September 22, 2011

Column | Korky Koroluk

Infrastructure a recovery key?

With Parliament back at work this week, we can expect a lot of political news on the federal front. And with six provincial/territorial elections in the next six weeks, political junkies will be in their element.

I suspect, though that the rest of us might grow a bit weary of campaign promises which may, or may not, be kept.

Prime Minister Stephen Harper has already said that the economy will be the main focus of Parliament’s fall session, and he has hinted at some flexibility in the fight for deficit reduction.

Somewhere along the way, someone — federal or provincial — is certain to raise the matter of infrastructure. Indeed, the federal budget in June made two important promises: One was to develop a long-term infrastructure plan, in partnership with provinces, territories and the private sector. An important part of the collaboration will be the participation of the Federation of Canadian Municipalities (FCM).

The other important item was the promise of legislation to ensure a permanent annual infrastructure investment of $2 billion through the Gas Tax Fund.

That sounds good, but Canada has used up about 80 per cent of the total service life of its public infrastructure. That means we will face rapidly escalating costs simply to replace or repair existing infrastructure without building anything new. And the FCM estimates that the national infrastructure deficit is $123 billion. Against that, $2 billion a year looks puny, although maybe it’s the best we can do in uncertain economic times.

But there might be another way. Maybe austerity won’t solve the world’s financial problems. Maybe building infrastructure will — or so says Justin Yifu Lin, senior vice-president and chief economist of the World Bank.

Lin has a fascinating article in the current issue of Foreign Policy magazine, arguing for a huge international infrastructure program aimed at lifting the world economy out of its present doldrums.

Inadequate public infrastructure, he argues, represents a bottleneck hampering the economic growth the world needs. So he suggests that the world’s advanced economies need to spend billions of dollars on infrastructure projects — both new and renewal.

Policymakers, entrepreneurs and investors should also promote infrastructure investments in developing countries, where, he says, opportunities for such investments are plentiful.

This would not be charity, he says. “Infrastructure investments in developing countries increase demand for capital goods, such as the turbines or excavators that are often produced in the United States and Europe,” he writes.

The World Bank estimates that annual investments of more than $1 trillion annually are needed simply to meet basic infrastructure needs in developing countries between 2010 and 2020 — assuming traditional levels of financing leaves an infrastructure-financing gap of more than $500 billion per year.

Lin devotes a lot of his article, titled Bridges to Somewhere, to calculations that, to a layman, appear to support his thesis. Professional economists may or may not agree with him.

Ordinary taxpayers will have a hard time supporting the idea of paying for infrastructure abroad when our own needs so much work. But we should at least be talking about the idea, maybe even questioning our politicians about it.

After all, the G20 group of nations, of which Canada is a member, is promoting infrastructure investments in developing countries as a way “to boost exports, manufacturing jobs and economic growth in high-income countries, while reducing poverty and enhancing growth in the developing world.”

That, says Yin, is a win-win solution.

You’ll find the article at www.foreignpolicy.com/articles/2011/09/01

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

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