Monday, October 30, 2006

Oil profits and the binary equation

Should Alberta emulate Norway?

It's been said that no two OECD regions are as comparable as Alberta and Norway. A week ago, Globe and Mail correspondent Doug Saunders forwarded the idea that Alberta should look to Norway for ideas on what to do with its oil profits (subscription required).

Doug reports that Norway's politicians are in disagreement. They're debating whether to save (so that future generations can enjoy today's oil profits), or whether to invest in infrastructure. Those are the two big choices at the table, says Doug. Currently, Norway's government is saving heavily. Should Alberta emulate Norway?
Norway and Alberta share many attributes, but a couple things strike me about Norway: its investment into R&D and its investment in human capital. I've read three articles on the Norway-Alberta comparison lately, none of which give lip service to R&D or investment into human capital. What's going on?

I was eager to gain Doug's insight, since he's sojourning in Norway right now and knows more about this than I do. Here's his response:
I hope I didn't create the impression that this is a strictly binary equation. This is the impression that Norway's political parties, particularly the far-right Progress Party, are trying to create. But even they are not talking about spending all the oil revenue. Quite the contrary: they'd raise the spend-it-now level from the current average of 4 per cent per year to some higher level -- maybe 15 or 20 per cent. This is fiscally unsound in an economy that has 2.5 per cent unemployment and a very overheated currency, but it's what they want.
On the other hand, the left-wing coalition government isn't just investing it internationally. A lot of it does end up spent on things like R&D. Norway is actually a success story, by Northern European standards, in this area. It has superb research universities, and a high-tech economy that is doing extremely well. I've seen figures that show Norway's R&D investment to be among the highest in Europe. Now, there are areas for improvement: People say that it's very hard to start a small business, and that the benefits tend to flow to larger firms (a Europe-wide problem).
But Alberta certainly could learn from Norway in the area you mention: It could use some of its money to create top-class universities. Norway has the highest rate of university-degree completion in Europe (and probably in the world), and the world's highest educational attainment in general. This certainly helps during economic bust times: People are educated enough to find employment elsewhere or to start companies. It's a model worth emulating.
Surely the public realizes the benefit of returns to R&D and human capital just as well as Doug does, but there's no harm in repeating the fact that Alberta's options extend far beyond any spend-vs-save 'binary equation' would suggest. I wish this notion would arise more in mainstream discussions.

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