A blueprint for Ontario’s infrastructure investments

A blueprint for Ontario’s infrastructure investments

Ontario’s stock of infrastructure fell throughout the 1980s and 1990s, levelled off in the early 2000s, and began to show some growth since the recent financial crisis.[1]

Prior to the financial crisis, discussions regarding infrastructure were largely absent from political debates, but they have returned to the forefront of public policy discourse. As a result, both Ontario and the federal government have proposed record commitments to infrastructure in their latest budgets.

Infrastructure investments are also a popular topic during this year’s federal election campaign, and party leaders have already made different commitments. Interestingly, the strongest tension amongst federal propositions is the amount of spending and less about how or where investments will be made. As the Institute’s forthcoming research shows, not all infrastructure assets enhance productivity. This means that simply investing in infrastructure will not necessarily provide significant economic benefits, and that investments should be made strategically.

Ontario’s infrastructure composition needs to improve

In its upcoming Working Paper, the Institute identified the types of infrastructure that enhance an economy’s labour productivity. The objective of this research was to provide insight on the factors that can reduce Ontario’s productivity gap. Labour productivity in Ontario is determined by the stock of productive assets, including infrastructure, which each worker has at his or her disposal.

The Institute disaggregated infrastructure into eleven different types of assets, and identified each asset’s average effect on productivity. The results provide a general guideline for allocating resources effectively in Ontario, building a better foundation for economic growth. To get the most out of each public dollar, infrastructure investments must be made in productivity-enhancing, not reducing, assets.

The Institute’s results did not paint a positive picture for Ontario. First off, Ontario has the lowest stock of infrastructure per worker amongst the provinces.[2]

What is even more concerning is that Ontario’s composition of infrastructure assets is suboptimal. The Institute found that, relative to other provinces, Ontario’s infrastructure portfolio has the largest share of productivity-reducing assets, at 16 cents per dollar of infrastructure. Ontario also ranked third last in the percentage of productivity-enhancing infrastructure, at only 28 cents per dollar of infrastructure. Combining these two figures places Ontario’s overall infrastructure composition in an unfavourable position, only ranking higher than Québec.

One of the most interesting and presumably most controversial findings is that recent investments in roadways have not enhanced productivity. That said, the Institute identified that marine infrastructure – such as seaports, canals, waterways, marinas, and harbours – has the strongest positive effect on labour productivity. This result is not unique for coastal provinces – Ontario is connected to the Atlantic Ocean via the St. Lawrence Seaway, and Ontario’s marine infrastructure facilitates international trade.

Future infrastructure investments should enhance Ontario’s productivity

Although it is refreshing to see a renewed commitment to infrastructure from both the provincial and federal governments, the Institute urges that these investments be made strategically in order to enhance productivity. Over-investing in unproductive assets diverts resources away from productive into less productive uses both today and tomorrow, especially given the significant costs of maintaining infrastructure.

In building a better foundation, the Institute recommends that the provincial government prioritizes projects according to their estimated productivity returns. Although equity in allocating public funds is important, selecting the most productive projects will maximize the return on investment and put Ontario on the path to long-term growth and prosperity.

The Institute particularly recommends that Ontario reallocate investments away from general roadways and into strategic roadways that support international trade and public transportation services. Additionally, the government would benefit from reallocating some of the funds into engineering projects that provide significant enhancements to labour productivity, such as marine, waterworks, communication, and oil and gas infrastructure.

To learn more about infrastructure and the Institute’s research, register for the launch of Working Paper 22, Better foundations: The returns on infrastructure investment in Ontario.

 

[1] Infrastructure stock is measured as a percentage of GDP.

[2] Due to a lack of sufficient data, Nova Scotia and Prince Edward Island are not included in the Institute’s study.

Photo Credit: panimoni, Getty Images 

Category: Economic Progress, Infrastructure, Productivity