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October 20, 2011

Giddy Over Government Spending

"Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better."
John Maynard Keynes, The General Theory of Employment, Interest and Money, Ch. 10, sec. 6

When Keynes wrote about the education of statesmen on the principles of classical economics getting in the way, he was talking about the classical assumption that markets quickly reach equilibrium, a concept Keynes rejected as a special case. In disequilibrium we see market failures and high unemployment. Keynes argued that lacking useful projects, even pyramid-building can help to increase employment.

Whether spending $33 billion on the national shipbuilding procurement strategy is the best use of your tax dollars or not is now a moot point since the contracts have been awarded. Shipyard workers in North Vancouver, Victoria and Halifax can look forward to job security in an industry previously driven by a boom-bust cycle based on awarding contracts for single ships.

Premier Clark appeared to be absorbed in a giddy victory dance as she tried to take credit for Seaspan being awarded a contract; the federal government did everything in its power to make it clear that the procurement process was not subject to lobbying or political influence. If Clark wants to take credit for something, she should direct BC Ferries to stop building ships in Germany and to award contracts for rejuvenating the BC Ferries fleet in BC shipyards on a sustainable long-term basis. It wasn't long ago that the Liberals claimed BC shipyards couldn't build ships like that.

Premier Clark's job plan states: "Recognizing that job creation comes from the private sector, Canada Starts Here will build upon our current fiscal and economic strengths to create an environment where growth and investment can flourish, delivering the best fiscal, economic and social platform for job creation and skills development for all British Columbians." The plan failed to acknowledge that private sector job growth can be built on government procurement strategies, like awarding an $8 billion contract to Seaspan. Clark's failure to recognize the important role of government procurement can lead to costly mistakes that will reduce opportunities.

This year's provincial budget, updated in May, shows a planned reduction in government capital spending from $8.2 billion in 2010-11 to $5.5 billion in 2013-14. That drop of $2.7 billion will have a negative impact that is almost three times larger than the stimulus of spending almost $1 billion a year of federal tax dollars on shipbuilding in BC. The budget documents describe the substantial reduction as a return to historical levels of capital spending, eliminating accelerated infrastructure spending by the end of October 2011. The Campbell-Clark government has steadfastly refused to accelerate plans to improve seismic safety for BC schools. After a major earthquake it will be too late.

For the Campbell-Clark Liberals there appears to be good and bad government capital projects. On the good side are ships paid for with federal taxes, highways to ski-hills and over-runs on BC Place Stadium and the Convention Centre. On the put-it-off-to-another day side are over 500 schools that still need seismic upgrading, residential care beds, and the Victoria airport runway extension. To paraphrase Keynes, there are good and bad capital projects, but even the bad ones create jobs.