I hate to worry, but I think I am pretty good at it. It must be genetic for my grandmother was a worrier. My mother is a worrier. I too am a worrier. It isn’t fun, for as all the inspiring quotes tell me that when I worry I rob today and tomorrow of their enjoyment. Yet I think, if not me, then who will worry?
In the past few weeks our team has been working to identify key business issues for 2014 and barriers to Calgary’s future success. I think we all know what the biggie is – market access – but market access is but one piece of a complex puzzle that has me worried for our city’s economic success and competitiveness at least in the short and medium term. The larger puzzle is Calgary’s cost of doing business when overlaid against a fragile economic engine. The combination is making us increasingly uncompetitive.
“…at a time when there are many other places in the world that business and capital can move to, we always should be diligent in managing the cost of owning and operating a business here and keeping Calgary competitive.”
Let’s look at this in pieces.
Calgary is an amazing city that has seen significant economic and population growth over the past decade. We have been the envy of many cities in Canada, if not North America. We have been on the top of many economic lists nationally and internationally. In short, we have seen tremendous success.
But that success has not come without its challenges. One of the things that often happens to places that perform well is that demand outstrips supply. The outcome? Calgary is now one of North America’s most expensive places to do business. We have some of the highest labour costs, commercial real estate costs, parking costs and housing costs in Canada, if not North America. There was a time, a brief window in time, when Calgary enjoyed the high growth but low costs of business. We are now facing a time when our costs are a challenge to the attraction and retention of people and workers. Ultimately, our cost is our biggest barrier to competitiveness.
The second part of the puzzle is that Calgary’s economic engine is fragile. The long-term prospects for the energy sector are strong, given that the world needs the resource we have and at some point we will figure out the market access issues. Therefore I believe Calgary and Alberta are well positioned for long-term success. But for the short and medium term we do need to consider the market dynamics of the industry: That we cannot get products to more diverse markets; that it is a price taking industry; that Calgary companies see a discount to their product vs. global prices; and that global supply is growing due to new technologies. All of this makes things fragile. Speak to anyone in the sector who has a handle on this bigger picture and they will agree – things aren’t all rosy right now despite what think tanks and consultants may have you believe. Many of the indicators they talk about as being indicative of Calgary’s success are lagging indicators, and so reflect the past. Not the future.
So take a high cost of business and overlay it with a major industry and employer that has shortand medium-term challenges and I worry that Calgary could face some decisions by companies and investors that are not favourable to Calgary’s long term success. Companies may choose not to expand or relocate due to high space costs or concerns securing workforce. Continued cost increases in everything from parking to building permits may have real estate investors thinking twice.
When I asked the mayor about this, he compared Calgary to Detroit where there is a lot of cheap labour, real estate and low parking rates, suggesting we had a good problem to have versus the alternative. I don’t disagree, but when our parking is second highest to New York we have to be realistic. We aren’t New York. Far from it. It’s New York! It has a lot more reasons why it has high prices, and a lot more supporting them to stay high. We are a million people in the middle of the prairie. We cannot afford to shrug our shoulders and assume the good times supporting high prices will continue to roll.
So what can we do? There really isn’t a ton that can be done, for these things are still in demand with limited supply. So economics 101 will tell you that those prices will hold assuming demand and supply remain. But if demand slows due to slower mid-term performance of Calgary’s economy, prices should moderate. The challenge is that these things – wages, housing, real estate – are historically stubborn in dropping when demand slows. People don’t like to earn less nor erode equity in an investment such as a home or property.
But some things can be done to make sure we are addressing supply side. Making sure there is adequate supply of serviceable land and rental housing will help. Addressing parking through increased supply, fluctuating rates depending on time and increased public transit options will help moderate rates. Local government can examine its budget to ensure there is value for every dollar spent to minimize tax increases. Red tape should be reduced to ensure costly delays are reduced and that product can come to market in a timely fashion to keep price increases to a minimum. And effective cost management by both business and government will ensure we don’t create unnecessary inflation in some of these key cost areas.
None of these things will make Calgary a bargain as a place to live and do business. But they can help. And at a time when there are many other places in the world that business and capital can move to, we always should be diligent in managing the cost of owning and operating a business here and keeping Calgary competitive.
And I can stop worrying.
By: Adam Legge is president and CEO of the Calgary Chamber of Commerce.