Western secession is all the rage. How would an independent West fare economically?
Economists in Alberta, Saskatchewan and B.C. say the provinces could encounter some major setbacks
It's becoming a Canadian tradition: the Liberals win a federal election, and calls for western secession emerge from the sea of blue prairie voters.
Feelings of western alienation are nothing new, but polls suggest the recent desire for separation has persisted in Alberta and Saskatchewan since Justin Trudeau's second election win in 2019.
This week, the day after Mark Carney was elected prime minister, Alberta Premier Danielle Smith introduced legislation that made it easier to trigger a referendum, lowering the number of required signatures by hundreds of thousands. The Alberta Prosperity Project, a group that was planning a sovereignty referendum petition, says it now has enough people registered online to meet the new threshold.
First Nations chiefs accused Smith of "attempting to manufacture a national unity crisis" with the move.
At the core of the pro-secession argument is the idea that the West is a key economic engine for the rest of the country and is contributing more to the rest of Canada than it receives in return. Smith and other Alberta leaders also say Liberals' climate goals are bad for business in the oilpatch.
Separatists claim the western provinces would be better off on their own.
One proposed scenario is Alberta leaving to become an independent country. Another scenario adds Saskatchewan — both provinces voted overwhelmingly Conservative in Monday's election — and still another includes rural northern B.C.
Some have suggested joining the U.S. as the 51st state.
The process of leaving Canada would be long, complicated and expensive and would require consent from the federal government as well as extensive negotiations with First Nations, several of which on Thursday said emphatically that they would fight back against any such proposal.
In short, it's a highly implausible scenario.
But in a world where the West managed to peacefully negotiate its way to independence, could its economy thrive once freed from obligations to the rest of Canada?
People, companies would likely flee: economist
Trevor Tombe, a University of Calgary economics professor, says as far as Alberta goes, it would be naive to look at the province's finances and assume things would stay the same if it separated.
In reality, he says, serious talk of separation would see people — and more significantly, companies and capital — leave the province in big numbers.
"The tax base would shrink, companies would leave Alberta, as we've seen with Quebec [following threats of separation]. That would really change the fiscal landscape," Tombe said.
"Any time there's risk of separatism increasing, a lot of those corporations might shift their headquarters elsewhere, so we may see the corporate tax base leave Alberta to Toronto or Vancouver, just as we saw happen to Montreal."
In the early 1960s, he says, the federal government raised more money in revenue from Quebec than it spent in the province, as is the case with Alberta today. But when profitable companies, financial institutions and others left the province amid separation talk, that changed.
Combined with the massive administrative cost of taking over federally run programs, he says this exodus would necessitate raising taxes, thus negating the "tax advantage" some separatists tout as one of Alberta's biggest selling points.
He cites Brexit — the United Kingdom's 2020 exit from the European Union — as a somewhat comparable situation, which saw the U.K. incur heavy financial costs, including having to renegotiate its trade agreements.
Alberta's situation would be more challenging because it's landlocked, and those countries tend to have lower productivity, Tombe said, and higher trade costs because they lack access to trading ports.
"[The EU] made it very difficult for the U.K., potentially to set an example for others who might think about leaving the union," he said. "And one might expect that kind of dynamic would be the same if Alberta were to leave Canada."
Ottawa could levy additional fees on the shipment of oil across the country, for example.
"Canada would be stupid not to do that," he said. "It could charge quite a bit, and that would mean the oil is less valuable to Alberta."
Tombe says a separated West could also be blocked from joining trade agreements of which Canada is currently part.
He says it's hard to say what the economic or financial situation might ultimately look like in such a "wildly speculative" scenario, but says it's clear that market access and pipeline construction would become much more difficult.
Reliance on oil and gas could hinder economy
Saeed Moshiri, economics professor at the University of Saskatchewan, says residents of an independent West could likely expect a lower standard of living than they have now.
Moshiri says the biggest problems for Alberta and Saskatchewan would be their economic reliance on the oil and gas and mining sectors — which are prone to fluctuation — and the fact that they haven't used that money to build up significant reserve funds like, say, Norway.
"When times are good, the rest of the country benefited from Alberta and Saskatchewan. But on the other hand, when times have been bad, Alberta and Saskatchewan benefited from them," he said.
"So the net effect on Canada has been positive, and it's been a win-win situation for both."
He says the new western nation would also have to develop its own currency and monetary policy, a "remarkable" cost for the relatively small size of its economy.
While some concerns could potentially be eased if the independent nation convinced northern B.C. to join, or if it became part of the U.S., Moshiri says that doesn't solve the fundamental problem of reliance on oil and gas.
"Diversification, of course, is possible, but it's going to take a long time. It's going to require a lot of capital, and investment in human capital."
'What is the upside of separation?'
Ross Hickey, associate economics professor at the University of British Columbia's Okanagan campus in Kelowna, points out the provinces would also have to buy all the federal infrastructure within their borders if they were to separate, assuming that could be agreed upon.
Hickey says the new nation would lose out on the risk-sharing that comes with being part of a large and diverse federation, which also means higher interest rates.
Separation would certainly hurt the rest of Canada, as well, he said. But at the same time, he says separatists are overestimating the western provinces' economic weight.
"Alberta and Saskatchewan, even if they took B.C. with them, it's still not Quebec or Ontario," he said.
While Hickey says it's possible an independent West could develop more efficient ways of running things over time, there would still be a "giant startup cost hurdle" to develop systems currently run by the feds, like tracking people's income for unemployment insurance.
He says the rest of Canada would still "undoubtedly" have to be the new country's main trading partners.
While he agrees with Moshiri that joining the U.S. could solve some market access problems, he says the separated West would be in a "very poor bargaining situation" and might only end up being accepted as a territory, "like another Puerto Rico."
And with U.S. tariffs and an ongoing trade war with Canada, Hickey says it's ironic for western provinces to be proposing more barriers on the free flow of goods, services, people and capital within this country.
"You've got to ask, what is the upside of separation? Aside from the upside that a baby gets when it cries really loud in its crib: getting the attention of its parents," he said.
Hickey says Quebec separation is more realistic, because it has access to the St. Lawrence River and has its own income tax system, as well as special agreements on immigration with Ottawa.
Still, he says, even Quebec does not have a strong economic case for leaving. It's "hard to see what the added value would be" for any province trying to separate, he said.
"There's always been this independent streak in Alberta, which is not a bad thing," Hickey said.
"But let's not throw the baby out with the bathwater."
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