Ron Meng, Professor Emeritus of Economics, University of Windsor; Imran Abdool, President of Blue Krystal Technologies and Business Insights; Lecturer in Economics and Finance at the University of Windsor; and Richard Douglass-Chin, Associate Professor of English Language, Literature and Creative Writing.
“It was the best of times, it was the worst of times.” When Charles Dickens wrote this phrase in 1859 about the period of the French Revolution, imagining such inventions as high-speed trains was unfathomable. Nonetheless, Dickens’s words have relevance in 2018: Interest rates are normalizing, rebalancing the incentives of lenders and borrowers; unemployment is falling and currently at an 18-year low in Ontario; educational attainment is at an all-time high; and major stock markets recently witnessed a historically long bull run (the S&P 500 index saw 3,453 days without a major correction). However, these developments do not mitigate the serious challenges facing us: Climate change is making once-in-a-hundred-year weather events all too common, the mismatch between skills and jobs leaves both young and old workers frustrated, and an overconcentrated Canadian trade portfolio put the economy on a cliffhanger during USMCA discussions.
Because of its potential to reduce pollution, improve labour markets and relieve housing pressure in major urban areas, high-speed rail is an opportunity that we have overlooked for far too long. Currently, the Trudeau government’s actions on climate change are being met with pushback from key provinces, but joint financing of high-speed rail could contribute toward reducing greenhouse gas emissions and resonate more agreeably with difficult-to-convince provinces. Moreover, the federal and provincial governments can borrow today at very low rates to help finance such projects. However, a word of caution should be articulated: interest rates are rising and worrisome levels of government debt could lead to credit downgrades (Ontario was recently downgraded by the rating agency Moody’s). As such, borrowing costs may not always be this low or the window of opportunity for major infrastructure projects as open.
Commuters walk past a TGV high speed train at a railway station in Nantes, France on March 21, 2018.Stephane Mahe/Reuters
A recent troubling narrative in labour markets is underemployment owing to the fact that workers cannot find full-time jobs that completely utilize their skill set. More than two centuries ago, the steam engine was able to facilitate the movement of rural workers to areas of more lucrative urban employment. Today, fast and reliable transportation would better connect people with jobs again. Workers in higher-unemployment areas who could not relocate would now consider jobs elsewhere. This increased pool of employers and employees means a higher chance of an efficient job match.
Consider a specialty-trained person in a small town who cannot relocate because of family obligations. The town’s economy is not large and diversified enough to fully utilize her skill-set, so she must work any job available to pay the bills. Yet, if there is an employer in need of that individual’s skills in a city whose economy possesses this specialized sector, society has lost out because that worker must remain in an inefficient job match.
High-speed rail benefits people across the entire socioeconomic spectrum. This is in contrast to corporate tax cuts (recently implemented in the United States and now being considered in Canada) that almost exclusively benefit shareholders with increased stock prices. Since the wealthy are disproportionately invested in capital markets, poorer members of society have lost out on what is in effect government spending (the money saved by corporations in tax could be spent elsewhere if left in government coffers). Infrastructure enhancements create opportunities for rich and poor alike. Wealthier individuals can benefit through financing and the financial derivatives that stem from major infrastructure projects. Less wealthy individuals benefit through job creation opportunities deriving from the construction phase and also from efficient connections to a variety of jobs in previously out-of-reach areas.
Perhaps the greatest impediment to high-speed rail is one of political economy: Today’s politicians incur the costs during their terms but future politicians accrue the benefits. Much academic literature exists on “present-bias,” i.e., decision-makers tend to overweight the present without due consideration for the future. However, with an engaged electorate, present bias is not always an insurmountable obstacle.
While scientists overwhelmingly acknowledge the potential catastrophic effects of climate change, those effects are not easy to observe on a day-to-day basis. High-speed rail can partly offset the negative effect of global warming by reducing our carbon footprint, and such a system is observable to both politicians and the general public as having positive economic outcomes for our society.
Building a high-speed rail network is an expensive undertaking – studies suggest a network from Windsor to Quebec City could cost $20-billion – but we should not be deterred. Undoubtedly, most of this would be financed with debt and that is fine: Debt used to finance productive investment is almost always worthwhile. This is analogous to an individual acquiring debt to fund education as opposed to a one-shot leisure item. While the wider social cost of capital for Canada and provinces is difficult to know precisely, most experts would agree it is low.
As high-speed rail’s ability to alleviate several problems at once could deliver a higher return than our collective cost of capital, every effort should be made to move forward with it. While the Revolution wasn’t won in a day, a day has to come when the revolution does begin.