By Casey Vander Ploeg
In the Huffington Post
Feb. 7, 2013
Over 13 million Canadians tuned in to watch the Toronto Argonauts and the Calgary Stampeders battle for the CFL’s 100th Grey Cup. Given the 35-22 Argo victory, the Stamps might want to consider redrawing their playbook.
So should governments.
One of Canada’s biggest public policy challenges is a coming wave of retiring baby boomers. This will increase the draw on Old Age Security, the Guaranteed Income Supplement, the Canada Pension Plan, and other social programs such as health care while the number of workers left to fund it all will shrink.
How can Canada maintain the social safety net without taxing our children and grandchildren to death?
Over the years, governments have responded to the challenge by trying to increase productivity of the Canadian economy, especially labour productivity. Labour that produces more is worth more, earns more, and is paid more. If Canadian workers can be made more productive, this will offset a decline in the number of workers and preserve the tax revenues of government.
To enhance economic performance and boost productivity, governments have reached into their policy playbooks by reducing personal and corporate income taxes, eliminating corporate capital taxes, and lowering sales taxes. They have also cut red tape, signed international free trade agreements, increased spending on education and job training, and established special tax credits for R&D to stimulate the creation and adoption of productivity-enhancing technologies.
Despite all this, the results on the productivity front have not been stellar. Canada’s productivity still lags behind many of our competitors. Out of the 34 OECD nations, Canada ranks 17th in labour productivity, and growth in total factor productivity is among the lowest in the G-7.
An impressive body of economic research demonstrates—with growing consistency over time—that thoughtful investments in public infrastructure boosts productivity and generates long-term economic growth.
The idea of investing in infrastructure as a means to enhance productivity is, however, largely missing from the public policy playbook, which has traditionally taken an ad hoc approach to infrastructure or restricted it to short-term economic stimulus. However, the research tells us that the benefits of infrastructure go well beyond fixing deteriorating assets or placating municipalities that have insufficient dollars for local infrastructure.
Infrastructure should not be seen as something that governments have to spend on but something they should invest in. Infrastructure is about productivity, economic performance, rising real incomes, and strengthening the social safety net for Canada’s seniors, families, and children.
At the heart of the matter is the concept of investment—the fuel of sustainable long-term economic growth. Investment comes in many forms, including private investment in new machinery and technology and public investment in education and vocational training. Public infrastructure investment in roads, bridges, power and water is also critical—it’s the “grease” that keeps the economy’s gears turning.
Inadequate public infrastructure is a threat to long-term economic growth because it increases the costs of doing business. This results in a lower return to private investment. Lower returns—smaller profits—means less money to re-invest in efficiency-enhancing machinery, equipment, and technology. This means fewer jobs, less productive labour, lower economic output, and lower personal incomes.
Canadians should also understand that the impacts of infrastructure are not restricted to the economy. The social progams and benefits available to us are funded largely through taxation of personal incomes. If our individual incomes are not growing sufficiently over time, governments will find it increasingly difficult to fund important social priorities such as healthcare. The coming wave of retiring boomers will only work to increase that difficulty.
The idea of promoting long-term economic growth through a strategic and sustained re-investment in the nation’s critical public infrastructure should be an important part of government’s economic policy agenda. It deserves its own page in the public policy playbook.
On February 6, 2013, the Canada West Foundation released At the Intersection: The Case for Sustained and Strategic Public Infrastructure Investment, which demonstrates the link between public infrastructure investment and long-term economic growth.