Infrastructure Renewal

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Infrastructure Renewal – Economic Necessity

A lot of attention is going to Infrastructure and its renewal. Here in Canada the recently elected Federal Government is about to spend over $100 billion on “shovel ready and shovel worthy” projects. At the municipal level alone (where we “own” about 60% of Canada’s infrastructure), some $123 billion is needed for catching up on deterioration that’s been allowed to accumulate since the 1950’s. That doesn’t take into account needs for growth. I recently attended a conference and listened to a well-regarded key-note speaker who placed our overall spending needs on infrastructure (all levels of government) nearer to $1 Tillion! The number is huge – no matter what it is.

Of course we’ve got an imbalance between who needs to spend the money (mostly municipalities) and who holds the money (federal government). Obviously that can be played to political advantage by the federal politicians who get to play “hero” by funding the shortfalls of other tiers of government. Our taxation system is way out of whack (and no doubt by design) to allow that to occur. Never-the-less, it’s where we are and infrastructure has been neglected at all levels of government equally and is in desperate shape equally. But is only one problem.

How do we pay for all this?

Taxes and government bonds would have been used once upon a time and still will be used, but can we afford it? How far can a government squeeze its taxpayers – largely middle class, before they revolt? Here in Canada we are far too “nice” to revolt openly and violently, but other countries with similar problems might be wise to worry about that. After all, even the USA began with a revolt over taxes on tea – nothing nearly as pricey as infrastructure.

The wealthy members of society can usually afford to pay taxes, but they are few in number and they have the means to find ways to avoid paying the taxes anyway. To a large extent they are wealthy because of the ways they make their money – ways that are often taxed more favorably. That is done to stimulate economic activity and growth because these people are largely the ones who employ others.

Employees, on the other hand, don’t employ anyone else so hitting them up for taxes doesn’t harm the economy directly. It does, however, slow it down because the middle class earners make up most of the population and when taxed heavily (as they are here in Canada) they have little left to spend on anything of real value. And yes, I do mean to imply that government doesn’t do its part to create value – they mostly just get in its way. Would less government help – absolutely, but that’s not what this article is about. We still need to find a lot of money somewhere and taxpayers are more or less tapped out.

We could borrow money from overseas – China has been investing heavily in African and other developing nations, helping them build infrastructure and doing it with largely Chinese labor. Of course the quality of some of that work is questionable. There are examples of that around the world. Schools not safe for occupation and power plants that don’t run reliably in Botswana to a beautiful looking but condemned as unsafe performing arts center in Port-of-Span, Trinidad. Do we really want more infrastructure that will deteriorate rapidly if we can even use it once built? Do we really want to bring in thousands of workers from China temporarily when so many remain unemployed here? And, do we really want to be indebted for it all?

Can we even build it all?

Another interesting point is whether or not we have the capacity, skilled and unskilled manpower, to actually do all the work that needs to be done. How much of the infrastructure cost is spent on materials, energy, financing, etc. and labor? Let’s say that labor is only half the total amount spent. $123 billion at the municipal level (just to bring things back into decent shape) would require spending about $61.5 billion on labor to do it. The average construction worker probably earns something less than $100k per year so that spending translates to about 615,000 working years.

Given Canada’s 7.1% unemployment rate (not counting those who’ve given up looking for work) it takes care of about half the unemployed (if we could spend it all in a year). We are spending it over some 10 years though, so we make a drop in the unemployment bucket. It looks like we can’t solve that problem either!

Of course if the amount of spending actually went to the level of $1 trillion (mentioned above), then we’d take care of most of our employment problem handily, even over 10 years. But we still need to find the money somewhere and even if we do, could all those currently unemployed be used in this work? Probably not. In fact skilled labor is very hard to find these days. Our education system has been degraded almost as badly as our infrastructure and fails to produce valuable skilled workers that our labor markets so desperately need.

Netting it out, we probably can’t build and restore everything we need to work on anyway. We need more people, but not just anyone, people with skills. Fortunately we are also an immigration magnet here in Canada, but again, government needs to get out of the way. Stop pandering to excessive fears of terrorism and crime and fears that we will give up Canadian jobs to new immigrants. If those Canadian jobs could be filled by Canadians today, then they would be. Part of the solution to the capacity, skills and how to pay for it all, is to open the immigration floodgates and welcome skilled builders, laborers and others with skills and more importantly, the will to work for a better life.

I was a child in the late 1950’s and early 60’s. I lived in a neighborhood (we used to call it lower middle class) that was growing and filling up with immigrants. It was in what is now considered a nice inner suburb of Toronto and I learned bits of Yiddish, Ukrainian and Italian because that’s what my friends’ families spoke at home. The kids of course all used English, once they got the hang of it. One of my first girlfriends spoke no English at all when she arrived with her family from Italy. In those days we were building the infrastructure that we are now struggling to sustain. We did it by growing our population and skill base. We welcomed immigration in large numbers and grew our country in the process. Those new people didn’t take long to assimilate, start businesses, find jobs, support their families and pay taxes!

Money spent on infrastructure doesn’t all go out to labor and materials. Some of it, about 30%, comes back in the form of taxes. So, our $100+ billion dollar financing problem is actually about 30% smaller. Since we need more people with the right skills, why not add new taxpayers in the process of finding them?

How does it help the rest of our society?

Spending such large amounts of money generates a lot of economic activity and invariably creates additional jobs (lowers unemployment) as well as providing suppliers of materials with revenue – manufacturers, lumber producers, resource companies, miners, mills, plants, etc. Those folks who are doing all this new work spend money on homes, food, schools, recreation, cars, fuel, etc. The money in a lot of directions once it’s out of the clutches of government and into the hands of people with real needs and desires. In fact spending on anything generates some form of economic activity – that’s what money is for after all! It replaces bartering, one thing for another, and so on.

We’ve been in an extended economic slump since the US sub-prime mortgage crisis in the 2008. Arguably economic activity has climbed back to where it was, but population has grown too and unemployment has remained stubbornly high. Taxes have gone up as have prices for goods and services we all need and use every day. Food, gas, housing, etc. are all more expensive than they were in 2008. Thanks to taxation and low increases in wages we have less to spend so our economic recovery doesn’t really feel like one to most of us. It doesn’t feel like a recovery because for the most part on an individual level for many, it simply isn’t a recovery. Of course governments and others who look at the big picture numbers would argue that we are recovered and in good shape. Big numbers hide the reality of what happens at a very granular level for so many.

We need economic stimulus. Nothing seems to work better than growth to stimulate wealth – even in small quantities. Growth is healthy – we even see that in nature. So long as we don’t grow beyond our ability to sustain what we build, then we should be able to create and sustain a high standard of living. It worked well in the 50’s and 60’s and 70’s, slowed down a bit in the 80’s but continued to grow. It really slowed after 2008 and hasn’t really got any better. What we feel, more squeezed and less able to spend what we want, is very real to many today. We actually feel less well off. It’s because growth has essentially stagnated. Of course growth is happening but it’s not keeping up.

We also see the deterioration of the infrastructure around us. Our traffic jams are worse – part of that is too many cars and trucks, part is infrastructure that seems to be under repair much of the time and unable to cope with volume the rest of the time, and part is the stupidity of our elected officials who have only short term political gain in mind. Long term infrastructure needs are not what gets attention and votes. Maybe they should.

Growing our population can help us in other ways besides providing skills, manpower and more taxes. Larger countries (population) have more self-sustaining economies. Look at the USA as an example – with nearly 300 million people they could shut their borders and still enjoy a robust economy and life style. They are one of the world’s largest economies and drive economic activity the world over.

The UK (around 65 million) struggles today, despite its glorious past. Germany (around 80 million) does reasonably well on its own and leads the European economy. Japan (around 127 million) could be self-sustaining if had the natural resources. China (around 1.4 billion) is already driving the world economy even more than the USA is today. It has people and resources and it is developing rapidly. Once it attains a life style rivaling the USA on a broader basis, then it will be a mega-super power eclipsing anything in history.

Canada at 37 million depends heavily on imports and exports – we need the rest of the world despite our wealth of resources. Australia is similar.

Clearly, larger populations can sustain themselves better so why not grow our population. A target that I’d suggest is to more than double to around 80 million or further, close to 100 million. We don’t have enough babies anymore, so we need to add people. Fortunately the world is full of people who want to come here. I say, let them in. In fact let’s go out of our way to welcome them to come here as we did when we built the infrastructure we have today. They’ll come, they’ll work, stimulate huge economic activity, pay taxes and help us pay for what we need to build anyway. The growth they will stimulate will generate economic activity for years to come.

I can see only good coming from this simple solution. Good for them, good for us, good for the world. In fact, if people were not so desperate in other parts of the world, there might actually be less of the terrorism and suffering we see elsewhere. We won’t be importing problems, we’ll be importing and creating solutions.

Open the flood gates and start building – a lot!

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