Strategy

Infrastructure: Bridges to tomorrow, or to nowhere?

Infrastructure spending can be a long-term boon to Canada — if politics are not allowed to get in the way.

As a member of the Trudeau cabinet, I had major responsibility for the multibillion-dollar Special Recovery Capital Projects program, introduced in the 1983 budget to help pull Canada out of stagflation. In some ways, the current downdraft resembles conditions back then, although fortunately today Canada is not just recovering from years of double-digit inflation, as we were in 1983. I think there are good lessons to be drawn from that Canadian experience, as countries struggle to find the ways to maximize the benefits of public funding while minimizing political influences—which have a habit of undermining the best economic and social intentions.

The objective of fiscal stimulus is to ensure public expenditures not only create jobs and boost GDP, but also make a solid contribution to long-term productivity and growth. But is that achievable within the brokerage systems of democracies? Politics being politics, elected officials will try to ensure monies flow to their regions and favourite projects, without sufficient regard to the overall interest of economic recovery. Experienced politicians are masters in the art of horse trading, giving way to colleagues on projects they know to be questionable but guaranteeing support for their own “bridges to nowhere” in return. Established approval processes, which can temper politicians’ enthusiasm for spending not in line with national priorities, are likely to be set aside to achieve quick results.

That risk makes the integrity and competence of the command team especially important. U.S. president-elect Barack Obama, who is about to embark on a massive stimulus program, has put in place a remarkable economic team of (mostly) young, highly qualified, dedicated and experienced individuals. (During my time at the OECD, I dealt with all key members, especially Tim Geithner and Larry Summers, as well as the current Federal Reserve chair, Ben Bernanke.) Obama has also appointed former Fed chief Paul Volcker to chair an economic advisory panel, presumably to give objective advice on how such enormous funds should be expended to maximize long-term benefits.

That’s a smart move. Looking back after 25 years, perhaps a similar nonpartisan, objective sounding board would have been helpful back in the early ’80s. True, that project was judged to be very successful, with a minimum of pork dispensed across the country. Yet the president-elect is clearly conscious of the pork-barrel politics that too often accompany such programs. Volcker should at least provide intellectual and moral authority for doing the right things.

So what will happen in Canada, where major stimulus is in the offing whether we taxpayers end up with a tripartite coalition of Liberals, NDPers and the Bloc, or with a minority or majority government?

In the 1980s, we were inexperienced in such programs, but we had $2.5 billion to be contracted out within six months! We reasoned that if government departments had important projects at various stages, then their execution could be accelerated. There proved to be no shortage of candidates. But the contribution of some (supported by senior political pressure) to productivity and growth, consistent with the needs of the emerging knowledge economy, was questionable. (Happily, most met our criteria, such as the biotechnology institute in Montreal, a research institute in Winnipeg, landing systems improvements in airports and modernization of the Coast Guard.)

To help ensure oversight, governments now should try new approaches for selecting investments, perhaps along the lines of the Volcker panel, but also by putting in place a competent team with strong leadership, dedicated to managing the process and minimizing the risks. The team made a difference to Canada’s experience in 1983. Still, in light of political realities, Canada faces a series of unpalatable choices and possible outcomes. Let us examine them.

One hopes that the so-called coalition is dead on arrival. Can anyone imagine billions of dollars in public expenditure placed at the discretion of such disparate interests? Could anyone imagine the NDP not catering to their perceived electoral base? And the Bloc Québécois? Think of the pressure to ensure Quebec gets its “fair share” of taxpayer generosity. TheLiberals? Who knows whether they would retreat into the mode of trying to “best” the NDP?

A third probability is a Conservative minority or even a majority in the months ahead, although a Liberal government cannot at this stage be ruled out. In any such event, the same political challenges will exist, but will be substantially less than those promised by this extraordinary proposed coalition of liberalism, socialism and separatism.

My only plea: Spend the taxpayer-financed stimulus package wisely, recognizing that infrastructure is more than roads, bridges and airports, and that there are real opportunities to turn this crisis to Canada’s advantage. Among them is carbon capture and sequestration, a proven technology in which Canada has expertise. Imagine: a means to attack global warming, create jobs, stimulate new R&D and CCS innovation, develop export niches for Canadian technology, and probably boost GDP and growth beyond anything traditional infrastructure spending could deliver.

I hope that our government, under whichever leadership and with full opposition support, will be able to demonstrate that it can address the infrastructure challenges of this 21st-century economy, and put in place a team to make it happen even more successfully than our pioneering efforts back in the early 1980s.