Luc Vallée is the former chief economist of the Caisse de dépôt et placement du Québec and former chief strategist of Laurentian Bank Securities
Governments globally are counting on infrastructure spending to restart their economies. Many of their constituents are voicing concerns, questioning priorities or trying to promote their own agendas.
Such public deliberations are essential: The coherence and rigour with which public infrastructure programs are deployed will enhance a country’s prosperity. However, time is running out.
British economist John Maynard Keynes is credited with proposing that governments should pay workers to dig holes and others to fill them up to create the conditions for growth. In the midst of the Great Depression, the idea was to use the spending power of the state to artificially stimulate the economy – then trapped in sticky underemployment – and thus cause a revival of entrepreneurial spirit, consumer confidence and ultimately employment and economic growth.
The deep crisis caused by the coronavirus is forcing us, once again, to consider the likelihood of persistent underemployment if nothing is done to remedy it.
Mr. Keynes did not seek to promote useless investments but rather to illustrate that inaction is costly: Postponing growth is painful for the unemployed and the risks of never making up for lost ground increase with the duration of underemployment. Both pain and risks can be lessened by readily deploying public infrastructure spending.
We already know that a significant number of businesses will close their doors for good as a result of the crisis. We also expect closures to surge with the length of the downturn. Moreover, their employees forced to find other jobs and dislocated supply chains will make it even harder and more costly to restart surviving businesses.
In addition, the crisis will accelerate the transition to a digital economy, with fewer human interactions and more robots, and thus permanently and prematurely eliminate the jobs of a large segment of the low-skilled population already poorly paid.
The quality of the skilled work force will also deteriorate if individuals cannot keep abreast of already rapid developments in their industries; not to mention that their employability will fall the longer they remain unemployed. And, as consumer needs and preferences as well as technologies are likely to evolve swiftly because of the pandemic, many skills and expertise risk becoming obsolete even faster than before.
The truth is that there are no realistic scenarios under which everyone will soon resume their prepandemic activities: Millions of jobs in Canada will no longer exist or will require new expertise when we emerge from the crisis. Even after vaccinating everyone, within a year at the earliest, entire sectors of the economy will have adopted new technologies and new practices.
The money lost by underemployed workers, businesses and governments is unlikely to be fully recovered. Time is therefore of the essence as idle resources depreciate and, the longer we wait, the more assets permanently lose value.
To better understand the impact of such income shortfall, imagine an individual suddenly unemployed because of the health crisis. If this person’s income declines significantly during her expected lifetime on the labour market, she may have to adopt a more modest lifestyle than previously envisaged. And the longer she remains unemployed, the more likely it is that she will have to permanently lower her expectations.
Likewise, the effects of the pandemic on the economy will invariably reduce the ability of Canadians to finance the services and infrastructure they previously expected – a perverse dynamic that will only worsen with the duration of underemployment.
Such a negative and permanent demand shock also means that consumer needs will be expressed differently in the future. This will require the economy to restructure accordingly and soon-to-be-deployed public infrastructure spending to adjust to this emerging and evolving reality.
Canada’s infrastructure deficit is such that it was expected to persist for decades. There is therefore no need to build roads to nowhere to boost the economy. However, if the numerous needs can be easily identified, it remains hard to establish priorities and build consensus. Moreover, the necessity to quickly agree on priorities and build the infrastructure of tomorrow will take place in a context of greater uncertainty.
The duration of the pandemic, the management of an eventual second wave, the evolution of technologies, climate change and the extent and permanence of the impact of the pandemic on real estate, transportation, tourism, hospitality as well as many other sectors all cloud the outlook.
Yet, since there is a cost to waiting, actions will have to be taken sooner rather than later. We will never have all the answers and waiting could transform the clouds into a storm.
With already dwindling resources, the longer the recovery is postponed, the more elusive priorities and consensus will become even if, paradoxically, making the right choices will also be more imperative. It is thus essential to create, as quickly as possible, the conditions under which businesses foresee the future with optimism and invest to meet, in a competitive manner, the needs of confident consumers.
The alternative would force Canadians to settle for a much more mediocre future than the one they imagined for themselves just a few months ago. The time to act is now.
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