Brian Lee Crowley

Water, water all around — unless you’re landlocked like Alberta

Being landlocked is a bad place to be generally speaking on the international stage. Coastal states are guaranteed freedom of the seas, but landlocked states may not be able to reach the seas and their commercial bounty without having to bribe neighbouring coastal states. Ottawa was created in 1867 to prevent such extortionary behaviour by Canadian provinces. So what gives when BC is yet again threatening to close off Alberta’s access to tidewater? My views on the issue were laid out in my 12th May column for the Globe and Mail’s ROB. You can read the unedited text below or here online.

Geography distributes its bounty capriciously and the results can be extremely painful for those who end up penalised by their place on the map.  The outcome of the recent BC election may be about the deliver an object lesson in this principle to this country’s only two landlocked provinces: Alberta and Saskatchewan.

Internationally, being landlocked is a very uncomfortable place to be. Unless you are a Botswana exporting diamonds (small, light and high value products that can be shipped by, say, plane) you likely need to put your exports on a ship to get them to world markets, thereby realising their highest value.

Because ocean shipping is so vital to economic success, the world’s nations agree that ships engaged in bona fide commerce will not be obstructed. Nations can’t target the shipping of other countries and demand ransom to let it reach its destination. That’s piracy.

The main exception is when military or diplomatic conflict causes countries to throw up embargoes against offending countries’ goods, or to prevent them from receiving shipments of things like arms or nuclear materials. Such exceptions are exceedingly rare when seen against the volume of ocean-borne trade.

But landlocked states face a completely different obstacle: their goods must cross another country’s territory to get to port. International law is of little help, and the 45 such landlocked states must negotiate access with neighbours who may have conflicting economic interests, historical enmities or simply little interest in helping.

What the neighbours universally have, however, is the whip hand in the negotiations. They tend to use that to extort benefits far in excess of the actual economic value of the infrastructure and services needed to get their landlocked brethren’s goods to port. And having to get their products through a “transit country” makes companies reluctant to invest in the landlocked. It injects a level of political risk that is difficult and costly to manage.

Landlocked countries thus tend to be poorer than their economic fundamentals justify. All because of accidents of geography and the political leverage they create.

Before 1867, the various colonies that were to become Canada suffered from the ability of each to impose tariffs on the products of the other as they crossed their territory. A key benefit of Confederation was explicitly to tear down these barriers, turning Nova Scotian or Quebec products into Canadian products that could move freely across the national territory, including to ports for export to world markets.

But as we’re discovering, the thirst of transit provinces for bounty to allow neighbouring provinces to move their products has never gone away.

Our only Pacific province has lately been the most egregious offender, preying on the vulnerability of landlocked Alberta and Saskatchewan in their efforts to get their resources to world markets.

Take the Kinder-Morgan pipeline, intended to bring Alberta petroleum to Asia via the port of Vancouver. Before the just-concluded BC election, the Liberal premier, Christy Clarke, had already shaken down the pipeline company for $1-billion to “allow” the pipeline expansion to be built. The province has no jurisdiction, pipelines being a federal matter, but the province could threaten enough obstructive behaviour that the company could see that peace with the province might be worth a hefty price tag. This is nothing but Third World corruption carried out at the expense of Canadian resources, a corruption only made possible by the arbitrary fact of Alberta’s landlocked geography and Ottawa’s complaisance.

Now BC has doubled down on transit province bounty-seeking, this time targeting thermal coal. The province has threatened a thermal coal export tax, ostensibly to punish the Americans for their softwood lumber machinations, but the result will be to sideswipe Alberta, which might lose as much as $300-million in sales of such coal now going through the west coast. Saskatchewan hasn’t been targeted yet, but they understand all too well that they are no less landlocked, and therefore vulnerable, than Alberta.

Assuming recounts and other factors don’t change the BC election result, the situation will only worsen. With the Green Party, unalterably opposed to Kinder-Morgan, holding the balance of power count on all the parties to vie to outdo each other in environmental virtue and the chauvinistic promotion of BC interests, as if they can be separated from the national interest of all Canadians. Kinder-Morgan is sure to be a flashpoint. This behaviour is a dagger aimed at the beating heart of federalism.

As for the much vaunted new free trade agreement between the provinces, it is silent on this issue, proving yet again what a paper tiger it is. Meanwhile Ottawa, created in 1867 in part to be the guarantor of the integrity of Canadians’ freedom to trade, looks on benignly.

Who speaks for Canada? Answer came there none.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

 

 

 

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Will tougher rules for approval win over pipeline opponents?

At a time when the federal and several provincial governments have raised the bar on environmental and other standards for the oil patch it is not churlish to ask the question: will these moves, which will add both time and money to already demanding approval processes, win over those people who oppose pipelines and claim that they have no “social licence”. That’s the issue I explore in my column today for the Ottawa Citizen, Calgary Herald and other PostMedia papers. You will be unsurprised to learn that my answer is, “No”. And that means that at some point politicians will have to stop pretending that all that is required is process tweaks, that a better process will win over opponents. It won’t and at some point politicians will have to choose sides. How uncomfortable! Poor things — I almost feel sorry for them. Almost….

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Alberta’s flat tax: both progressive and useful, killed off for ideological reasons

In my time in public policy I have heard a lot of rubbish talked about a lot of issues, but one that must win some kind of prize in the area is Alberta’s much-maligned “flat tax”, now due to be axed by Rachel Notley’s New Democrats. The reason given? The tax is “regressive” and is to be replaced with a supposedly “progressive” multi-band or multi-rate income tax modelled on that found in the other provinces. But as my latest Economy Lab column for the Globe’s ROB lays out in some detail, the notion that the flat tax is not progressive is an old canard unworthy of anyone with a calculator and five minutes to think through the issues. So not only does the criticism fail (and therefore the case for eliminating the flat tax on “progressivity” grounds), it leaves out of account the important experiment it represented. Multi-rate income taxes undoubtedly create disincentives to work as you move up the income scale. Those disincentives are removed by a flat tax. Federalism is supposed to foster such bold experiments to test whether old policy prescriptions can be improved through innovation. The flat tax deserved to live….both because it was progressive and because it was telling us something about possible future directions for tax reform.

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Breaking the natural resource revenue boom-bust cycle in provincial finances

As the world price of oil has fallen by almost $100/barrel in the last year or so, provincial finances in places like Alberta, Saskatchewan and Newfoundland and Labrador have been savaged. But it is all so unnecessary if only these provinces and others dependent on non-renewable natural resource revenue would be guided by Jim Dinning’s insight that such revenues are “non-reliable”. and are known to be so by anyone even slightly conversant with the history on NR prices and the nature of government spending. In my late December column for the Globe’s Economy Lab feature, I lay out the case for such provinces to discipline themselves by assuming throughout the commodity cycle that the lowest price in the cycle will prevail. The money set aside during high prices can then smooth out the ups and downs. Don’t spend it if you haven’t got it, people, especially when provincial spending is notoriously inflexible, unlike these revenues!

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$15 minimum wage? Not if you want to help those that really need it.

Incoming Alberta Premier Rachel Notley has confirmed her partyt’s intention to raise the minimum wage in the province to $15/hr. Like many things this sounds good but in fact isn’t, especially if your objective is to help the most vulnerable workers (and potential workers) at the bottom of the wage scale. A $15/hr minimum wage is simply a government decree that anyone who cannot produce $15 worth of value with an hour of their labour will not work. Thanks for the help guys!

Read my analysis in my latest column for the ROB’s Economy Lab feature in the Globe and Mail.

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The oilsands and US energy security: a match made in heaven

One of President Obama’s recent themes in his criticism of the Keystone XL pipeline is the dismissive comment that it will transport “Canadian oil”, as if that were obviously a matter of total indifference to America and his own goal of energy independence. Nothing could be further freom the truth. As I argus in my latest column for the Globe’s Economy Lab feature (in the ROB), there are all kinds of reasons why Canada’s oilsands production is a valuable compelement to America’s fracking revolution.

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I hate to say I told you so, but…

Yes, there is something deeply unattractive about the scold who smugly wallows in others’ debacles because he warned that the worst might happen. On the other hand, sometimes the scold is right and disaster today should be a warning to stop self-destructive behaviour that is still continuing in spite of catastrophe. That is exactly the case in the resource-rich provinces’ (step forward Alberta and Newfoundland, with a few others not far behind) dependence on resource royalties to balance their budgets. Tanking oil and gas prices have revealed just how shaky their budgetary assumptions have been.

Not only is dependence on such revenues ill -advised from a budgetary point of view (former Alta Treasurer Jim Dinning rightly notes “non-renewable natural resource revenues are non-reliable revenues”), it is deeply suspect from a moral point of view. Royalties are not income. They are the revenue from sales of an asset, and are therefore capital to be invested, not income to be spent, not least because the resources belong to generations yet unborn as well as the totday’s population. I lay out the argument in today’s column for the ROB’s Economy Lab feature in the Globe and Mail.

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Energy East: the good, the bad and the improbable

Energy East, TransCanada Pipeline’s proposal to bring Alberta crude to the east coast, has a lot to be said for it. Unfortunately, a lot of it is not true! Don’t get me wrong–this is a good proposal that deserves to succeed. It is just that many of its friends are selling it on the basis of improbable claims instead of the good solid business case behind it. Read my latest Globe column for the inside story.

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ILS keynote in Calgary on property rights and natural resources

My friend Matt Bufton of the Institute for Liberal Studies (ILS) is organising a terrific conference on property rights to be held in Calgary 16-17 October. I’ll be the lunchtime speaker on Friday the 17th talking about both property rights issues as they relate to natural resources in Canada in general and more specifically I’ll look at First Nations property claims. Details from Matt at ILS.

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Time is not Canada’s friend on resource development

In my latest column for the Economy Lab feature in the Globe’s ROB I make the case that, “It is opportunity’s evanescence that we Canadians too often ignore at our peril, thinking that we have world enough and time to hear every voice, weigh every objection and consider every alternative to pipelines, port construction and mine developments. Surely the rest of the world will wait while we nice, polite, considerate Canadians wring our hands and dither. Alas not.”

Read the full text here.

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Brian Lee Crowley