Energy to Synergy: the Policy Plight of Resource-Dependent Cities


The Green New Deal, an ambitious US congressional resolution introduced in 2019 that met substantial political pushback and failed to gain official approval, proposed among other things to provide housing, health care, and jobs via an economic stimulus package targeting green technology. Language in the Green New Deal also offers an idealistic vision for America’s urban future in the 21st century, including calls for “spurring massive growth in clean manufacturing” and “directing investments to spur economic development, deepen and diversify industry and business in local and regional economies.” Legitimate criticism about fiscal elements of the resolution does not invalidate the need to think similarly big about economic development in cities disproportionately reliant on a single industry (whether steel, automobiles, finance, technology, or oil and gas).

The New Reality of Resource Decline

Given volatility in oil markets, along with rapid development of new production technologies and resulting growth in oil reserves in the United States and elsewhere, reliance on energy prices for local economic stability has some clear uncertainties. Large and diversified national economies can absorb such price fluctuations but resource-dependent urban economies, like the industry-dependent economies of last century’s “company town” era, are not as resilient.

Cities overly reliant on their fossil fuel-based economic legacies could fall into the trap ensnaring failed boomtowns. National level policies can expose such cities to immediate economic risk. American energy firms unable to pivot towards alternative sources are at risk of failure in a new energy-mix regime – whether such a regime emerges naturally through innovation or is forced through by policy directive. While an energy transition can have positive outcomes environmentally, it could also be economically devastating for those employed in legacy energy industries.

Unexcused from the task of long-term planning, these cities must approach economic development in the same creative ways as have former industrial powerhouses (e.g. Manchester and Bilbao). Resource endowments provide only fleeting advantages, like singularly dominant industries once did for their host cities. The synergistic factors that remain after industry departure – infrastructure, workforce expertise, entrepreneurial culture, social capital, and enabling policy apparatus – can be revived and reshaped to support emerging industries.

In the dynamic global economy, long-term urban competitiveness must be built on more than a single industry. In more farsighted boomtowns, proceeds from resource-based industries are parlayed by governments, industries, and individual patrons to strengthen enabling factors and establish a foundation for economic resilience and opportunism. For example, oil wealth has been instrumental in building the endowments of the University of Texas and Texas A&M systems. Texas Medical Center in Houston, the world’s largest, likewise received substantial financial support from oil industry philanthropists. Likewise, Houston’s extensive cultural institutions are beneficiaries of industry-based philanthropy – as were the world-renowned Cleveland Orchestra and Pittsburgh Symphony Orchestra in the heyday of steel and other hard industry.

Example boomtowns: visions of and for wealth

Many cities once solely dependent on oil and gas industries now target the narrow and fickle market of luxury consumption; examples are Dubai and Luanda. Once a provincial trading outpost, Dubai elevated its international status after the nearby discovery of oil (industry revenues grew more than 2,000 percent between 1970 and 1975). Four decades later, however, oil exports account for less than half of commercial revenues and production cuts are expected in 2019. Real estate is expected to be Dubai’s principle driver of economic growth in 2019, followed by logistics and transport, tourism, and financial services. Retail continues to be the top source of GDP, accounting for more than a quarter, followed distantly by transport, finance and insurance, and manufacturing. Hosting Expo 2020 is expected to stimulate Dubai’s infrastructure investment and lead to a period of elevated tourism.

Dubai’s effort to chart a post-oil trajectory – in a region that has grown famously wealthy through resource extraction – provides a cautionary tale: serving the global affluent exposes cities to the risks of capital flight while exacerbating local socio-economic inequality. This strategy is not necessarily paying off, as illustrated by Dubai’s looming debt crisis and off-pace GDP growth; indeed, the situation may be even more dire than analysts realize. Dubai’s gamble on the continued relocation of wealthy expats – in particular their lavish consumption and speculative real estate investment – is proving to be at best volatile and at worst economically unsustainable.

Aside from being a home to regional offices of some MNCs and developing capacity in the finance industry, Dubai’s ambition to become a luxury destination is not founded on any inherent competitive advantage aside from abundant sunshine and a crossroads location. With little durable economic substructure to support its sometimes-raging housing market, the city is subject to global economic fluctuations that track the whims of personal and corporate investment. Recent patterns are discouraging; property values have been steadily declining since 2014.

Luanda provides similar lessons. Capital city of the resource dependent southern African country of Angola, Luanda is a study in rapid growth and consequent economic inequality. Emerging in 2002 from the ravages of a decades-long civil war, the metropolitan region of currently over seven million inhabitants was rebuilt largely on the proceeds of oil production – US$ 120 billion by a 2017 count. In the flush years of the mid-2010s, an affluent minority fuelled demand for the type luxury developments that were until recently rare in African cities (and not always successful).

Luanda spent years ranked among the costliest cities for expats, a backhanded compliment from analysts of global markets for talent and property investment. Now built increasingly through financial assistance from China with oil as collateral, the city’s new infrastructure serves the wealthy with modern high rises, lavish shopping malls, golf courses, and posh satellite towns. At the same time, Angola’s remote regions are being connected by a series of modern highways in what is arguably a strategically half-baked and hastily executed development effort.

Traffic congestion and forced displacement of marginalized communities plague Luanda’s urban environment, which is already stretched by population growth. For a country among the world’s most economically unequal and politically corrupt, there appears little motivation to move beyond oil and ancillary services that cater to foreign firms and their wealthy workers. Recent instability in the price of oil, however, has gutted much of Luanda’s luxury demand base as wealthy expats head elsewhere, and leaving behind an infrastructure with little practical value for most of Luanda’s struggling residents.

By contrast, on Canada’s prairie sits Calgary, once jolted by booms and busts in resource markets but now making an effort to economically diversify. Erstwhile dominance in oil and gas is now complemented by growing education, health, and service sectors. As recently as the mid-2010s, Calgary enjoyed one of the country’s lowest unemployment rates. The city’s 2018 distinction as the 4th most “liveable” in the world illustrates how a resource-dependent economy endeavored to attract a young generation of innovation industry workers.

While Calgary once appeared to be an example of how initial resource advantages were parlayed into a viable long-term economy, recent economic troubles precipitated by the falling price of oil have led to rising unemployment (doubling in the last four years despite national trends downward). Calgary’s long-time economic base – oil and gas, and complementary industries like construction, real estate, and finance – is experiencing tepid performance in 2019. Maintaining political and commercial urgency while diversifying can be challenging even amidst high oil prices. Now facing the challenges of falling prices, Calgary’s leaders and businesses seem determined to embrace the idea of an energy-based future built on innovation. While Dubai and Luanda are examples of narrow post-oil growth strategies, Calgary is a useful study in attempted reorientation of an existing industry.

Learning From Resource Boomtowns

The challenge of moving beyond resource dependence is akin to removing the training wheels from a bicycle: cities must make the most of their proceeds while the opportunities are good, in order to survive lean times in resource markets and establish a durable competitive advantage. Resource boomtowns are admirably situated; they can parlay private investment and government revenues into programs that generate economic flexibility. Long-term success is therefore a reflection of visionary leadership rather than of blind luck and economic windfalls.

Investments in post-resource economic capacity reflect political, economic, and social priorities; cities show who they are by how they look and what they do. The allure of serving affluent markets leads some towards economic instability and inequality, as in Dubai and Luanda. More successful cities suffuse their industrial structures with the flexibility to capture emerging economic opportunities, as reflected in Calgary’s stated ambitions. While such cities experience occasional setbacks, the long arc of economic growth will be kinder to those welcoming industry revolutions than to those fighting against them.

Resource boomtowns are unique policy laboratories that have the resources to experiment with innovative development initiatives and, if embracing an opportunistic planning vision, have the chance to remake themselves using the proceeds of their fleeting advantages. While the list of sunrise industries is lengthy, oil and gas resource boomtowns are particularly well situated to be leaders in a new energy revolution. In economics as in nature, fate rewards the adaptable. Urban governments should take notice of how contrasting growth visions – near-sighted versus far-sighted, nostalgic versus anticipatory – compare in generating sustainable and durable economic growth, and ultimately in the types of societies they create.

Kris Hartley is an Assistant Professor in the Department of Asian and Policy Studies at the Education University of Hong Kong, and a nonresident fellow at the Chicago Council on Global Affairs.

Photo credit: Trey Ratcliff via Flickr under CC 2.0 License.