How often do you see arguments such as that spending, say, $100m will create Y,000 jobs? Rarely do we even question the logic, let alone the arithmetic. But we should do both. For if inserting $100m into the economy creates jobs – and it does! – then it must be equally true that extracting $100m reduces jobs. It follows that if the Government is running a balanced budget, then money into the economy through government expenditure is equal to money taken out of the economy through taxes to finance this and there is no net increase in jobs. The situation is worse if the Government is aiming at a budget surplus, for then more jobs are lost than are created.
The jobs created are nicely gathered together and visible for the project at hand, they are even amplified by media exposure, but what you don’t see are the jobs that are lost, for these are spread across the economy.
Let’s face it, to keep its budget under control it will either have to cut back on other expenditure or raise taxes and charges. (Think back to the last ‘stimulus’ bill, is that not what happened a year or so later? The government encouraged construction then later reduced funding affecting maintenance amongst other things.)
And as to the secondary round of expenditure – by which those receiving the first tranche of largesse are expected to go out and spend, thus creating more jobs, what about the secondary effects of the jobs that are lost?
The lie is that all infrastructure investment is good – is isn’t, and some projects are very bad. 3 questions should be answered to understand the benefit cost and risk of the allocation of community wealth to infrastructure projects.
1. Is this a future friendly project? (White elephant projects are bad legacy for our children, perhaps we should have a future friendly project list and a white elephant project list)
2. How many jobs would alternative investments create and when? Divide the cost of community investment by number of jobs created. (investment in the arts and entertainment quickly creates around 9 jobs per million quickly compared with 1 job per million in the construction industry)
3. Is this project identified as the best solution in a strategic asset management plan? (SAMP). Often investment in maintaining, renewing or upgrading existing infrastructure provides better and faster results that planning, designing and building new megaprojects. Why would be build infrastructure without having a strategic infrastructure management plan to provide the analysis to answer the first 2 questions based on the agreed service and risk objectives? (A SAMP is recommended in international standards – ISO 55000 series and mandated as required for Local Government by most State Government agencies).
All great points, Jeffrey!
Any chance you could refer me to some recent examples of analysis of maintenance vs capital work projects’ benefits that you’ve come across?