Tuesday, March 1, 2016

Beware Infrastructure Spending

Often governments promise to revitalize a flagging economy through infrastructure spending. Listening to the recent news on how the federal government plans to spend infrastructure I think people should understand the difference between valuable and trivial infrastructure spending.

Years ago when the Conservatives launched their Economic Action Plan it included all sorts of projects, but one example that comes to mind is the construction of new hockey arenas for municipalities. This is a form of infrastructure, but it has almost no magnifying effect on the larger economy. After the centre is built it generally creates little, if any, employment and does nothing to benefit the regional economy. In fact, if might be a net negative given the ongoing expense to the municipality to support it and maintain it.

There are other forms of infrastructure that have a lasting impact and positive economic spin-offs. One of the most important things rulers did centuries and millennia ago did to build their countries was construct roads. Linking together the disparate parts of their kingdom or empire with a more reliable transportation network brought goods and people together and caused the expansion of trade and the growth of cities. As time has passed the mode has shifted. It went to canals and railways and public transit. To be clear, expanding a highway rarely counts as the sort of economic development I am talking about here.

The goal with stimulus infrastructure spending should be to make long-term investments that have tangible benefits to the economy. What would have more economic benefit, repairing the roofs on a thousand community centres or funding a project like the Downtown Relief Line in Toronto? New stations across the city would become new hubs for development. It is easy to imagine tens of millions of dollars of new construction following those projects.

When I lived in Fort Smith there were conversations that a permanent road should be built from Fort Smith to Fort Chipewyan and on to Fort McMurray. That construction would dramatically reduce the cost of development and business in that region of Alberta and costs in the Northwest Territories. It also would revive Fort Smith as a gateway community instead of one at the end of the road.

I generally view the economy as a Keynesian, but building rec centres and filling potholes should not be counted as the kind of infrastructure spending that will alleviate unemployment and be viewed as meaningful investments. Real infrastructure improvements to get the economy moving should be more than wish list promises and make-work schemes. Governments need to have the courage to stay that money in programs such as these are better spent on projects with strong long-term results and not be comforted by cutting a cheque for every little town in Canada. 

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