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Opinion

Peter Lougheed's Radical Legacy

His supposed ardent admirers ignore his true gift to Canada: six principles for developing resources.

By Andrew Nikiforuk 17 Sep 2012 | TheTyee.ca

Andrew Nikiforuk is a regular Tyee contributor. Over the last 30 years he has interviewed many western premiers and politicians for a variety of papers and magazines. None stood as tall as Lougheed.

As Canada's inept Tory politicians now salute the remarkable achievements of Peter Lougheed, they tellingly omit his radical views on resource development.

And that should come as no surprise. Unlike the current libertarian "strip it and ship it" crowd that governs most of the west, Lougheed stood for something different. He offered a farsighted vision that was both progressive and altogether conservative. Although everybody from Saskatchewan's Brad Wall to Alberta's Alison Redford now praise the famously competent premier, none walk his talk.

Lougheed's famous principles, which greatly influenced Norway's take on oil development, strike at the core of Canadian life. Alberta's own oil patch didn't like him. Yet over the last few years the affable and charismatic statesman repeated his basic philosophy to the likes of Policy Options and this humble reporter. They should remain on the lips of every Canadian.

1. Behave like an owner

As oil prices shot up from $2 to $25 a barrel in the 1970s Lougheed learned that Albertans, the lucky occupiers of much oil real estate, needed to think and behave like owners. Ownership, of course, came with onerous responsibilities, including the basic recognition that hydrocarbons and most mineral resources are finite. "You have to look at oil and natural gas as a depleting and declining resource. And you have to manage the resource and that means to manage it with good public policy," he recently told Policy Options.

The absence of meaningful public policy on resource ownership (and only the NDP now embraces this conservative notion) puts Canada in the camp of backwater kingdoms.

2. Collect your fair share

Smart owners don't give away oil or any other depletable resource. Lougheed thought that low royalties were not only bad for the owner but encouraged Big Oil to be fat and complacent. One of Lougheed's first moves as premier was to capture a much larger share of hydrocarbon profits. In his day that amounted to raising the owner's share from 17 per cent of all non-renewable resource revenue to 40 per cent. Such increases boosted government income by $10 billion a year (and 30 per cent of that was directly saved for future generations). Industry, of course, called the man a cruel sheik and a "red Tory." Higher royalties moderated the pace of production but also forced industry to be more innovative and competitive.

Ever since then successive Tory governments have lowered royalties and thereby cheated the citizens of Alberta, the owners of the province's hydrocarbons, of tens of billions of dollars. Today, Alberta collects less than 15 per cent of available non-renewable resource revenue. Governing parties in British Columbia, Saskatchewan and Ottawa now shamelessly offer Big Oil some of the lowest royalty rates in the world for oil, heavy oil, natural gas, and shale gas. The direct consequence for ignoring Lougheed's principle in Alberta is that libertarians have bequeathed the province with billion dollar deficits and the prospect of becoming a ghost town when economic hydrocarbons run out.

3. Save for a rainy day

In the 1970s Lougheed, a long-term thinker, established one of the world's first sovereign funds or rainy day accounts. Given the finite nature of oil and gas, he believed in saving at least 30 per cent of the wealth for the inevitable economic deluge. Not surprisingly, Albertans wholeheartedly championed the Alberta Heritage Savings Trust Fund. Norwegians copied and bettered the idea with their own pension/oil fund now worth $600 billion.

But the politicians who came after Lougheed debased the concept. Today Alberta's Heritage Fund is worth a paltry $15 billion, or just $3 billion more than when Lougheed left government. Lougheed's successors didn't believe in saving. They've either lowered taxes or simply given away the balance of the province's wealth to special interest groups such as AltaLink or U.S. multinationals and companies owned by the Communist Party of China. This fundamental betrayal of the public trust "stressed out" Lougheed till the day of his death. Saskatchewan, B.C., Alberta and the Territories still do not bank a significant portion of their finite resource revenue for future generations. Ottawa, the largest beneficiary of resource exploitation in the form of corporate taxes, saves nothing.

4. Add value

Lougheed was never impressed by the convenient Canadian habit of exporting raw resources without adding value. In his reading of the nation's history, Canada should have made clothing instead of exporting raw furs. He also recognized that the majority of jobs in most resource industries didn't come from digging holes but from refining the raw stuff into something useful. As a consequence, he resolutely championed the upgrading and refining of bitumen into gasoline, diesel, jet fuel and petrochemicals. Unlike Redford, Hall and Harper, he opposed the Keystone XL pipeline as wholesale job exporter. He didn't think that Albertans should be enriching refineries on the Texas coast owned by Saudi Arabia or the Koch brothers.

"I think we should be processing the bitumen from the Alberta oil sands within Alberta and creating the jobs east of Edmonton and in that area there," he recently told Policy Options. "And I think that would be, from a political and from an economic point of view, the right public policy for Alberta." A bold tax on exported bitumen still might get this economic ball rolling.

5. Go slow

Last but not least, Lougheed often lamented the speed of bitumen development in the province. His motto was "one project at a time." Over the last decade libertarians rubber stamped more than 100 projects and the gold rush overwhelmed infrastructure, bloated wages, drove up house prices and generally inflated the cost of living. Why bother with a trade or an education when a petro job will garner you 10 times the income, asked Lougheed. Knowing that busts invariably follow booms, he viewed overheated growth in the tar sands as a great calamity. Real owners don't overheat their economies or stress out their communities: they go slow. The architect of Norway's oil development, Farouk al Kasim, a brilliant Iraqi geologist, cautioned the Norwegians to do the same.

In a famous 2006 Policy Options interview, Lougheed described rapid bitumen development as a mess and just plain wrong. "I keep trying to see who the beneficiaries are. Not the people in Red Deer, because everything they have got is costing more. It is not the people of the province, because they are not getting the royalty return that they should be getting, with $75 oil." To date no Tory political leader has had the courage to address the pace and scale of bitumen development on a provincial or national level.

Yet libertarian politicians serving Big Oil continue to speed up bitumen production with potentially disastrous consequences for ordinary Albertans. Environmental and carbon liabilities remain largely unaddressed and no one has prepared for the implosion of the Chinese economy. By flooding the market place with cheap bitumen, Alberta's current stupid government has cheated the owners of a fair price in U.S. markets due to sustained lack of planning.

6. Practice statecraft

Unlike most modern politicians, Lougheed believed in competent government and a smart civil service and for good reason. Sitting on a pile of hydrocarbons has never made a people smart. A lucky resource owner not only needed good accountants and reliable scientists, but a capable political class that could monitor and regulate the resource developers overtime. If tar sands companies had 25 or 50 year plans, then government needed to do the same, reasoned Lougheed. As a consequence he steadily built the civil and intellectual infrastructure needed to make careful public policy that respected future generations.

Lougheed not only constructed one of the country's most able civil services, but actively funded the same sort of environmental science and research that the Harper government has dismantled. To keep an eye on the industry's real profits and costs, Lougheed's government even owned an oil company: the Alberta Energy Company.

Today Lougheed's vision of competent government has been replaced by negligent regimes that slavishly represent resource developers instead of citizens. No western province now has the ability to do long-term planning or perform critical audits such as those routinely done by the U.S. Government Accountability Office. And no western premier publicly challenged the wholesale dismantling of federal environmental legislation and science programs by Stephen Harper, yet this folly may well kill the social license for bitumen development. Dumb and dangerous petro states have actively replaced conservative vision.

So here's the radical Lougheed legacy that Canada's political class has abandoned: Behave like an owner. Collect your fair share. Save for the rainy day. Add value. Go slow. Practice statecraft.

Next time you hear a gaggle of western politicians praising Lougheed, ask these extremists why they won't act like him. And whom they serve.

It's not us, the owners.  [Tyee]

Read more: Energy, Politics

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