Canada Flirts With the Petrostate Trap

I’m a big fan of Canada. With its strong public institutions, optimal immigration policy and endowments of natural resources, it seems to have everything necessary to become a great power someday. But in recent years, I did worry that Canada would make a big strategic mistake -- depending too much on resource extraction.

After becoming prime minister in 2006, Stephen Harper was eager to develop Canada’s tar sands into a powerful oil export industry. His government helped the oil industry with outreach and advertising, gave it subsidies and proposed large infrastructure projects to help it move its product. Between that effort, improved extraction technology and high oil prices, Canada became a petroleum powerhouse. Here, via James Hamilton -- a highly respected economist at the University of California San Diego who studies the oil industry -- is a graph showing how the tar sands have doubled production during the past two decades: