The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
History shows that political leaders who rely heavily on oil earnings to paper over economic cracks, balance budgets and spread largesse among the voting public can end up paying a heavy price for putting too many eggs in the energy basket.
We are about to find out if that holds true in Canada, where the Bank of Canada responded to the steep drop in oil prices with a surprise rate cut Wednesday.
Every major oil exporter is scrambling to deal with sudden economic reversals, tax shortfalls and greater demands on the public purse as capital investment is slashed, massive projects are shelved and layoffs mount in the wake of plunging oil prices.
It was a Saudi-orchestrated price collapse in 1986 – when oil bottomed at $10 (U.S.) a barrel after dropping by two-thirds in just four months – that set the stage for a stunning falloff in Russian production in the late 1980s and the breakup of the Soviet empire.
Another price crash in 1998 played a key part in the collapse of the ruble and a humiliating bond default that cleared the way for Vladimir Putin’s swift rise to the top of the Russian heap. It also brought former coup plotter Hugo Chavez to power in Venezuela on a wave of populist anger.
Mr. Putin never championed the reforms necessary to steer the Russian economy away from its heavy reliance on energy, whose fortunes he entrusted to a group of trusted cronies. But it’s a model of competence compared with what has been going on with such basket-cases as Venezuela.
For the rest of this column, click here: http://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/can-harpers-canada-defy-oil-dependences-ugly-history/article22561283/%3bjsessionid=v71XJB5J1HHK9jXsVtbhLF1XMCZ31rGGQ17pSNBppZr4T0KngPln!200719015/?ts=150122125651&ord=1