Alberta’s Tryst With Destiny

By Peter Zeihan and Michael N. Nayebi-Oskoui

Local politics, even at the national level, are rarely a focus for students of geopolitics. Personalities play too big a role in the mishmash while local outcomes often play too small a role globally. Local affairs take up an outsized amount of oxygen in terms of local media coverage and public opinion, yet things usually keep chugging along, be the results good, bad or indifferent.

The key word there being “usually”.

The Canadian province of Alberta held elections yesterday (April 16) that have been on our radar for three years, and the implications of their results are anything but usual.

Alberta is a quirky place. Strong economic growth, a robust energy sector, and center-right political leanings have defined Albertan politics in recent decades—trends broadly disconnected from the reputation and reality of the rest of America’s northern neighbor.

Within that disconnect lies the problem.

Alberta has long been the Canadian province suffering from the largest “gap” between the monies it pays into national coffers compared to what it gets back in terms of federal spending. The rest of Canada has shown its appreciation by consistently stymying the energy industry that forms the backbone of the Albertan economy with everything from carbon taxes to blocking transport routes for the landlocked province’s crude to reach foreign refineries. For the most part, the rest of Canada doesn’t even use Alberta’s crude themselves, deigning to invest in refineries capable of processing Alberta’s tar sands crude, opting instead for lighter, sweeter imports.

If you think hamstringing a region’s economic growth while depending on its tax payments is a less-than-tenable long-term strategy, you’re not alone. While more people are aware of Quebec’s…independent streak, plenty within the Albertan political mainstream have had enough. And thanks to Quebec’s long-standing political wrangling to wrench itself free, any future Albertan separatist referendum would be perfectly legal.

Which gets us to the current state of play. The province’s conservative-leaning voters staunchly backed the Progressive Conservative majority governments from 1971 to 2014, to the degree that after some elections there wasn’t even an opposition in the local legislature. But in 2015 in-fighting within the conservative house generated a political split. The Wildrose Party ran separate from the Progressive-Conservatives in the 2015 elections on a ticket of fiscal conservatism, healthcare reform and direct election of the province’s senators. The fissure split the conservative vote down the middle, enabling the New Democratic Party—a party that is most definitely not of the center-right—to seize control of the Albertan government for the first time.

In a near textbook example of how geopolitics forms politics rather than the other way around, the NDP and premier Rachel Notley quickly went to work not only adopting many of its predecessor conservative government’s policies, but went to the mats with both Canadian Prime Minister Justin Trudeau and neighboring British Columbia over all things energy-related, most notably on pipelines. (Obviously, going to the mats here is relative. For a self-styled, Green/Leftist party to support oil sands in any measure is a big shift. Notley went so far as to embargo British Columbian products.)

It was fun while it lasted. Just as a political spat among the center-right brought the NDP to power, a recent fracturing of the center-left in Alberta combined with a healing of the rift on the right has now escorted it out. While the counting continues, it appears a reunited Conservative-Wildrose alliance—operating under the banner of United Conservatives—now hold at least 62 seats in the 87 seat parliament according to Tuesday night’s provisional results. With victory cemented, many Albertans now look forward to a fundamental shift in the provinces’ fortunes.

The awakening will be a rude one.

The United Conservatives are running on public dissatisfaction against carbon taxes, a lack of pipelines, and an unequal system of taxation by a federal government many Albertans see as being not only out of touch and unhelpful but actively working against Albertan interests.

Alberta’s new government will take the issue of a carbon tax to court.

They will lose. Canada’s provinces lack the legal standing to challenge the central government on such topics, or more accurately, Ottawa has means of enforcement that bypass legal challenges.

Alberta’s new government will sue to allow the Trans Mountain Pipeline to cross British Columbia and so enable Albertan Tar Sands to reach the Pacific.

They will lose. Even if Alberta wins the case, BC will still find a means—with the unofficial blessing of a green-leaning central government—of preventing the pipe’s construction.

Alberta’s new government will push back against the federal government’s heavy reach into Albertan coffers.

They will lose. With Canada’s population aging into mass retirement, transfers from Alberta to the center will increase.

Alberta’s new government will attempt to redefine the relationship between Edmonton and Ottawa in an effort to carve out more policy and financial autonomy.

They will lose. Trudeau’s shiny, Instagram-able veneer aside, his ruling Liberal Party faces what is shaping up to be horrific national election in October. Collapsed positions vis-à-vis the Americans on trade has gutted Liberal support in Quebec, British Colombia has outflanked Trudeau to the left, Alberta’s Prairie Province neighbors have never been strong Liberal territory, and Ontario is slipping into a decidedly non-leftist populism. Trudeau needs Alberta’s tax dollars to hold Canada together, and any concessions to Alberta would immediately be demanded by other provinces. What Alberta is asking for is quite literally an end of Canada. Even if Trudeau wanted to give ground (and he does not), he absolutely cannot.

Something’s gotta give.

This Alberta Question has two possible outcomes.

The first is an Albertan collapse.

Economically, the province’s strength is resource extraction. Without a significant change in how Canada functions, the Albertans inability to bring their crude to market leaves them staring down an economic depression Greek in depth while also facing ever higher financial extractions from Ottawa. It is enough to hollow out Calgary on the scale of Detroit. As a government town, Edmonton wouldn’t do much better.

Politically, Alberta’s United Conservatives face an impending litany of defeats on absolutely every issue that they say matter to them. Barring impossible shifts in Ottawa’s position, a repeat of the sort of infighting which brought the NDP to power in 2015 is all but guaranteed.

All that needs to occur to guarantee the rudderless and hopeless outcomes of this option is that the Albertans continue to do what they’ve done for the past decade: hope things get better and hope what they say matters.

Outcome Two requires a sharp break with convention, as it is nothing less than Albertan secession.

The logic of Alberta leaving Canada is difficult to deny. If the rest of Canada remains hellbent on cramping the Albertans’ style, why not quit the Canada Show? Alberta isn’t dependent on the federal government’s financial handouts like other provinces. It has an energy sector, public infrastructure, educational system and workforce that has drawn plenty of international investment interest on its own. Negotiating export pipelines directly with the United States would be infinitely easier than with other Canadian governments, especially since the U.S. Gulf Coast is home to the only concentration of refineries in the world that can process Albertan heavy crudes. The money the Albertan government would save by not having to underwrite the rest of Canada would be gob-smacking.

But just because secession solves a bunch of problems doesn’t mean the Albertans are chomping at the bit to make it happen. No one in the Albertan public space is using the “S” word just yet. None of the major parties campaigned on separation, either in 2015 or 2019, but that doesn’t mean that the topic isn’t about to dominate provincial political discussions.

The United Conservatives now face a truly weird combination of factors: a complete lack of ability to get anything they want from within the Canadian system, and the utter ability to leave that system. It isn’t that anyone in power in Edmonton is agitating for independence, but it will become obvious very soon that discussions of and processes towards independence are the only thing Albertans are actually in charge of.

We’ll save the implications of at-this-point-still-theoretical Albertan independence for another time. Even if the incoming Albertan government were dead-set on a secession referendum—and they are not—simply going through the motions to achieve that end will take a few months.

But as a teaser consider that Alberta by itself is the world’s fifth-largest oil producer, Canada is the tenth-largest economy, and the bilateral American-Canadian bilateral trade relationship has been the world’s largest for the bulk of the past two generations. One way or another, all things Canadian are now firmly on our radar, reaching up to the level of importance of the Saudi-Iranian rivalry, the ongoing Japanese and Russian resurgences, and the pending European and Chinese disintegrations.

For Canadians everywhere, that alone should be terrifying.

And Now For Something Completely Different…

Early April 3 United Kingdom Prime Minister Theresa May met with the leader of the Labor opposition, Jeremy Corbyn, to discuss a common way forward on the UK’s impending divorce from the European Union.

Drama ensued. Markets and media immediately swooned that a softer Brexit, in which the UK retains significant links to the EU, was in the offing. One of May’s ministers quit her cabinet in fury over the very idea that the prime minister would speak to an elected representative from across the aisle. In recent days protestors in the hundreds of thousands have descended upon London to protest Brexit, while millions have signed a petition hoping to overturn, stop, or at least delay the process. A particularly fun resolution circulated in Parliament intending to dock May’s pay.

(Yes, I’m having an unabashedly good time here.)

The May-Corbyn is less “too little too late” and instead “not relevant at all”. It isn’t so much that a softer Brexit is no longer an option, but instead that it was never an option.

The first step of the Brexit process has always been not to determine what the British might be happy with, but what the remaining 27 members of the EU might tolerate. Under EU law each and every member state must sign off on the big issues — such as divorce agreements. It only takes one EU member to force the UK into a no-deal Brexit.

Any “soft” deal that grants the UK some of the EU’s benefits without all the EU’s costs and responsibilities is one the Union ruled out from the very beginning. Moreover, the UK’s firmest allies within the Union — most notably the Netherlands — have repeatedly and explicitly ruled such deals out for the simple reason that if the UK can get such a deal, so will everyone else, which would render the idea of the EU rather pointless. And since it only takes one country to veto any deal, the idea that the UK has any leverage in these talks is silly.

The result has been the “deal” Theresa May managed to negotiate. It obliges the UK to pay into the EU budget and abide by all EU regulations but forfeits any ability to influence what those regulations are. The Brexiteers have a point when they say the deal is worse than membership, but that deal is the only way the UK retains trade access at all. Unsurprisingly, Parliament has voted it down three times.

Anything shy of a no-deal/hard Brexit requires EU unanimity, UK government approval and Parliamentary ratification. A no-deal Brexit requires none of that. A no-deal Brexit is the default. So, a no-deal Brexit is where this ends. In nine days.

Everything else isn’t simply beside the point, it has always been beside the point.

Still, the Brits have obsessed over setting up a bunch of political dominos. It’d be rude to not knock them down.

  • May isn’t going anywhere. Normally when a British political leader proves unpopular within her caucus, a vote of no confidence is held within the party to eject him or her. May was subjected to just such a vote back in December. She survived it. According to the Conservative Party’s rules, she need not fear another vote until December 2019.
  • Nor is May’s government going anywhere. Normally when a government proves unpopular a vote of no confidence is held within the Parliament to eject it. May’s government was subjected to just such a vote back in January. She survived it. While another no-confidence vote is always a risk, its passage would trigger general elections. Not only is this something the Tories want to avoid desperately but resolving elections would take (a lot) more than the nine days remaining before the Brexit crash-out.
  • Nor can May negotiate a new deal. Parliament reclaimed her power to do that back in March. May is still prime minister, but she no longer has any legal or political influence over the issue of the day.
  • Nor can Parliament negotiate a new deal, or at least not competently. No party has a majority in Parliament, and that was before the parties started fracturing. Because the government has been stripped of negotiating power, any new negotiating team would have to come from Parliament, but not from the factions of the Conservative party that supports the government. Instead the negotiators would need to come from the anti-government Tory faction as well as the opposition. The leaders of these two groups are Boris Johnson — the leader of the Brexiteers — and Jeremy Corbyn, who also supports exit from the EU despite much hemming and hawing. So that option has a bullet in its head right from the get-go.
  • Nor will the EU shift its position. The April 12 date is already the EU’s second delay, this most recent delay was only of two weeks, and there is no longer anyone in London for the EU to negotiate with. May doesn’t even retain the legal standing to request an additional delay.

Nor will there be a new referendum. May is opposed to asking the population the same question twice (and she has a point), while Parliament is split on the topic. The Tories are majority against a new referendum, while Labor favors a new election instead of a consultation on the narrow topic of Brexit. And again, a referendum couldn’t be held within nine days anyway.

Which means those hoping for an outcome that is anything other than a hard Brexit must pray for one of two exceedingly unlikely outcomes:

Option A: May herself decides to go back on everything she has felt she had no choice but to try to achieve and unilaterally roll back the Article 50 process. Considering that Parliament initiated the Article 50 process it is unclear if May has such authority; she would immediately find her decision in court. Lawsuits move faster in the United Kingdom than they do in the United States, but getting constitutional law sorted out in less than two weeks is not in the cards. Chance of this both happening and ending in Brexit delay, stall or revocation? Less than 1%.

Option B: Queen Elizabeth II skips tea, sashays out of Buckingham, mounts a fabulously over-decorated horse, trots to Parliament, declares her royal non-confidence in the government, flourishes a gleaming sword in an attempt to rally the crowds to dismiss the government. (Ironically — hilariously — until recently the Queen had the power to dismiss the government without first summoning the people, but in 2011 the Brits updated some of their laws for the 19th-century and revoked that specific power.) Chance of this both happening and ending in Brexit delay, stall or revocation? Slightly more than Option A.

(Of course, this is the United Kingdom. Unlike every other country in the world, the British couldn’t be bothered to write their constitution down. So much in this newsletter as well as much of everything you have ever read anywhere else about the British constitutional system of government is based on interpretation of tradition.)

It is time to start thinking about something completely different, about life beyond a (hard) Brexit. To be blunt, the British government has a lot of other things they need to get cracking on.

First, they need to overhaul forty years of regulation and legal structures to function in a world beyond the European Union. Once a country joins the EU nearly every aspect of their domestic economies along with every aspect of their import and export systems becomes integrated into EU law. That now all needs unwound and reset to the new reality. Under normal circumstances I’d estimate that’s a half-decade process.
Second, the UK needs to negotiate replacement trade deals. One should probably be pursued with the EU itself, but that is — minimum — a decade process. In my estimation the EU doesn’t have that much road left so probably best to go just through the motions. Far more important are deals to be made with every member of the Commonwealth — where London still holds considerable strategic and political sway. Bilateral agreements with Turkey, Japan, Korea, Taiwan, and Brazil would probably be a good idea as well.

Third, NAFTA looms large, and is more important than all other potential deals combined. The Brits were already eyeing bilateral agreements with the United States and Canada, but since the new NAFTA has not yet been ratified, now would be an ideal time to shoehorn the UK in.

Fourth, time to figure out how to work without global capital. London serves as the financial bridge between the United States and the European Union. Or at least it did. With the UK out of the EU, that role has ended. Add in the general chaos and pretty much the entire financial district of London will liquidate or decamp. Some will go to the EU, while most will go to the United States. (The terms of any UK-US trade negotiations will force that issue). Expect four-fifths of the City’s financial business to relocate. The Brits need a fundamental economic overhaul.

Fifth, as the Americans back away from providing global maritime security, countries are going to discover that guns are at least as important as butter. The Brits have a fairly respectable gun collection, and a fairly robust reputation for using gun policy to complement butter policy. Call it gunboat diplomacy. Call it neo-imperialism. Call it a creative use of special forces. I call it a historical propensity to be a trendsetter in the application of security policy to diplomatic and trade affairs. Very few other countries will think that’s a good idea, but very few other countries liked dealing with the British Empire back in the day either. Just because it isn’t popular doesn’t mean it can’t work. (How the world’s former naval superpower interfaces with the world’s current naval superpower on issues like this will be particularly interesting.)

Which brings us to one final issue: the Brits need to move on.

All the above requires leadership, and while I may personally have great respect for May’s tenacity and endurance, I am not the person whose respect she needs to earn. Whoever was responsible for negotiating Britain through the thankless Brexit process knew from the beginning it would consume them. May was always going to be a transitional leader, and today she is a spent force. It is time for someone else, and that requires an election.

It is a heady time. The global Order is collapsing as the Americans back away. The EU now must confront all the issues that they faced back before the Brits started the Brexit process. Whether the issue is debt or banks or refugees or demographics or trade each and every one of them has the capacity to utterly wreck the Union. Turkey is on the rise. China is wobbling like a spinning plate. Russia is on the warpath. Everything is in motion and the United Kingdom, despite its hang-ups and challenges, is one of the few countries with a capacity for independent action.

Whoever rules the United Kingdom next will make the decisions that will shape its role in the world for at least the next half century. Based on your read of the British political environment that is either the most encouraging or most terrifying thing you’ve ever heard.