What’s special about infrastructure spending?

Two economic topics in North America are the return of manufacturing jobs and investment in infrastructure. The first is not going to happen because the nature of manufacturing has changed as automation takes hold. It is similar to what happened to agriculture when tractors and combine harvesters replaced manual labour and horse drawn equipment. Output grew but using a different combination of labour and capital. More farming output is now produced with far less labour, while more labour goes into producing the tractors and harvesters for the way farming is now undertaken. The same is happening today to manufacturing with more labour going into activities like writing software to run the machines which produce goods in place of manual labour.
Infrastructure covers a wide range of items like roads, bridges, railways, airports, harbours and communications facilities. These all require continual maintenance. Failure to do this on a regular basis escalates the the cost of restoring the infrastructure, while the quality of the services provided such as road and rail safety diminishes. The alternatives are spending today to maintain infrastructure or spending more tomorrow. If the latter is chosen not only will the cost be higher, but the service provided by the infrastructure will be of lower quality and impose cost on others. For example, unfilled highway potholes cause the deterioration of motor vehicles.

Much government activity is associated with expenditure on infrastructure such as schools, universities, hospitals, defense facilities and equipment. Failure to replace and renew equipment for the Canadian navy and airforce creates a saving today while placing a burden on future generations. The same is generally the case for other areas of infrastructure spending.

When a government announces that it will increase infrastructure spending, it is frequently the case that it is going to remedy the failure of previous governments to maintain facilities in good working order. Home owners know only too well what happens to buildings if items like roofs and windows are not repaired and woodwork is allowed to deteriorate for lack of painting. It represents a failure to maintain the value of family infrastructure. Governments forced to increase this type of spending are doing what all governments should be doing, but often fail to do on a regular basis. Far too much attention is often given to the cost of new capital expenditures as opposed to the future ongoing costs of maintaining the capital in good working order.

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