Me at my favourite coffee shop
Most mornings I have coffee in my favourite coffee shop and have a chat with George, the barrista. I like George and I want his coffee shop to remain viable – difficult in these times of rising prices – so, in addition to the pleasure of the coffee itself, I get satisfaction from knowing that I am contributing in a small way to his continuing income. I could have spent my $6 in another coffee shop or not on coffee at all and then those dollars would contribute to someone else’s income and job sustainability so I know that my expenditure is not increasing the number of jobs in total, I am simply impacting (admittedly in a very small way) where the jobs are being created or preserved.
But let us consider this same type of transaction – purchasing something for money – on a far larger scale. The government decides to build more infrastructure, say for a billion dollars, and it justifies that expenditure on the grounds that it is ‘creating thousands of jobs’. Let us set aside for a moment that the number of jobs is usually greatly exaggerated, never validated, and many of them may last only a few weeks or months. The real question is: are these jobs ‘additional jobs’, which is the way we are expected to view it and generally do, or have we simply changed the type and location of the jobs?
The government could have spent that one billion on community services (doctors, nurses, teachers, police etc or, indeed – if infrastructure is so important – on the maintenance of existing infrastructure ), or it could have left it in your pay packet instead of raising taxes to fund its infrastructure spend, but it chose to spend it on bricks and mortar. We like the idea of ‘more’ jobs being provided. We are less thrilled about the idea of jobs being lost. Fortunately for our peace of mind we do not see the jobs that are lost and although we do experience the lack of services that results we do not necessarily associate the two. So let us look at a typical project.
In December 1985 when the Adelaide Casino was established by the state owned Lotteries Commission, there was much hype about how many jobs would be ‘created’ by the Casino. And indeed, for the first six months, there was great excitement about this novelty. People flocked to it, abandoning their usual venues. It was the first Casino in the state and many went there to drink or eat, and some to gamble and the Casino employed many. After a while, however, the novelty wore off, fewer people went and the number of service people employed by the Casino declined. Customers sought to return to their previous venues but some of these, having to cope with reduced incomes in the interim but still pay high city rental prices had gone broke and moved out. Trouble was, in calculating the increase in jobs, no attention had been paid to where the new Casino customers were coming from or how long they would remain customers. The lovely little coffee shop I frequented in the city, which provided chess sets and boards for its customers, was sadly one of those that went out of business.
The moral of this story is when thousands of new job are vaunted, stop, look closer.
Its a bit like creating new jobs in a different region after job losses in another region and the mathematics that says no jobs have been lost, where really no employment has been lost the jobs might be very different and the skills could well be lost. Building cars and serving coffee are different skill sets and the loss one might not be recoverable.
Is the expectaton that the recently unemployed can afford to up stumps and move long distances and re-establish themselves? The barriers to exit and entry in the housing market make this difficult.
When Governments speak of this, it is just spin and yes we really need to look at the detail its a pity most of the commentariat don’t.
Penny, I guess it may depend upon the type of industry where the jobs are created.
If we decide to value add Australian grown materials, and export the commodity, instead of exporting the raw material, this would likely have a net job creation impact.
By way of example, biomass could be used to make renewable fuels in Australia instead of exporting large quantities of biomass overseas.
Australian made renewable liquid fuels such as Methanol and Sustainable Aviation Fuel (SAF) have the potential to improve fuel sovereignty as well as create additional long term renewable energy employment.
Employment security may allow people to access bank loans for much needed housing.
In addition to this, the potential to reduce our transport related carbon footprint is relevant.
Cheers,
David.
Excellent ideas, David. There are certainly many social and economic benefits that can arise from an investment in infrastructure but we cannot assume them, they need to demonstrated. And, in any case, it is dangerous to justify long term investment on the basis of short term benefits. As Ruth has pointed out on LinkedIn, the prime role of infrastructure is to increase our longer term capability.
Given that an initial capital investment requires ongoing recurrent expenses for the lifetime of the asset of a minimum of 5 times that capital investment, we always need to bear in mind that we are committing future generations to ongoing resource demands and should, thus strive to ensure that the ongoing benefits are at least as large. The elements you mention are part of these benefits.
This being so, we really do need a way of bringing them to bear in our decision making. I am currently looking for tools that can assist us in our decision making, and tools which may not exist yet, but would be worth developing. I think this could fall into the latter category. Any ideas?
Penny, your post highlights an all-too-common misconception that “job creation” through government projects is a net gain, when in reality, it often simply redistributes existing employment rather than creating new opportunities. There are almost always trade-offs, and while not everything is zero-sum, there are significant opportunity costs when we consider this type of spending.
This is particularly relevant in today’s economic climate, where we must carefully evaluate how public funds are allocated and whether they truly serve the broader community’s interests. In asset management, we view the value of any investment not just in terms of tangible outcomes—like new buildings—but also the liabilities that come with them. We assess how these assets may or may not contribute to the long-term objectives of people and communities. Your analogy with George’s coffee shop perfectly illustrates the importance of considering both immediate and long-term impacts when deciding where to allocate our resources.
When the government invests in infrastructure, it’s not just about how the assets will sustain or potentially enhance community value over time. Much like your experience with the Adelaide Casino, we’ve seen that poorly considered investments can lead to short-term gains at the expense of ‘future us.’ This is even more true when upfront costs are borrowed debit. Investments in projects like casinos can often pass on intergenerational liabilities to manage and maintain the assets. Sure, there are jobs that linger to take care of these assets, but did they ever really deliver the value promised, or do they end up being a ‘net drain’? Have they taken away money and other resources that would have better served people if invested in other things over the same time frame?
Just as in asset management, where we must align our strategies with the true needs and values of current and future generations, so too should government spending be aligned with the sustainable needs of the community, ensuring that we’re not merely shifting jobs from one sector to another but genuinely creating value that supports long-term growth and resilience.
Saying YES to anything is saying NO to all other alternatives.
Thanks for sharing such a thought-provoking message.