The Trouble with Infrastructure Spending
Politicians know that they
can buy votes by promising large infrastructure spending to a public tired of
waiting in traffic jams and for crowded buses. So in this election campaign in
Canada the campaigns to buy votes are on all over. However, they should be
greeted with some questions and scepticism.
First, voters should ask their
politicians what they mean by infrastructure. Traditionally it is roads,
bridges and other engineering projects that are capital intensive and provided
free of charge to the public. Some politicians have made statements that
suggest they consider infrastructure to include facilities for the delivery of
education, health-care, policing and similar government services.
Infrastructure spending on these projects represents a thinly veiled plan for an
expansion of the role of government and public service unions in the economy.
Second, considering only
traditional infrastructure, voters should ask why this spending should be
increased above the already planned level. Is it to end a recession or is it to
alleviate congestion and how will it be paid for?
If it is designed to end a
recession, the politicians are likely to answer that the cost of production will
be recovered through increased economic growth and tax revenues. However, voters
should be sceptical of this free gift. Experience has shown that infrastructure
spending typically takes a long time to get under way because of lengthy
processes required to design and revise the projects in consultations with
so-called stake-holders: City planners discuss the community’s needs; citizens demand
protection of their life-styles; environmentalists insist on the protection of
nature and the climate; archeologists require time to search for artifacts; artists
want the inclusion of public art; natives press their inherent rights to land
and so on.
As a result of the long
approval process, new construction projects often get fully under way at the
end of the recession and inflationary pressures are developing.
Even when there is no
recession, some politicians during election campaigns promise new
infrastructure spending to alleviate traffic congestion and pollution. No
politicians can get away with saying that such spending will be matched by
increased tax revenues. Taxes, the debt or both will have to be raised, though
sometimes now and under special conditions, tolls and partnerships with private
firms may lower the burden on the general taxpayer to some extent.
However, politicians often quiet
public concerns about the higher debt by suggesting that future generations
will not mind it since they will have the use of the infrastructure. The
politicians never raise the point that future generations will not have had a
choice about the amount and type of infrastructure would have preferred - public
roads or transit, serving downtowns or the suburbs and so on.
Most fundamental and
intractable is the problem that under the present system of free use, engineers
and politicians have no reliable information on the efficient number and size
of roads and bridges. They do not have access to the guide provided by prices
that determine the right amount of beer and pretzels produced and consumed. Instead,
politicians use public pressure to decide the right number and size of roads
and bridges.
The resultant amount of
infrastructures is most likely to be excessively large because congestion and
public pressures are unreliable indicators of the optimum. As the critics of new
roads and bridges argue correctly, they relieve congestion only for a short
time before commuters find out that they can leave home later than before and
re-create congestion, albeit at a different and shorter time than before.
The critics of roads and
bridges are wrong suggesting that therefore the better and new roads necessarily
are a waste of resources. Commuters benefit by being able to stay home longer.
They value the extra time in bed or with the family. The problem is that
planners cannot know whether these benefits are worth the cost, whether to get
them, commuters would willingly pay tolls high enough to finance the improved
facilities.
The recent costly expansion
of the Port Mann Bridge in Vancouver illustrates this proposition. The bridge
is tolled and underused while alternate, free routes are congested more than
they were before. Many commuters obviously consider the extra time spent at
home worth less than the cost of the toll.
Until road tolling is made
universal, voters should be sceptical about the merit of politicians’ promises
for the construction of large new infrastructure projects. The politicians are
buying votes but may impose unnecessary costs on taxpayers, especially those
who rarely or never use the facility.
Herbert Grubel,
Professor of Economics
(Emeritus)
Simon Fraser University
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