The projects that are chosen for the federal budget's stimulus package should be ones that are desirable, quite apart from the ups and downs of the business cycle. They must be more than excuses to inject taxpayers' money back into the economy as soon as possible, to reach some impressive deficit target, or selected just because they are ready to go.
Rather, these undertakings should contribute to productivity growth.
To be sure, some humdrum repair of infrastructure is called for. In many places, basics such as roads and water mains are showing their age. Often, the federal government will be best positioned to pay for the renovation of its own properties, so that it can see the work through.
But there are much more ambitious forms of infrastructure that go beyond replacing what we already have. The electricity grid, for example, should be much more resilient and flexible than it is now. In September, 2007, for instance, a storm in the U.S. Midwest deprived two-thirds of Saskatchewan of electricity. It can hardly be beyond modern technology to deploy alternative transmission routes quickly.
Quite apart from the fact that improved access to electricity would also reduce dependence on carbon-emitting fossil fuels, reliable electric power enables people and businesses to produce more economic value.
Similarly, major investments in urban public transit and interurban passenger rail would be beneficial for both the environment and productivity.
And again, although health-care costs – which have a way of taking over a larger and larger share of government budgets – are continuing expenses that do not constitute public capital, the health-care system as a whole is indeed public infrastructure.
Health-care personnel, and their patients no less, would be far more productive if they did not need to reconstruct medical histories each time a person goes to a new hospital or physician. Quite a lot of progress toward digitization – “one patient, one medical record” – has been made, but it is far from consistent or comprehensive. Different hospitals, regions and provinces do not always work together well, and there are naturally legitimate privacy concerns, but a concerted push could overcome these challenges.
Public policy must also work to keep research and development in the country. In this respect, U.S. companies with presences in Canada are thinking now about retreating into their home country; they need incentives to stay here, for example, by an extension of the Investment Tax Credit, which now applies to Atlantic Canada, to the whole country.
If the federal budget does not concentrate on such long-term concerns as these, Canada will get itself caught up in attempted quick fixes, which will be frustrated by time-lag effects, and might well lead to the stagflation that bedevilled the 1970s.
Tuesday: Investment in people