Economic Development through Public Infrastructure Spending | Print Version
by Harry Valentine*
Le Québécois Libre, November 15, 2015, No 336

In the late 1990s and early 2000s, the government of Japan embarked on an ambitious program to stimulate that nation’s economy by investing in infrastructure development. Yet their economy continued to underperform as the economies of China and India expanded and grew, partly buoyed by post-high-tech bust companies relocating to Asia in search of lower operating costs. During the 1990s, the American and Canadian governments had overinvested in the high-tech sector, overheating it with massive malinvestment that culminated in the economic collapse of high-tech and information sector companies.

Before the high-tech malinvestment had been liquidated, the American government sought to stimulate new economic development through the homebuilding sector, which also went through a boom followed by an economic collapse. While governmental efforts to stimulate a lagging economy produced the appearance of success over the short term, those efforts also precipitated an inevitable economic collapse over the longer term.

During the 1950s, the federal government of Canada embarked on an ambitious public works project in the form of the Trans-Canada Highway to compliment the transportation link provided by Trans-Canada Air Lines, Canadian National Railways and the privately owned Canadian Pacific Railways that had invested in premium passenger railway coaches. At the same time, the government of Ontario embarked on a significant public works project in the form of a divided highway connecting Toronto to Hamilton and Niagara Falls, followed by the construction of a major 4-lane divided highway between Windsor/Detroit through Toronto to Montreal and Quebec City.

The opening of new motorways gave a boost to the automobile industry as well as to truck transport companies. Within a few years, a successful electric interurban passenger railway network that had for decades carried passengers around the Greater Toronto Area closed, while Canada’s trans-continental passenger trains lost ridership. Even train services in the Montreal – Ottawa – Toronto triangle lost business to the automobile, the bus companies, and truck transport companies. The long-term result of government infrastructure spending is a transportation infrastructure that is often crowded to the point of congestion and extended delays that cause economic losses.

Following the end of the Second World War, the aviation industry developed and evolved newer technology for many years, independently of government participation. Their efforts resulted in larger aircraft that carried greater passenger loads at greater speeds and at progressively lower ticket costs. Governments responded with public works projects to develop airports to attract airline companies that initially paid little or nothing in terms of airport fees. Air transport has subsequently and progressively become highly political.

Canada’s new government faces opposition in Toronto to extending the runways at the downtown island airport to accommodate a Quebec-built aircraft intended to operate to and from that airport on the busy Montreal – Toronto service. The government of Quebec has ‘invested’ $1-billion into that aircraft and seeks to entice the federal government to do likewise, for a model of aircraft that faces competition from established manufacturers such as Airbus and Boeing. This aircraft, and a competing aircraft, have been designed to include a new design of geared-turbofan engine that offers 20% fuel savings over conventional engines.

The engine is based on an older concept of aeronautical engines, but engineers appear to have discovered a technical method to greatly extend the service life of the engine’s gear system, assisted by modern high-performance synthetic lubricants. However, an engine failure occurred on May 29, 2014. Conservative elements in the airline industry seek to avoid geared-turbofan engines, the result of experience that occurred decades ago involving geared turbine aeronautical engines. Boeing has devised alternative methods by which to reduce fuel consumption on their 160-seat 737 that competes directly with the Bombardier CSeries aircraft.

Not to be left out, the leadership of the intercity passenger train company seeks government funding to develop high-speed trains between Canada’s most populous cities. In an earlier period, Canada’s federal government invested in the development of a passenger train capable of operating at high speed on conventional railway tracks. It was intended to have attracted international sales, but not a single carriage was ever exported. The long-term result of government funded transportation technology development involves products that have met with very limited market success, including losing market share to transportation technology developed on private funding.

We know that the new government will allocate funds to infrastructure development and possibly to transportation technology development. The previous government bailed out a bankrupt automobile manufacturer that political analysists claimed was “too big to fail,” except that their competitors used private funding to remain competitive. Over the short term, government action will appear to stimulate the economy, but over the longer term, taxpayers will be required to pay off part of the debt caused by governmental deficit spending while the market may be indifferent to transportation technology developed with government funding.

* Harry Valentine is a free-marketeer living in Eastern Ontario.