Private sector investment has been the main driver of the Alberta economy over the past half century. Private investment in Alberta is highly correlated to secular movements in oil prices. Interest rates too play a major factor in driving economies. Low interest rates make investing in capital assets such as energy projects and housing more viable than when interest rates rise dramatically as they did in the early 1980s.
The global economy is facing rising interest rates and a current boom in commodity prices including oil, natural gas, potash and grain prices.
The two documents below illustrate the nature of Alberta’s capital investment stock relative to other provinces. Alberta in 1981 had double the per capita private sector investment of the next province Saskatchewan. As a consequence, the ratio of public investment in Alberta to private investment was the lowest in the country. Yet Alberta has the second highest per capita public investment in the country after Saskatchewan.
The second document addresses concerns voiced in correspondence with Premier Peter Lougheed about Canada’s interest rate policy. Lougheed’s conventional answer stresses (1) the private sector as the “engine of economic growth;” (2) less regulation for the profit-making sector; and (3) expansion of export markets, notably natural gas.
In 2022, inflation has turned out to be more than “transitory” and central banks all over the globe are now talking up interest rates by taking concerted action to raise short-term rates. These actions are making it more costly for all borrowers to finance new industrial expansions, new houses and importantly refinancing at interest rates that, in some cases, may be nearly double their previous borrowing rate. The sources of inflation are many and vary by individual market but clearly are the product of higher commodity prices, war in Europe, and supply chain woes, Raising interest rates is the conventional tool central banks use to drive down inflation. Rising interest rates in the United States forced Canadian rates to rise leading to recessions in both countries and western economies.
The recession (“R- word”) is being heard increasingly in the business sector as both investment and consumption are expected to slow. As in the early 1980s, Alberta is in a unique position, with its oil-price- driven economy, to absorb higher costs and enjoy a rebound of oil and gas investment. Unlike the early 1980s, the emergence of the climate crisis and concerns over environmental liabilities must be taken into account by governments in responding to the twin challenges of inflation and rising interest rates.
OFFICE OF THE MINISTER
ALBERTA TREASURY
February 22, 1982
Mr. A.F. Collins
The premier left this with me during our discussion today in his office. I plan to put some of it in the next budget draft please check figures.
Thanks.
Kathy Z for LDH
PUBLIC AND PRIVATE INVESTMENT IN CANADA 1980 to 1981
Alberta was third in the level of public investment in Canada for both years behind Ontario and Quebec.
Alberta has the lowest public sector share of total investment for both years of any province. ( Or it could be said that Alberta had the highest proportion of private investment.)
Public Investment /
Private Investment 1980 1981
Canada 25% 25%
Alberta 17% 19%
Alberta has the second highest per capita level of public investment and the highest (2 to 3 times as much) Per capita private investment of any other province.
|
% public investment |
per capita investment |
Investment |
|||
|
1980 |
1981 |
public |
private (1981) |
Value growth 80-81 |
|
|
Nfld. |
25% |
29% |
$888 |
$2,158 |
23% |
|
PEI |
30 |
31 |
685 |
1400 |
5.7 |
|
NS |
41 |
41 |
1254 |
1778 |
33 |
|
NB |
45 |
36 |
1035 |
1845 |
7.6 |
|
Que. |
36 |
34 |
979 |
1917 |
12.3 |
|
Ont. |
21 |
21 |
735 |
2697 |
17.1 |
|
Man. |
31 |
31 |
934 |
2069 |
12 |
|
Sask. |
32 |
34 |
1858 |
3595 |
28.5 |
|
Alta. |
17 |
19 |
1831 |
7720 |
23 |
|
BC |
22 |
23 |
1222 |
4117 |
17.5 |
Data Source Stats Canada 61-206 1981 (mid-year review) Collins Feb. 82
Source: Provincial Archives of Alberta, PR-1986.0245 (Hyndman papers) File # 1076.
THE PREMIER OF ALBERTA
Legislature Building
Edmonton, Alberta, Canada
T5K 2B7
Mr. Rick Shouldice
1807 Bowness Road, N.W.
Calgary, Alberta
T2N 3K5
Dear Mr. Shouldice:
Thank you for your letter of February 22, 1982 regarding Canada’s interest rate policy.
You make a valid point in saying that interest rates in Canada cannot simply be lowered because that would reduce capital available for investment and cause a sharp decline in the value of the Canadian dollar. That is why I have stressed a number of necessary ”first steps” before adopting a made-in-Canada interest rate policy.
First, we must adopt policies which emphasize the private sector as the engine of economic growth. Investor confidence must be rebuilt by restoring incentives for savings and investment, resisting excessive regulation of profit-making activity and removing measures which discourage foreign investment. Second, we must expand our export potential. Increase sales of natural gas to the United States could make the single most important contribution in this regard. The grain handling and transportation system must be strengthened if we are to expand our export potential. Finally, governments must adopt a responsible policy regarding wages and salaries in the public sector.
These policies would restore confidence in the Canadian economy by promoting Investment and improving the balance of payments. With renewed confidence by Canadian and foreign investors we could have a made-in-Canada interest rate without a massive outflow of investment funds. We would not have to impose exchange controls which, I feel, would have a devastating effect on the Canadian economy.
With policies which restore investor confidence, Canadian interest rates would not have to rise automatically if American rates go up, and the dollar could be allowed to decline in an orderly way. As a result, Canadian products would be more competitive in world markets. Also, domestic firms would be in a better position to compete with higher-priced Imports. These advantages would be particularly helpful in situations, such as the present, when there is excess capacity in many of our export and import-competing Industries.
In closing, I would like to thank you for your comments, and I hope that I have clarified my position on this important policy issue.
Yours truly,
Peter Lougheed
Source: Provincial Archives of Alberta, PR-1986.0245 (Hyndman papers) File # 1076.
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