labor market equilibrium3. All of these strategies will only be a short term proposal intended on regaining back the economy. This is a temporal solution while the deep main problem affecting the economy still lies unattended. Therefore, the first thing the provincial government of Alberta should focus on is implementing measures of reaching the diverse markets. Since the government has rich natural resources that can can boost the country’s economy, they should learn all the marketing tactics to import their products. On the other hand, Chambers and Gordon’s article presents that global marketing is a complex and a hard task, but the government should strain further and focus on the outside market instead of depending on its own market4. Analysis The article “Alberta’s perspective”, has clearly brought forth Alberta’s stable thesis which are forestry, agriculture, tourism and energy. To start with, Alberta’s forest products industry has been diversifying through market extension for existing commodities in Asia and other pacific area continents. However, Alberta’s diversification has its own controversy but the economic strengths stands firmly on its exports5. These exports need value addition to meet customer needs and requirements. Therefore, Alberta’s farmers should shift from a production unit to a market orientation force. Hence, new balancing of traditional engineering and production technology requires advancement. Another staple thesis is tourism and recreation. Alberta has a natural beauty that offers a wonderfull comparative advantage. The commonly known “Trail of the Big Bear” is an outstanding concept for the region, but the irony is that this rare aspect of tourism is unsupported and has poor infrastructure especially on the offshore and other transportation links. The other staple thesis is agriculture which is mainly wheat production. Despite the massive production of wheat the western province still sells its wheat to the neighboring countries. Proper policies needs to be put forward to diversify Alberta’s wheat globally. Alberta’s future also lies in its human resources, and yet the region has not acquired quality level and competent human resources. The evidence is also portrayed in the other article by the nature of labor markets as well as the nature of labor mobility that exist in this region6. Therefore, long-term economic, health and each political unit depends on this critical area of human resources that the participants’ have minimal knowledge about human resourcing. Micro finance (Alberta’s Heritage Trust Fund) has been one of the tools used in improving diversification for the past six years. Heritage Trust has a market value has an approximation of $ 10 billion, and has enabled direct lending loan guarantees to private businesses. Despite the aggressiveness of these trust funds, not all of them have performed well. However, the successes of these trust funds are greater than the failures that have been evident. For instance, the Heritage Trust involvement in medical research has generated $20 million in income, which is available to researchers at the university of Calgary and Alberta. For the past twelve years, the money has attracted outstanding medical researchers to both the universities. Diversification success has extended to the area of intermediate grade petrochemicals. This fact is supported by a downstream value added industry that has been built with revenues from gas and oil. These new established plants are world class and have a capacity of producing more than enough to satisfy upcoming markets in North America and the Pacific continent. On another note, Alberta has sectors that are undeveloped and need urgent attention. To begin with, the transportation sector is not complete. Though a bigger percentage has been reconstructed, more is needed to be done especially in the eastern slopes. East /west linkages are more adequate, and so is the north /south axis that links lower Columbia to Oregon. More so, the Red River Corridor that runs from Winnipeg to Minneapolis has been perfectly developed. Hence, the remaining part of the eastern slopes needs to be looked into because this slope opens up the eastern mountain corridors that is the US destination. Secondly, cross border net workings are lagging behind because people in Alberta do business with people they know. Cross border net workings must be cultivated in all areas of business and professional life, because it’s the only way Albertan’s will discover a realistic basis for trade and service exchanges along the north/south axis. Another revenue-generating project is tourism and recreation. Alberta has a natural beauty that offers a wonderful comparative advantage. The commonly known “Trail of the Big Bear” is an outstanding concept for the region, but the irony is that this rare aspect of tourism is unsupported to poor infrastructure especially on the offshore and other transportation links. Finally, Alberta’s future lies in its human resources, and yet the region has not acquired quality level and competent human resources. The evidence is also portrayed in the other article by the nature of labor markets as well as the nature of labor mobility that exist in this region7. Therefore, long-term economic health and each political unit depend on this critical area of human resource that the participants’ have minimal knowledge about human resourcing. Historical policy measures Chambers and Gordon article's objective was to analyze models models which would permit measurements of the effects of stable production upon economic growth. The stable theory argues that economic theory can be attributed to the leading influence of stable exports.the article further set to measure the influence of agriculture production on Canadian per capital income. To curb the energy crisis, the Canadian federal government implemented sustainable policy measures to regulate high oil prices. Inflation ranged between nine and ten percent annually. National Energy Program (NEP) was intended to uphold oil self adequacy for Canada, keep the oil supply, above all in eastern Canada, promote the Canadian position of the energy industry and promote lower prices. NEP also mandated the provincial generosity and subsidized all Canadian consumers of oil. More so, NEP’s mission was to insulate the Canadian economy from the shock of rising global oil prices. This policy measures brought the economic downfall to Alberta and the loss ranged between $50 to $100 billion in provincial GDP. This was due to heightened global crisis as well as political distrust between the federal government and the NEP. Agriculture in Alberta is mostly oriented on cultivation of wheat and cattle, and this sector overcomes market challenges in a natural way because the demand of food rises every day. What should be done is to improve infrastructure to enable smooth transportation of goods for export especially in the neighboring countries. Tourism is another boosting industry that is facing a marketing crisis and inadequate labor force. Tourism is also affected by lack of proper infrastructure that mainly roads that should stretch all the way to the ranches. The Albertan minister of tourism should work harder and improve the tourism sector. The last sector lagging behind is forestry. The Albertans economist should implement policies that will help them penetrate the global timber market, especially Asia. Lastly, energy resources are depending on the U.S market and the pacific area countries and proper marketing strategies should be implemented so that Alberta will sell its oil to Europe and South America8. The staple theory of Canadian development claims that the extraction processing and exportation of natural resources have changed the political economy of Alberta. This is because as market and resources shift, new sectors develop. The economist further suggests that the main future industries that will boost the Albertian economy is forestry, agriculture, tourism and minerals. Despite the fact that this sector will face expansion challenges the Albertian economist are betting that this staple thesis will overcome the challenges and rise up. Conclusion Conclusively, Alberta depends on its resources because the markets beyond the U.S.have not been explored .With current modernization and technology, Alberta could be far much ahead than where it is now. Therefore, the provincial government should rise up and use the proposed strategies to sell its products worldwide because marketing is the only hindrance to this country’s prosperity. The positivity of the Albertan government is that it has implemented its markets to pacific area continents. This is a major achievement because Alberta will not be dependent on its own resources. The remaining two sectors that are tourism and infrastructure should be acted on first. The eastern slope is the highway to the wide US market and implementation to open up these slopes will improve exports revenues as well as open citizens cross border freedom of trading. The same infrastructure is hindering tourism expansion because most areas are unreachable despite the mesmerizing nature of beauty that Alberta has. Though Alberta has tremendously upgraded its economy, infrastructure sector is lagging the economical efforts behind and the concerned parties should act on it fast. References Chambers, E. J, & Gordon, D. F. (1966). Primary products and economic growth: an empirical measurement. The Journal of Political Economy, 74(4), 315-332. Retrieved from http://links.jstor.org/sici?sici=0022-3808%28196608%2974%3A4%3C315%3APPAEGA%3E2.0.CO%3B2-F Chambers, E. J. (1992). Alberta perspectives. Montana Business Quarterly. Retrieved from http://www.thefreelibrary.com/Alberta+perspectives.-a012850903 Appendix 21,108,589 articles and books Top of Form Periodicals Literature Keyword Title Author Topic Bottom of Form The Free Library > Date >  1992 >  June >  22 >  Montana Business Quarterly Alberta perspectives.   Link to this page Like many of its neighbors north and south of the border, Alberta's economy has been relatively stagnant in recent months. With a labor force of 1.35 million, the Alberta economy added only about 10,000 jobs over the past year, an increase of less than 1 percent. Alberta's retail trade sector also continues to be in trouble, a reflection of household attitudes as much as anything else. Alberta's construction industry is weak as well. This despite a large construction project in the Caroline Gas Fields near Calgary and two large projects near Edmonton (a major new pulp mill and an $800 million petrochemical expansion). Overall, Alberta's 1991 construction outlays were about 36 percent below 1990 levels. Provincial energy companies also have been affected, with substantial downsizing and consolidation among Alberta's oil and gas firms. Exploration and development expenditures in 1992 will be approximately 50 percent of 1991 levels. In general, energy companies are improving their balance sheets through debt reduction: consequently, upstream investments have been curtailed. Concerns about an over-supply of natural gas also may be curtailing new investment in that sector. Ads by Google   Recent national surveys indicate that one in four Canadians is concerned about job security. That concern extends to both white collar and blue collar workers and certainly has a tremendous dampening effect on large durable good or housing purchases. That effect, in turn, slows economic recovery. A new longitudinal survey of Alberta's labor force activity suggests other disturbing trends in the provincial economy. Albertans are the most highly-educated work force in Canada. Yet the survey, which traced a sample of individuals over a two-year period, revealed that only 38 percent stayed in the same job from the first to the twenty-fourth month. More than half the sample had different jobs by the end of the period. Interestingly, according to my conversations with experts across the Atlantic, these labor force trends are very different from the experience of Germany and other European nations. What does Alberta's apparent labor force instability say about turnover costs and optimal allocation of training resources? How might this high turnover rate affect organizations interested in locating here? What personnel policies are most appropriate? Human resource capabilities are the single most important factor in determining the long-term welfare of the region. And it's a grey area. We don't have sufficient knowledge. Diversification Efforts Diversification can seem a confusing concept, but for me it is relatively simple: movement into new markets and/or movement into new products. According to that measure, western Canada's forest products industry has been diversifying by extending markets for existing commodities into Asia and the Pacific Rim. Controversy surrounds diversification methods. But I think the only sensible approach for a given economy is to build on its existing strengths and experience. The economic strength of western Canada - and indeed, the region as a whole - is its export base. That is, our international competitiveness is defined by our status as a low cost producer of commodity grade materials. We have a production orientation: We incorporate the most efficient production techniques into our resource extraction activities and produce output at the lowest possible unit cost. When we begin to think about diversifying, about adding value to commodity grade materials, then the ball game changes. Significant efforts must be directed to customer needs and requirements. Essentially, producers in this part of the world must shift from a production to a market orientation - tune their activities to marketplace needs, and get very close to customers. This requires a shift in regional firms' human resources as well, a new balancing of traditional engineering and production technology strengths with intensified marketing efforts. How is Alberta doing as far as diversification is concerned? The answer very much depends on the time frame. For example, if you look at the period 1970 to 1990, Alberta's diversification achievements in terms of industrial structure seem minimal. In that generation of Alberta's industrial activity, an expanded service sector constituted the real change. Extractive industries in 1990 accounted for approximately the same proportion of Alberta's total output as they did in 1970. However, analysis of the decade 1980 to 1990 yields a somewhat different result. While a significant shift to services is apparent in this data too, and manufacturing shows some slight improvement, the big story is with energy industries, which declined in importance over the decade, 1980-1990. In 1970, the oil price shocks had yet to hit Alberta's economy; by 1980, the energy price boom was at its height. Alberta's Heritage Trust Fund has been used as a fairly aggressive instrument of diversification ever the past six or seven years. Now with a market value of approximately $10 billion, the trust fund has enabled a substantial volume of direct lending and loan guarantees to private businesses. It should be noted that while some Trust Fund investments have performed well, others have been spectacular failures. One significant and successful area of Heritage Trust intervention is medical research. A permanent $300 million Heritage endowment generates about $20 million in income which is available to researchers at the Universities of Calgary and Alberta. Over the past twelve years, these monies have attracted some outstanding medical researchers to both universities; they've helped spin off important biotechnology activities as well. Alberta's most significant diversification success is in the area of intermediate grade petrochemicals, where a downstream value-added industry has been built using feedstocks from gas and oil. These new plants are state-of-the-art, and have enough production capacity to satisfy markets being opened in North America and the Pacific Rim. The province can produce sufficient polyethylene, for example, to supply all of North America west of the Mississippi River. As I see it, this is the one really successful large scale industrial diversification initiative to occur in Alberta in the last twenty years. It capitalizes on an important competitive strength. And, as a totally new industry in the Northwest, it effectively diversifies the entire region. The Rocky Mountain Trade Corridor Finally, some brief comments about the eastern slope of the Rocky Mountains as a viable trade and service region - the so-called Rocky Mountain Trade Corridor. To make the concept viable, we need a collective focus on several key factors. The first and obvious thing is to develop the eastern slope's transportation infrastructure. East/west linkages are mostly adequate in the region. both above and below the international border. And a well-developed north/south axis already links the lower mainland of British Columbia with the Puget Sound area and Oregon. In addition, substantial development has taken place in the Red River Corridor which runs from Winnipeg to Minneapolis. But the best north/south transportation links between Alberta and the Rocky Mountain corridor's U.S. destinations are the area's pipelines-not its highways, railroads, or air routes. The next thing seems obvious too: People do business with people they know. A few casual networks do exist. For instance, I am aware that some Alberta ranchers have contact with Montana ranchers. But I wonder how many Lethbridge bankers know their counterparts in Great Falls or Missoula or Billings. I wonder how many engineers and architects, how many accounting firms serving small businesses meet across the border to discuss common issues and problems. We must cultivate cross-border networking opportunities in all areas of business and professional life. In that way, we'll discover a realistic basis for trade and service exchanges along the north/south axis. Another prime avenue of potential cooperation is tourism and recreation. Certainly our region's natural beauty offers a tremendous comparative advantage. And the so-called "Trail of the Big Bear," running from Denver up through Jasper, is an important unifying concept for the region. But my sense is that, despite a fair amount of press north and south of the border, the Trail of the Big Bear is still mostly concept, and mostly unsupported by necessary infrastructure - especially offshore and other transportation links. Finally, we need a regional situation assessment, especially of our human resources. We know that the area is abundantly endowed with natural resources - including its scenic beauty. But as I see it, the region's future development depends on its human resources. And we don't yet have a very good inventory, or a very good assessment of the quality level and skill attainments of human resources, the nature of labor markets, the nature of labor mobility that exists in this region. The long-term economic health of the region and of each political unit in it is tied to this critical area about which we have too little knowledge. Edward J. Chambers is director of the Western Centre for Economic Research at the University of Alberta. COPYRIGHT 1992 University of Montana No portion of this article can be reproduced without the express written permission from the copyright holder. Copyright 1992 Gale, Cengage Learning. All rights reserved. Title Annotation: Alberta, Canada Author: Chambers, Edward J. Publication: Montana Business Quarterly Date: Jun 22, 1992 Words: 1437 Previous Article: Human populations and natural resource demands. Next Article: Developing a multi-state operation from Montana. 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