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Alberta perspectives.

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.

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.
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Title Annotation:Alberta, Canada
Author:Chambers, Edward J.
Publication:Montana Business Quarterly
Date:Jun 22, 1992
Previous Article:Human populations and natural resource demands.
Next Article:Developing a multi-state operation from Montana.

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