American historian David Potter’s book People of Plenty argued that resource abundance shaped the American attitude towards possibility and opportunity. Abundant resources set the stage for wealth accumulation and created a society that believes that everyone can become rich through their own work and effort and that initiative and opportunity are the key to social mobility and success.
As Herb Emery and Ron Kneebone have recently written in Alberta’s Problems of Plenty (May 2011, Policy Options), in the Alberta context the main role of resource abundance and resource rents has been to augment both private and public consumption. Emery and Kneebone detail how the heavy reliance on resource exploitation carried with it the problem of large swings in economic activity – boom and bust – which can play havoc with health and education spending if short-term resource revenues are funding unsustainable increases in program spending. They argue that the long-term solution to this problem is to redirect revenues from natural resource rents away from current government operating budgets and into savings. This would build endowments that would fund spending in the future in a stable pattern pointing to the successful employment of this approach by energy rich Norway. Alberta has only saved about 10 percent of the natural resource revenue it has collected whereas Norway has saved over 90 percent.
Such a policy appears to have eluded not only Alberta, but indeed, most Canadians who at various points in their history have been the beneficiaries of major resource booms. Why we have been unable to save and invest a larger share of our natural resource rents over the last century is an interesting question. Given that personal saving rates have also declined over the last two decades, do Canadians in general simply have a high rate of time preference? However, we used to have higher personal saving rates before. Could it be Canadians preferred the benefits of natural resource revenues to accrue to current consumption so that they could save more privately? Perhaps the best way to save and invest resource rents is to dedicate the endowment fund for a particular purpose. We may be averse to simply stockpiling resource revenues into a general fund that sits there as a giant temptation to opportunistic politicians down the road. Why not create dedicated public endowments out of natural resource revenues to generate future streams of income for particular functions– like one for health care, one for education, etc… In the case of health care, this could be a form of pre-funding health expenditure. Provinces like Alberta, Saskatchewan and Newfoundland & Labrador are certainly well positioned to try this out.