COVIDcast

UCalgary podcasts feature interviews with experts from our community on the COVID-19 situation.

Episode 21: Getting back on our feet

May 13, 2020

Even before COVID-19, Alberta was facing tough economic times. Coronavirus prevention measures haven't made things any easier. In this episode we talk to Adam Legge, president of the Business Council of Alberta, about re-imagining Alberta's revenue model and economic landscape, and how to set ourselves up for long-term prosperity when all the decks seem to be stacked against us.

 

 

Adam Legge (AL): Alberta seems to be home to a whole host of these different rivalries, whether it's Calgary, Edmonton, the Stamps and the Eskimos or the Flames and the Oilers and the other one is oil and gas and everything else. And I think one of the biggest shifts we've got to make is stop pitting something against something else.

 

Deborah Yedlin (DY): That was Adam Legge, president of the Business Council of Alberta. And this is UCalgary COVIDcast. I’m Deborah Yedlin. Thanks for joining us. After weeks of shutdown in Alberta because of coronavirus, we've finally begun to restart parts of the economy. But that doesn't mean we're out of the woods. Some of our businesses won't survive and for others, the marketplace has been changed forever. Today on COVIDcast, we take a look at the economic landscape not just after the pandemic, but for the long-term future. We're talking to Adam Legge, president of the Business Council of Alberta, which advocates for the economic and social prosperity of all Albertans. The council is a non-partisan, non-profit organization of more than 60 chief executives from across Alberta, who represent a wide range of industries, geographies and perspectives. Adam is the former President and CEO of the Calgary Chamber of Commerce. He is the author of Making Remarkable, and former Director at the Haskayne School of Business and Vice President and Chief Economist at Calgary Economic Development. Adam earned his honours Bachelor of Commerce in Land Economics from the University of British Columbia, and his Master of Environmental Design from the University of Calgary. Adam joins us to talk about how we as a province can overcome a double economic disaster, and what we need to do to protect ourselves in the years to come.

 

DY: Adam, thanks for joining us.

 

AL: Thanks for having me, Deb.

 

DY: You are leading the Business Council of Alberta, which is a relatively new organization. What do you see as the role of the Business Council in an economic crisis like this?

 

AL: I think there's a few roles we can play. One is, I think, convener of many of the different perspectives across the business community. The one thing we are is we're not sector specific, so we have representation from many different industries in the provincial economy. So what we can do is convene those groups together to talk about the key issues and then find areas of similarity and commonality. We synthesize that, bring it together in a cogent and thoughtful manner, bring it forward to levels of government and really act as a bit of a champion and advocate for those ideas. I think it's also critical to the really origins of organization, is that our founder is very much of the belief that we do need to make sure this is about making life better for Albertans. And so this is not just about bringing together the needs of business, but bringing together some of the needs of Albertans. And so very much early response was around taking care of people, make sure people are healthy and safe and protected and that many of the initial government programs were about helping people. So that convener, synthesizer, advocate role is, I think, really critical for times now.

 

DY: So tell me, where do you think you've had an impact already, since you've been established and more importantly, in the last, call it last two months, as we've been dealing with the COVID crisis?

 

AL: In terms of the COVID situation, I think really the impact has been around bringing the Alberta perspective, the broad base business perspective to the provincial government. The federal government, I think we would all agree there is just generally a lack of understanding of how things work and operate and what's important in Western Canada often, when you're Ottawa. And so I think it's important that we make sure that we do represent that broad voice and that broad base. I think we've had success there in having good communication with folks in Ottawa and talking about the diverse needs for people and for business. We've also been working behind the scenes in supporting the Premier's Economic Recovery Council, by hosting some sector tables that really bring together some of the perspectives of the business leaders in different sectors and feeding that to the Recovery Council for input into their considerations and deliberations. So I think we've had a supporting role there, which we've been effective. So it's really just this constant churn of information and presentation to make sure that people are using the best and most current information possible.

 

DY: So Alberta is in a really tough spot right now. We were just getting ourselves going after the collapse in oil prices in 2015. I actually ran into the CFO of one of the bigger oil companies and he said, "We were just starting to think about things differently and we were looking forward and now we have the double whammy of oil prices collapsing and a pandemic which has exposed a lot of weaknesses in our provincial economy." What economic and policy reforms do we need to protect ourselves in the future, so that we don't find ourselves in an economic situation where we are truly going to be challenged to find opportunities for growth?

 

AL: Yeah, I think there's a host of things really, Deb. The one that has loomed large for many years and we can't seem to ... Alberta seems to be home to a whole host of these different rivalries, whether it's Calgary, Edmonton, the Stamps and the Eskimos or the Flames and the Oilers and the other one is oil and gas and everything else. And I think one of the biggest shifts we've got to make is stop pitting something against something else. In a time like we're facing now and what's on the other end of the COVID and the oil price crises, we just, A, we're not going to have the luxury of pitting things against each other. There will be scarce resources, but I think there's also opportunity to find resources for a multitude of things and two, I think that there needs to be a broader basket. So I think that pitting against things needs to be done, whether that's economic and policy, I doubt that's more of just a cultural element here in Alberta. I think first and foremost is the provincial revenue model, we've seen now it's ultimate vulnerability with the reduction in royalty revenues, which will impair the revenue for this year and probably many more years to go and the reliance on that, I think, so we need a new revenue model in Alberta. We're not going to create a balanced budget by cutting our way there and we're not going to create a balanced budget by increasing taxes. So we need a new revenue model. It definitely should include a sales tax, but it's not just a sales tax on top of what exists now, it is a re-imagining of that.

 

DY: So when you, because you just touched on it, you said, "We can't increase taxes." So how does a sales tax fit into your thinking and how does the provincial government sell that to Albertans, at a time when everybody's going to be feeling like this is another tax on top of what they're already challenged with?

 

AL: Well there's a couple things. I mean we probably, I think, as the premier has said, there will be a fiscal reckoning and I think whether it is as Canadians or as Albertans, the ultimate end state of all of this DYt and deficits that we're massing, is going to be higher taxes eventually at some point. So how do we sell this to Albertans, particularly sales tax? I think so much of, again, it's a cultural thing, we've been proud to be the only province without a sales tax. You can be as proud of something as you like, but on your way to bankruptcy protection, you cease to be proud of something that's leading to your ultimate financial demise. So I think we have to recognize that that train has left the station. Two, we've often framed it as going and asking Albertans, "Do you want a sales tax? Yes or no?" And of course everyone always says no. But the real question is, would you be in favor of a sales tax to create a more balanced revenue picture today? Or would you prefer to saddle your children and their children with massive DYt loads because we aren't able to pay for the things we need today? Or do you want to see massive increases in income taxes or other taxes to protect this notion of no sales tax? So we've been asking the wrong questions, we've made it a forced choice without providing the context of what the outcomes of either of those choices are. So I think once we provide some education around what that means. Jack Mintz at the School of Public Policy has done tremendous work in looking at what are some alternatives to the current model. And that may be a sales tax, but it might be lower personal income taxes or it might be higher personal exemptions or other sorts of mechanisms, so that we're not just layering it on top of what is today. It is a real re-imagination of the tax structure, both personally and business-wise in the province.

 

DY: Is that something you're expecting to see from the Economic Recovery Panel? And if you do see it, do you think that there's a likelihood we'll see something within the next six to eight months, in terms of restructuring of the tax system and the implementation of a sales tax?

 

AL: I think that the premier has been pretty clear that now's not the time to add a new tax. And in the midst of the days today, I would likely agree with him. Knowing Jack is at the chair of the Recovery Council, I imagine that that will be put on the table for a medium-term response. I know the premier had put on the platform to look at the revenue model before the end of this mandate. So I imagine that will be accelerated to look at it. In terms of timing, hard to know exactly when, but I would imagine that within the next 12 months, will be launched the revenue equivalent to the MacKinnon report and MacKinnon panel to look at how do we make Alberta's revenues more sustainable.

 

DY: Okay. So let's say we get there, let's say we find a model that makes us more sustainable going forward because we know that $58 oil, which was in their budget, isn't going to be happening anytime soon. What would you target as primary areas of investment and reinvestment? If the government all of a sudden does find itself in a more stable situation and a more predictable revenue stream, I might add, because that is one of the challenges that we've had to  Alberta's future? Because right now all we're talking about are cutbacks, no areas of investment.

 

AL: Yeah, no, absolutely. So I think I'll look at it from a few lenses. One is a sectorial lens. And so I think we need to look at what are ... You always build from a base of strength and so I think our strengths are obviously oil and gas and energy and I think that's absolutely critical part of our economy going forward. How does it evolve and adapt in a lower carbon world? So initiatives like CRIN, Clean Resource Innovation Network are really critical to making that happen. So investing in the activities of groups like CRIN, which is an assemblage of post secondaries, U of C is part of it and many of the energy companies as well. So investing in that adaptation and that evolution. The broad term of innovation is something that Alberta has yet to really come to terms with and be ultimately competitive with its peer provinces. So I think investment in innovation will be critical. And that can be both from the tech sector, if you want to call it that, but also recognizing that innovation enables many other sectors like oil and gas and agriculture and manufacturing, to be competitive and productive and drive down costs. And so how do we enable innovation to be applied in Alberta, in a more purposeful way and more competitive way? I think other key sectors, agriculture is vital to Alberta and really is, in my view, a low-hanging fruit. I think post COVID we're going to see a lot of this domestication of supply chains and manufacturing. We'll need to be looking at how does Alberta compete in that domain with respect to some of the potential, say, feedstock areas we have with petrochemicals, a key ingredient to surgical masks and other key medical equipment and carbon fibers, bitumen beyond combustion, et cetera. Those kinds of things are really critical. Big believer in education as well, particularly postsecondary education as a key driver of success in economic development. So those are some of the key pieces that I think are going to be ultimately needing to be viewed as investments, as opposed to expenses, going forward.

 

DY: So when you talk about universities and postsecondary, let's unpack that a bit more. There's a lens, an expense lens right now on the 26 postsecondaries across the province. What do you think needs to be addressed in terms of making sure they contribute to the economic future of the province? Are there particular areas where you would like to see more support within the university postsecondary system? Just curious as to how you see this evolving because we know great cities do have great research universities. Is research a nice to have, not a must have in the current circumstances?

 

AL: Postsecondary is a critical piece of economic development. It has been for years and will be into the future. I mean post secondaries are clearly, they're needing to have some reconciling, I think, of what was found, say, in the MacKinnon report, in terms of the expense profile. And so I know postsecondary leaders are working hard to address the issues surrounding that. And I think everybody, every Albertan wants to make sure that there's efficiency in spending, but I think at some point we need to recognize that we can get our costs to a certain point, but then we also do need to get it to a position of investment. And you look at any high growth jurisdiction in, particularly North America, in terms of GDP and job growth, company formation, venture capital investment, they all have at least one research intensive postsecondary at their core. And that does a couple things. One is it creates the talent pipeline for the economy. It creates the innovation catalyst where all of these early stage innovations often are nurtured. So much of the research work happening at U of C and some of the activities that are happening out of say, the creative destruction lab and other initiatives, those are fundamental to being the base for future commercialization, company formation, job creation, growth, future tax paying companies, future tax paying employees. So we can't separate that. I have yet to see a jurisdiction that has been at the top of its game competitively, with respect to economic growth and job growth and capital formation, that does not have a high quality postsecondary education institution at its core and whether that's places like Silicon Valley, whether that's Boston, whether that's Austin-

 

DY: Or it's Communitech, the Waterloo Toronto corridor. Right?

 

AL: Exactly, exactly. And I know a place near and dear to your heart, Israel, is the poster child of the startup nation, right?

 

DY: It is.

 

AL: And so much of that's driven out of postsecondary and government driven research.

 

DY: So just talk about government driven research and I guess the question in my mind is, what kinds of policies do you think are effective from a government standpoint, in terms of fostering that innovation ecosystem? What do you think are the pieces that are really critical? Because just to keep going for a second, I mean we did have something called the AOSTRA, private sector government and academics all coming together to crack the nut on how to unlock the oil sands resource. So we have precedent for something like that in Alberta. What do you think needs to be done in order to A, support the innovation ecosystem, so B, we diversify and are not beholden to geopolitical games that happen halfway across the world?

 

AL: AOSTRA is a perfect example Deb, and I think there are really three key ingredients that are needed to make something more, something contemporary happen in that regard. The first and foremost is that we do need government to fund fundamental innovation and scientific research. What so many people love to think is that Apple invented every element of the iPhone and the reality is government funded the core guts of the iPhone and Apple just put them together in a slick device. And so from the touchscreen, to the glass, to the whatever it might be, a lot of that was originally driven by government funded research. So you need that, you need the dollars to put it. Secondly, you need patience. A lot of these things will not create outcomes in 12 months or 18 months or 24 months, they're going to take years. So we need to be patient and that's what AOSTRA was. Premier Lougheed, saw the opportunity in the oil sands and he said, "Look, I'm going to put money towards it and we're going to be patient because it's not going to be driven by quarterly reporting and dividends and all these sorts of other traditional corporate metrics." So that's where government does have a role, is to be the longterm, patient capital, research intensive, which de-risks what companies aren't willing to take on. And then thirdly, we need the ecosystem, the ability to turn those initially government research based activities that are patient activity, into something commercial. So to have the ability to have angel investors, venture capitalists, mentors, the right kinds of accelerators like Communitech, as you mentioned earlier, programs like Creative Destruction Lab. So when you knit those things together, you create the conditions for the next AOSTRA or the next innovation that will happen, that won't be beholden to what the Saudis and the Russians decide to do.

 

DY: So when you have a government with a revenue problem, how do you get the government to fund it?

 

AL: That's the million-dollar question.

 

DY: It is.

 

AL: Yeah, I mean, so I think a couple of ways. One is that you begin to solve the revenue problem by having the conversation and the process that needs to happen, which is to get Alberta on the right revenue track because we're not on it right now. So you begin to solve that, it's not going to come back overnight. And then secondly, we need, frankly, I think we need corporate leaders saying to the provincial government that it is okay to create the next day AOSTRA, to invest in the next day AOSTRA, to invest in postsecondary research excellence. The reality is industry hated AOSTRA when it first came out, they were very resistant to it, but now they've seen a prime example of what happens when you do that. And so can we get corporate leaders and I know many of our founders are very much about the long term and the long game and believing in investing in Alberta's potential. And so providing government the support and the cover for being able to invest in those areas and being very strategic. I think we have often sprinkled a little bit too much fairy dust around different projects that haven't had a lot of potential. And I think we need to be a little bit more targeted and purposeful about what we do invest, to zero in on the real opportunities. But ultimately this is going to be a long game. There's no magic answer to how do you get a cash constrained government to begin investing in new things. But I think we have to be deciding that they are investments and accessing the resources that we do have, whether it's the Heritage Savings Trust Fund in a strategic way or other kinds of investments that the province can put in, but deeding them as investments as opposed to expenses and then next year or two years later, try to cut them out of a budget.

 

DY: So one of the things we keep hearing and we hear it within conversations that we have, we see it personally, the talent issue is something that everybody's very concerned about because we know that a lot of young people are going away to schools. They're not coming back to Alberta. They're not seeing the opportunities in the province that, let's say, people did in the 80s and came from away to really support the industry that we have today. How do we address the talent piece? What things need to be put in place so that we can foster that next generation of entrepreneurs and business leaders that do decide to make Alberta and Calgary their home?

 

AL: I think one way is to get past that rivalry we have with Alberta being, that it's either oil and gas or something else, that there is room for a whole host of other things. I mean we've seen some tremendous companies grow here. We have Nutrien, which has got so much activity in the ag side here in Alberta, we've got ...we've got WestJet, we've got artificial intelligence, largely centered out of U of A. We've got oil and gas and the expertise resident here in Calgary. But I think it, I mean it ultimately boils down to do people see themselves reflected in the future of this place? And that is, I think, what ultimately people are saying, is that, "I see cool hip places like Vancouver and Toronto and Communitech and Waterloo. That feels more like my tribe or my people. I'm going to head there." So we need to find a way to have the culture of Alberta, the brand of Alberta shift to be more inclusive in terms of what it is. And I think, it's taken a bit of a hit in terms of what people from the outside looking in think of Alberta, we know it as a tremendously innovative place, a very welcoming place. And I think we need to do a better job profiling some of those innovations, the innovative people, the innovative culture, the ecosystems that we have here, that will begin to make people feel like they have a place and the talent will stay. We can also then begin to attract talent and then the post secondaries have a key role in the nurturing of that talent pipeline.

 

DY: What do you see as the role of the Business Council in terms of changing that dial and moving towards Alberta is oil and gas and. Let's talk about that and conversation. It's energy and the environment, those two are not mutually exclusive, but it's also oil and gas and other industries. What role do you see the Business Council playing in changing that narrative so that we can reignite economic growth and diversification?

 

AL: I think from day one, we've really tried to be a different kind of organization, that really focused on the diversity of the province in many ways.

 

DY: Is that landing? Is that landing across the country and do you think it's landing in Alberta?

 

AL: I think it's probably landing in Alberta to some degree and we're still relatively young, so I don't think we've made it all the waves we want to make in our lifetime. So it's getting there. I do think we are, based on the conversations we're having in Ottawa, I think we are beginning to shift some perceptions in Ottawa that we are something different than what they had thought Alberta was. But I think it's really about the diversity of people that we bring together, so our membership is diverse. The majority is oil and gas and related activity, but we also have the Westjet's and the Nutiren's and we have a variety of tech entrepreneurs and we have financial services and real estate and construction. So there's some diversity there. And I think it's just beginning to continually reinforce the reality of what Alberta is. We have to paint the picture and combat the stereotypes. And it's a tough job because I know groups, everything from ... I remember we tried to do that when I was at Calgary Economic Development back in the mid 2000s, this has been something that's been ongoing. To some degree, I don't know how you change the perceptions in Quebec and Ontario of what Alberta is. I think just continual business relationships and conversations on the ground are important. I'm not a believer necessarily in big advertising campaigns. I think it's almost got to be human to human.

 

DY: When you look at what we're dealing with today, what do you see as mission critical in terms of what we need to do as a province in order to recover, to future proof ourselves, so to speak, so that we don't have to experience such a severe downturn? What do you think we need to do?

 

AL: I think many of the things we've talked about, that and conversation, that we have to be more inclusive in terms of what Alberta's opportunities are. I think that looking at things as investments, whether it's innovation, education, research, all the revenue model mix. I think the challenge for Alberta quite frankly is that we are in a federation that I don't think we've got everything right in. And so when I look at mission critical, I think a lot of things we talked about today are very much provincial focused, there's also federal and national picture and I think Canada has taken its foot off the gas when it comes to a competitiveness perspective. And Mac Van Wielingen, who's one of our founders and key patron of the Canadian Center for Advanced Leadership, at the Haskayne school, talks about how ESG, environment, social and governance factors are a critical part of the way business is beginning to shift. But he also talks lately about the lack of the other E, which is economic. And I think Canada has been trying to be a leader on the ESG file, not recognizing the challenge it's putting us in with respect to the other E, which is economic. We've struggled with productivity, we've struggled with prosperity, we've struggled with attracting investment. People aren't coming here because they don't think projects can get done. So I think mission critical is really recognizing that on the recovery side of COVID, if we thought the world was competitive before, man, with people now willing to pull stuff out of China and bring stuff back domestically or at least continentally, you will see competition like nobody's business. And for Canada to not be in that mindset, we will be a laggard and we will struggle on the recovery side if we don't put enough emphasis on the economic factor in balance and I need to say, in balance, with the other ES and G factors. So I think that's mission critical.

 

DY: So I wanted to just connect the dots on that one. You mentioned earlier in our conversation about agriculture and that being a really important opportunity for Alberta and I think you're right, as we start to see supply chains desegregated as a result of COVID. Where do you see the opportunities for Alberta in the agriculture sector? What do we have to seize on to really maximize the value of this resource we've had since the province and before the province was established in 1905?

 

AL: Well we've been fantastic primary producers in the agricultural sector. So we've grown the wheat and the barley and the pulses and we've raised the cattle and the livestock, et cetera. But we haven't really thought about how to add a lot of value. And I'm not saying there's no value add in the province, but there's limited value add and they've typically gone closer to where the larger markets are. And I think from a supply chain standpoint, I think there will be more interest in having the value added closer to the actual resource or the product, as opposed to the market, just because of if you put it too close to the market and the supply chain gets disrupted, from a production standpoint, you can't get your product to market. So I think it's the value add. So I think there's a huge opportunity to add more value to our agricultural products. The plant protein, plant based diets are increasing in popularity and there's a huge amount of potential there. There's a federal super cluster around the plant proteins and value added agriculture, which I think Alberta could take more advantage of. So for me, it's just a matter of ... I think we continue to export to wherever we can, China, Japan, India, other countries, but recognizing that a lot of that production will come back domestically. And then how do we leverage that with both the United States and Mexico through the NAFTA, the CUSMA agreement, whatever it's called.

 

DY: Whatever it's called now.

 

AL: USMCA. It depends on the country, the letters change. So finding ways to build on that platform as well. So I think it's just a matter of we just got to be more about adding that value than we have in the past.

 

DY: And the last question, I mean energy is so important, it will still continue to be so important. Do you see a time where we're dealing in energy systems, as opposed to energy companies, that we see things more broadly connected, potentially from production to distribution, that companies are more integrated, that they talk to their customers more. Do you see us going in that direction as a way to insulate the economic swings that we've experienced in the past?

 

AL: I think you're seeing some leadership from many companies on that already. You've got a lot of integrated companies that are growing in scale. Suncor is one of the world's largest now and they've got a full spectrum value chain, both upstream and downstream activities. Many companies, Suncor included, TC Energy, Cenovus, Enbridge are diversifying in what they use in terms of some of the inputs from a renewables standpoint. Some of these companies are unbeknownst to many Albertans frankly and Canadians, some of the largest generators of renewable power in the country and are investors in renewable power.

 

DY: In clean tech generally, they're the biggest investors in clean tech across the country.

 

AL: Yep. Absolutely. And so I think that's a key part of the story that hasn't been told very well, that we need to focus on, is the progress that so much of our sector has made towards being more energy system based, as you said. And the reality is, is that the crude product itself is traded on an exchange and you don't see the whites of the eyes of your customer, like someone in a B2C transaction does. But I think it speaks to the need to really build and I think so many of the companies are doing such a great job in transitioning that, creating a brand for being part of people's everyday lives. And so we're seeing that evolution and it's a matter of, as we begin to see different expansion of the sector, LNG is going to be a growing part of the sector. Hydrogen is growing, bitumen beyond combustion. So as the companies begin to grow and diversify in their portfolios of this, I think the world hopefully will recognize that we're not just sticking a hole in the ground and pulling out oil. There's so much more to it and so many more applications and so much more connection to our daily lives.

 

DY: Yeah. The value chain is something that we all have to be better aware of. It's an age old problem. We haven't told that story well for a long time. Adam, thank you very much for joining us. Really appreciate the conversation today, but before we go, where can our audience find you online?

 

AL: You can visit our website, which is businesscouncilab.com. You can follow on Twitter and the other social platforms. Biz council AB.

 

DY: Follow you on Twitter too.

 

AL: You can follow me on Twitter, A-W-L-E-G-G-E, for sure. I put out stuff from time to time, whether it's of importance or insightful, I let the Twittersphere be the judge of that. I try and follow your footsteps, Deb, you got a great perspective and commentary and lens on the world, so thank you for all your leadership.

 

DY: Thank you for your leadership. We really need it now more than ever. Thanks for joining us.

 

AL: My pleasure. Thank you.

 

DY: This has been UCalgary COVIDcast. To subscribe or listen to past episodes, or to get more online resources for coping with the coronavirus pandemic, visit ucalgary.ca/covidsupport. Thanks to Adam Legge for taking the time to chat with us today. I'm Deborah Yedlin. Thanks for listening.

 

 

 

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