Fort McMurray and the Canadian boom-to-bust experience: Don Pittis

Hark Savinsky remembers the boom days when every kid out of high school could walk right into a good job. And the first thing each youngster did after getting that job — with a little help from the bank — was buy a shiny new truck.

Those days are gone. In fact, they're long gone. 

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Because Savinsky, who now works at Scotiabank's corporate headquarters in Toronto, grew up not in Fort McMurray, Alta., but in Atikokan, Ont. He watched the northern Ontario community boom, and when the mines closed one after the other, he witnessed its pain as the boom turned to bust.

Fort McMurray is going through the same difficult process experienced by communities dotted across Canada as the single industry they depended upon sinks following an exhilarating rise.

Party's over

The wealth and sophistication of Fort McMurray is hard to compare with smaller boom towns, but one common feature is that the decline is often gradual, as enormous reservoirs of wealth seep out of the community. After many years of prosperity, residents cannot accept that the party is over.

"There was a lot of hope," Savinsky says of Atikokan, which saw its population shrink from about 7,000 to just over 2,000. "And this is part of the denial, I suppose."

He compares the community's reaction to the stages of grief, where acceptance only comes after denial, anger, bargaining and depression.

It's hard to say what stage Fort McMurray is at just now. The talk that everything will be back to normal "after we get the pipeline" may indeed be part of the denial stage.

But as houses go up for sale and municipal projects grind to a halt, everyone knows that something important has changed in Fort Mac as the global price of oil has fallen further and stayed low longer than almost anyone expected.

In December 2014, I quoted one of Canada's top commodity economists who said oil had oversold and would bounce back to $70 US a barrel in 2015. But these days even optimists are losing their smiles.

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Last week, before a Friday rebound and as oil was heading for $26 US, TD Bank issued a report saying world prices were now well below the break-even point for the cheapest Canadian heavy oil. At that price, the report said even existing steam-assisted gravity drainage systems, an extraction technique used in the oilsands, were losing up to $11 on every barrel.

Psychology and economics

According to Greg Halseth, a specialist in the rise and fall — and rise again — of one-industry communities, keeping hope alive is crucial as Fort McMurray's economy goes off the boil. He says the damage of a long, slow decline is psychological as well as economic.

Halseth, who holds a prestigious Canada Research Chair at the University of Northern British Columbia, says boom-and-bust communities share some common vulnerabilities that go back to the fur trade. They depend on the health and changing values of a much bigger market.

"Canada, as a resource-exporting nation, is what's called by economists a 'price taker,'" says Halseth. "We don't set the price for oil. We don't set the price for copper or gold or any of those things."

The other problem is a lack of complexity. Smaller communities produce very little of what they consume, a common feature of globalization but especially acute when not only iPads and Ford F-150s are produced elsewhere, but milk and bread are as well. So when primary jobs decline, young people, especially, are forced to leave.

The cry goes out for government support but during a generalized economic decline of the kind we are seeing now, there are too many communities in need and not enough money. 

'We spend every nickel'

"When there's a boom, we spend every nickel of it," says Halseth. "And when there's a bust, we don't have the fiscal resources to transform our economy."

Halseth says there are many one-industry communities that have stayed the course, remaking themselves into healthy, diverse communities, albeit at a smaller size.

"They've often done some terrific, tremendous things," he says.

Industries can also bounce back as the rising demand for iron or oil brings a new wave of investment. The trouble is down-swings in the cycle can stretch out too long, leaving many businesses and homeowners unable to hang on. Some industries never return to their former glory.

As Halseth has witnessed in the West Coast forest industry, even when the rebound happened, better technology and increased efficiency often means the industry just doesn't generate as many primary jobs.

"I think the group that faced more problems were the retirees who had sunk a lot into their houses and, of course with the exit of so many people, house prices plummeted," says Savinsky, remembering the years after Atikokan's iron mines shut down.

He says those people were often forced to stay, even after their children headed out to find work elsewhere. 

Savinsky left town when he went off to university. Both his sisters have also found work in southern Ontario. His parents managed to hang on as the last of the three jewellers the town once had, but finally packed up and moved south to be closer to their children.

He says the man who ran the liquor store in Atikokan also moved to follow his kids. Like so many in Canadian towns that had gone from boom to bust, they had transferred their skills to the oil industry and headed to the expanding community of Fort McMurray. 

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