Here’s what Canada needs to invest in
The reason politicians get a sparkle in their eye when the subject of infrastructure comes up is because the projects usually come with more roads and bridges, jobs, local spending and ribbon-cutting ceremony that voters might remember when they go to cast their ballots.
Infrastructure is the classic example of the proverbial win-win-win when it comes to pushing economies out of recession — creating lots of jobs, boosting productivity and giving governments a hefty return on investment.
But infrastructure is not the magic bullet it used to be.
Pia Bouman’s story shows why.
Bouman is the co-founder of a ballet school in the Davenport neighbourhood of Toronto. Like so many businesses and organizations involved in delivering services in person to the public, Bouman’s school is hanging on by a thread.
The set the school built for a Christmas production of the Nutcracker sits in the studio unused after plans for a livestream at the end of December had to be cancelled. She has had access to some government support, but she risks ending the pandemic with a big debt, a shrunken, disheartened clientele and a community that is forgetting the value of artistic expression.
“They’re struggling. I’m struggling,” Bouman says. “It’s going to be a huge effort to rebuild.”
A traditional stimulus package based on bricks and mortar isn’t going to do much for her or for the arts and culture community, the tourism and accommodation industry, or the food services sector — all the hardest-hit parts of the pandemic wallop.
The most they could hope for is a trickle-down — that money put into infrastructure will create jobs and boost investment more widely and that some of the economic benefits will eventually come their way.
With the federal budget just weeks away and set to outline how up to $100 billion in recovery money will be spent, Finance Minister Chrystia Freeland has emphasized that the stimulus funding needs to be about propelling economic growth but it also needs to be about fixing the damage caused by the pandemic.
Those aren’t necessarily the same thing.
The annual report card from the International Monetary Fund on Canada’s economic policy was issued on Tuesday, and it seized on this point.
The IMF analysts said the federal government was quite rightly preparing to scale back pandemic supports as the economy opens up and people head back to work. But Ottawa has some work to do in reconciling how it will use its stimulus fund to fuel long-term growth while also repairing the harm done by the recession.
“The federal government’s commitment to spend up to four per cent of GDP over the next three years to support the recovery needs further justification,” the report states. “While the government still has some fiscal space, the additional spending, if deemed unjustified, could weaken the credibility of the fiscal framework.”
Last week, the Parliamentary Budget Officer (PBO) published a handy table to show just how effective various kinds of stimulus are in boosting the economy. Economists ran scenarios through their models to estimate how much each type of spending would spur growth.
Infrastructure comes in second place. For every dollar spent on infrastructure, the economy grows by at least that much right away, and by 1.5 times that amount by year five. In terms of bang for the buck, that’s a bit more effective than business investment measures or sending cash to low- and middle-income households, and a lot more effective than tax cuts.
But when we look at what has happened to the job market because of the pandemic, the construction industry is mainly muddling along. Employment rose in the sector in January despite widespread setbacks in other parts of the economy. Compared to the pre-pandemic days, employment in construction is 3.9 per cent lower — slightly better than the national average. Employment in accommodation and food services, on the other hand, is still down 31.4 per cent compared to last February. And in Bouman’s world of arts and culture, employment is down 14.7 per cent from the before days.
So despite the allure of infrastructure, the search is on within government to find initiatives that boost growth, add jobs and repair the damage of the pandemic all at the same time. Childcare is at the top of the list, since funding for more accessible and affordable child care allows parents to get back to work, afford to have their children well looked after, creates jobs and puts youngsters on a productive path toward the future. But the national child care initiative the Liberals have been talking about since the throne speech last fall will take a long time to negotiate and establish. It’s not an immediate remedy.
Revisiting the PBO table of multipliers, first prize in stimulus measures goes to spending on housing. That’s interesting for the federal government, because there’s a shortage of affordable housing, and stimulus focused in that area could boost growth and help lowincome families at the same time.
But it still leaves the service side of the economy out in the cold. For Bouman, she hopes to see some recognition — from policy-makers and the public alike — that the arts are valuable and worth supporting “to keep the flame alive.”
“This is an uphill road,” she says. “For me, it’s heartbreaking.”