September 29, 2008

Infrastructure investment is the foundation of Canada’s competitiveness

Construction Corner

Korky Koroluk

The present federal election campaign was only two days old when I saw statements from construction industry groups emphasizing the importance of more money for infrastructure repair, replacement and expansion.

The industry knows full well how big the problem is and what it will take to solve it, even though for many voters, crumbling infrastructure is a local problem that needs a local solution.

But now there is a new report on Canadian infrastructure that was released just 16 days before the election call.

It’s by Canadian economist James Brox and was published by the Institute for Research in Public Policy (IRPP).

It points out that, far from being a local annoyance, our infrastructure problem is national in both scope and in economic importance.

Indeed, Brox argues that Canadian competitiveness and productivity depends on increased investment in our public infrastructure.

Construction Corner

Korky Koroluk

He has done a great deal of research himself and reviewed research done by others.

He found that investment in public infrastructure, including highways, port facilities, water treatment and distribution systems, as well as sewage treatment, has fallen dramatically since the 1970s and an injection of up to $200 billion will be necessary to address the problem.

“Public infrastructure has built this nation and we will not continue to be competitive if our viaducts are in danger of collapsing and our water systems in danger of contamination,” he wrote.

“If we do not start shoring up our infrastructure deficit now, the cost in the future may be more than we can bear either physically or financially.”

New roads, sewers, schools and other facilities are needed to attract new residential construction and new investment by private manufacturing companies, he said. He warns that without constant repair and maintenance, the existing stock of public capital is eroding.

“Without adequate infrastructure, the result may be a less attractive environment for private production, which can lead to increased business costs and reduced productivity.

In the end, it may cause a relocation of industrial and commercial facilities.”

The IRPP is a non-profit, non-partisan policy think-tank founded in 1972 and based out of Montreal.

Brox is a professor of economics and former chair of the economics department at the University of Waterloo.

He is president-elect of the International Banking, Economics and Finance Association.

In his study, Brox noted that infrastructure investment has fallen to just more than one half of its average value in the 1960s, when measured as a percentage of gross domestic product.

He estimated that $200 billion — $72 billion for new projects and $123 billion for maintenance of existing facilities — will be necessary over the coming years to close the gap.

He acknowledged that commitments by the federal, Ontario and Quebec governments total up to $65 billion over the next five to 10 years, “but it is clear that this financial commitment will need to be sustained (and even increased) over an even longer period of time to close the infrastructure gap fully.”

He tied the decline in infrastructure spending to a slowdown in productivity growth in the manufacturing sector when compared with the United States.

Manufacturing productivity levels were almost identical in the two countries in the mid-1990s.

“But by 2006, the U.S. level was over 20 per cent higher,” he wrote.

“Over the same period, infrastructure investment in Canada declined by 3.5 per cent, compared with a 24-per cent increase in the United States.”

Brox’s study represents the best synthesis I’ve seen of the arguments for more infrastructure spending and I think it would be a valuable weapon in the arsenal of those who continue to fight the fight.

The title of the paper is Infrastructure Investment: The Foundation of Canadian Competitiveness. It can be downloaded without charge from the IRPP website at www.irpp.org

Korky Koroluk is an Ottawa-based freelance writer. Send comments to editor@journalofcommerce.com.

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