Mark Milke is a Calgary author and analyst who has authored multiple reports on subsidies to business and on Alberta's economy.
Think back to the 2008 crash and its effect on Canada's automotive sector. Recall how, as the worldwide economy worsened and auto sales dropped, there was the push for taxpayer-funded bailouts of Chrysler and General Motors – from the companies, but also unions, friendly academics and panicked politicians.
In 2009, the federal and Ontario governments eventually sent $2.9-billion to Chrysler and $10.8-billion to General Motors in their various pre- and postbankruptcy incarnations. The federal Finance Department informs me that just more than $2-billion (Chrysler) and $8-billion (General Motors) was eventually recouped in repayments, interest and share sales; the overall net loss to taxpayers was thus $3.7-billion.
The justifications were predictable: Taxpayers were told that Canada could not afford to lose two major companies and their jobs. But in sharp contrast to the auto bailouts in 2009, no one in Canada's energy patch in 2015 wants bailouts for weak oil and gas companies, despite the steep decline in oil prices over the past nine months. Instead, this year alone, energy companies such as Connacher, Southern Pacific, OilSands Quest, Laricina, Ivanhoe and Legacy have either been sent into receivership and/or taken over by others, often for a fraction of what they were worth this time last year.
It's not as if $50 oil hasn't been painful on the ground. A slew of layoffs already hit Western Canada over the past six months. Here's the short list: Schlumberger, Talisman, Nexen, CNOOC, Halliburton, Trinidad Drilling, Shell and, just last week, Cenovus Energy, to name but a few.
The Canadian Association of Oilwell Drilling Contractors recently updated its forecast for drilling activity and resulting job losses in its subsector. The organization expects that 25,110 people have lost or will lose their jobs in 2015 – more than the combined work forces at Chrysler and General Motors (about 21,000) before the financial crisis.
And still, few people in Calgary would seriously suggest that government step in and "rescue" a specific energy company. Why the difference?
Unlike the automotive sector, with just a few major players in the actual production of vehicles, there are dozens of majors and even more junior companies in Western Canada involved in the primary extraction of oil and natural gas. Given that there are about 90 energy companies with head offices in Calgary alone, there is little pressure to bail out an individual company. Other companies, especially their employees, would rightfully complain – after all, they might lose their jobs instead. That's part of the reason "saving" one company is not the same as preserving overall employment levels. The job losses are just shifted elsewhere.
Also, in Alberta, historical experiences may explain differing expectations for so-called government "help." The 1980s-era governments of Peter Lougheed and Don Getty engaged in an experiment to diversify Alberta's economy with government loans and loan guarantees, after a one-two punch from a recession and the mid-1980s oil price plunge. But such efforts failed to do the trick. Instead, about $2.2-billion was lost to taxpayers after many loans and guarantees went sour by the early 1990s.
The losses led to then-premier Ralph Klein putting in place policies to get the province "out of the business of being in business." Alberta's government mostly followed that sensible policy until a later premier, Ed Stelmach, unwisely began to unwind it.
Still, these days, most Albertans understand that when energy investment falls by 30 per cent in one year (the provincial government's forecast for 2015) and oil hovers around $50, there will be cuts, losses, bankruptcies and mergers.
It's a painful adjustment, especially for those directly affected by layoffs. But sending taxpayer money into failing companies can't change the overall dynamic of an industry affected by a worldwide decline. That recognition is why no serious observer out west would propose a repeat of the 2009 taxpayer-funded bailouts, only this time for the energy sector.