The job losses and government budget deficits caused by the drop in oil prices aren’t a surprise, but they could have been avoided.
Federal and provincial governments took a hands-off approach to the economy. No thought was given to what would happen when the natural resources boom ended and prices began to drop.
Sooner or later oil prices were going to drop
Natural resources like oil are subject to boom-bust cycles. When prices drop, companies are going to scale back production and job losses are inevitable.
Without a diverse economy, the impact will be felt beyond the oil industry. When past oil booms ended, the manufacturing sector helped pick up the slack. But because the federal government and most provincial governments stuck to their hands-off approach when the manufacturing sector was hit hard following the 2008 recession, it will be some time before manufacturing recovers.
Corporate tax cuts failed
The only action most governments were willing to take was to cut taxes in ways that mainly benefitted large corporations and the wealthy. As job losses in the manufacturing sector mounted, governments continued to assure us that cutting taxes for large corporations and the wealthy would increase investment in the economy and create jobs.
Instead, like other attempts at trickle-down economics, tax cuts for large corporations and the wealthy failed and job losses continued. All the tax cuts did was increase income inequality.
Cuts to public services will make end of oil boom more painful
More money in the pockets of the rich was only one way the tax cuts for large corporations and the wealthy increased income inequality. It also meant less money for a range public services people rely on including health care, education and EI.
As revenues for the federal government and many provinces drop again because of the end of the oil boom, there is talk of more cuts. There is a good chance those cuts will result in a recession.
When the safety net isn’t there, it will be harder for people who are struggling to get back on their feet. And when people aren’t spending money in their communities, many businesses that haven’t been directly affected so far will suffer.
There is a better way
Countries like Norway have shown how to manage natural resources in a way that reduces the problems caused by boom and bust. Norway recognized governments have to do more than hand out tax breaks and hope for the best.
Government intervention is behind a number of other economic successes. The Internet and email were both developed because governments played an active role in the economy. Many major industries in Canada exist because Canadian governments had an industrial strategy.
Now we need a modern industrial strategy to rebuild the economy. This is not about picking which companies will succeed. Instead, a modern industrial strategy involves identifying which sectors have the potential to grow and making sure the supports those sectors need, such as job training, access to investment or infrastructure, are in place.