Alberta and its oilsands are well positioned to capitalize on growth demands from Pacific Rim countries and India, says a top international economist.

"Every economist I know talks about it (Alberta's oilsands)," says Paul Krugman, a professor of economics and international affairs at Princeton University.

"A lot of discussions ... hinge around how big do you think the oilsands can really get? So this has put Alberta on the map, at least the mental map, of people who are thinking about world economic trends."

Krugman was in Edmonton recently to address a sellout audience of 1,100 at the Shaw Conference Centre for Edmonton Economic Development Corp.'s (EEDC) annual business luncheon.

Paul Krugman

"The oilsands are as if we had suddenly discovered a new major Middle Eastern oil producer, which blessed be, is not actually in the Middle East. It's a wonderful thing," Krugman told the luncheon audience.

However, he added, a diversified economy is much more preferable for Alberta's future development. "You do not want to become an oil sheikdom."

Krugman believes the current oil boom - unlike previous ones in the 1970s and 1980s - is sustainable. This time, the oil price surge is not due to production cutbacks or restrictions, he noted, but rather demand from countries such as China and India that is based on real needs.

"Nothing that I see suggests that there's going to be any slowdown in China, in India," he added. "If anything, it looks like more countries are going to join the growth club and that makes for a sort of bullish perspective for all raw material prices - but oil in particular."

"No doubt, someday there will be a bust. There always is, but this (boom) looks like a long-term development."

While Krugman does anticipate some downward pressures on oil prices, he appears more concerned about economic events south of Alberta's border.

He cited a number of factors, including continued U.S. spending that will ultimately result in a falling greenback, concern over the slowdown in the U.S. housing market and investors that are taking "unmeasured risks" in the financial markets as they search for higher returns and abandon safe investments.

Krugman wondered aloud whether the U.S. economy will have a "Wile E. Coyote moment" - referring to the cartoon character who, while chasing the elusive Road Runner, runs off a cliff, stops in mid-air and realizes all of a sudden he's in trouble before crashing to the ground.

"People are acting as if Latin America will never have another debt crisis and there will never be another Enron," said Krugman, adding he would not be surprised to see a U.S. recession or slowdown in the near future.

Krugman's message appeared to resonate with new EEDC president and CEO Ron Gilbertson, who has succeeded Allan Scott.

Ron Gilbertson

"One of his messages is that the world is in relatively good shape," said Gilbertson. "But ... it doesn't necessarily hold true that as the world continues to grow, the U.S. will continue its dominance. I think that probably speaks to the fact that we have to diversify away from just the American market."

Gilbertson also agreed with Krugman's call for a diversified economy.

"You don't want to be a one-trick pony," he said. "If you look at some of the successful economies around the world, they've had a number of drivers of their economy. I think that's something we should be striving for, over time."

Gilbertson said he has plans to consult the community to help manage the growth ahead and develop a vision for Edmonton's future.

EEDC also announced that its 2007 Business Achievement Award went to oilfield services and trailer manufacturer McCoy Corp. of Edmonton.

The 2007 Community Achievement Award was handed to the University of Alberta for its redevelopment of the once-vacant downtown Bay building, which is being transformed into Enterprise Square, a research and learning facility.

(Laura Severs can be reached at laura@businessedge.ca)