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opinion

Mark Milke is a Calgary author and consultant.

Ever since the price of oil began to collapse in late 2014, some have wondered if Calgary will become the next Detroit. The comparison will arise again with recent news that more layoffs are coming to Alberta: 350 positions at Nexen, 70 positions at AltaGas; and 300 at ConocoPhillips, with most of the latter at its Calgary head office.

The Detroit reference is to the decades-long decline of the Motor City where the population peaked in 1950 at almost 1.9 million people and then began to hollow out. As of 2012, Detroit had fewer than 700,000 people, about the same as in 1910.

Detroit's decline is sometimes invoked as a cautionary tale for Calgary. Some climate change activists who see fossil fuels as destructive sneer that Canada's energy capital is receiving some sort of karma-like payback.

More reasonable people, who appreciate that natural gas heats homes and that oil is used in products from motorcycle helmets to heart valves, might still pose the Detroit question: Is Calgary, like Detroit, too dependent on one sector and thus headed for a permanent bust?

There is something to that fear. Last month, the unemployment rate in Calgary was 8.3 per cent, up from 5.2 per cent two years previous. Head office vacancy rates in downtown Calgary are now at 12.5 per cent, double the rate of two years ago.

Still, let's be clear about the cause of Detroit's decline. That city was indeed highly reliant on one sector – automobile production – but its decay had much to do with its inability to adapt to competition, to a new reality.

The former Big Three automakers were notably slow to respond to the challenges from Japan in the 1980s. The city's highly unionized work force was also inflexible vis-à-vis the temptation of a variety of companies to shift in-country production to the American South. The slowness of both to adapt was one key factor in the hollowing out of Detroit though it also had other problems, including race riots and more competitive suburbs.

In Calgary, the private sector has adapted to the oil price downturn over the past 18 months with brutally efficient regularity. That includes layoffs and reductions in compensation and benefits. Such actions are severe but result from the attempt of companies to survive, to live to hire another day.

Such measures also mean that diversification of Calgary's economy is more likely. At the height of the energy boom, it became difficult for other sectors to match the high salaries and benefits provided by a cash-rich energy sector.

Just as the private sector is massively restructuring, a new problem for Calgary and indeed for Alberta has arisen: government policy. The provincial government and the city of Calgary are both adding on costs just as the private sector is trying to slash its own expenses to survive.

Provincially, the higher-cost policies include a new carbon tax, a 20-per-cent rise in corporate taxes, higher personal taxes, and a 50-per-cent hike in the minimum wage when inflation over the affected period is likely to be tenth of that. At the city level, Calgarians have faced a continual rise in property taxes and city fees far above the inflation rate.

The provincial government and city of Calgary are undoing private sector efforts to survive, to match the money available with costs. That means even if energy prices bounce back, investment is likely to flow to North Dakota or Saskatchewan and not high-cost Alberta. Meanwhile, with such government policies, it is not clear why other sectors would invest in Alberta, or Calgary in specific.

If Calgary becomes Detroit or even a mild version of it, it will be despite the best efforts of Alberta's private sector to survive.

It will instead have much to do with provincial and city governments that are mimicking the mistakes of Detroit companies and unions over the decades: Keeping costs high when demand for the product has slackened and the money simply isn't there any more.

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