Let business run its own show

October 28th, 2011
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My “Letter from Calgary” column from the mid-October 2011 issue of the Investment Executive newspaper:

High-profile figures such as Manning and Lougheed are weighing in on a new oil and gas development. They should let well enough alone

The technocrats are at it again. Experienced people of high standing and nominally conservative bent are annoyed at the messiness of free markets. They want to bend an entire, $250-billion-per-year economy to the will of provincial bureaucrats. This in Alberta, allegedly Canada’s most pro-free-enterprise, risk-taking, individualistic province. They seem oblivious to the beneficial power of an economic system that has empowered Albertans to transform their natural resource endowment into Canada’s strongest economy.

Former Alberta premier Peter Lougheed, former Reform Party leader Preston Manning and most of the candidates for the just finished Progressive Conservative leadership race to replace retiring premier Ed Stelmach are all bemoaning some aspect of the free market. PC leadership candidates, seemingly terrified of another oil sands development boom, say the oil sands need to be made more “sustainable”, perhaps by “staggering” plant construction, i.e., more heavily regulated.

Lougheed, who called for “more orderly development” of the oil sands during the last boom, recently weighed in against TransCanada Corp.’s Keystone XL oil sands pipeline to the U.S. He wasn’t worried about its alleged environmental effects. No, he opposes its very concept, namely of shipping raw bitumen. Lougheed said it should be “public policy” to require domestic upgrading of bitumen before export. The man who went to war with Pierre Trudeau for the freedom to export what Alberta produces, and who helped bring about free trade with the U.S., now wants to prohibit a key export.

Manning, for his part, mused about “balancing the ecological budget”, in which he would harness “the market” to get people to buy only environmentally friendly products, even if they cost more, which in turn might require government “incentives”, through things like pricing of water, brought about by a “stewardship coalition” in which everyone agreed to work together. I don’t pretend to understand what Manning is talking about – other than that it’s anything but a free market.

These statements all betray a managerial-technocratic attitude towards business from people who aren’t actually in business but could profoundly affect those who are. And all of whom should know better. Alberta’s prosperity and at times very existence has always depended on access to world markets. These markets will fluctuate. They’re innately disorderly – and beyond our control. When things are growing too fast for someone’s tastes and have gotten a little inconvenient, you can’t bottle up today’s “surplus” opportunity and store it in a cupboard like a can of peaches. You need to seize the day, or tomorrow’s pain will be far worse. Tax it or regulate it to death now, and you’ll end up having to subsidize it back to life tomorrow.

Lougheed was himself a great regulator and subsidizer during his time in office, back when nobody wanted to build oil sands plants. Now that money’s flooding in from worldwide, that doesn’t suit him either. Oil sands producers already upgrade hundreds of thousands of barrels of bitumen daily. The Keystone XL pipeline will ship a portion of Alberta’s raw bitumen to hungry refineries on the U.S. Gulf Coast – which used to be filled by Venezuelan crude. Capturing this market is the international trade coup of the decade. For Lougheed to dump on it is unspeakable. A few years ago he wanted government to strong-arm the  industry into producing fewer of those gigantic, stinky, environmentally damaging, capital-intensive, labour-market-distorting oil sands mines. Today, he wants to build more bitumen upgraders, which are gigantic, stinky and, well, you get the picture.

At the heart of all this lies essential ignorance of what a market even is, let alone how it works. From people who went to good schools, including business schools – even Harvard itself in Lougheed’s case. When such people enter politics, distressingly often they’re not content to manage their own departments or parties – they want to manage entire business sectors that are doing just fine without their help. But government can’t manage business, it can only tax, regulate, interfere and destroy. But that’s a lesson the technocratic mind never seems to learn.

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By George Koch
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