New Geography

Tag: infrastructure

  • Cities Have Outgrown Their Role as Mere Creatures of the Provinces

    The Martin Prosperity Institute recently released the map below, which compares the GDP of several US metropolitan areas to the size of national economies. For instance, the Boston-Cambridge-Quincy metropolitan statistical area (MSA) has a GDP of $311.3 billion dollars. If it were a country, it would be the 40th biggest national economy on earth, ahead of countries such as Denmark ($310.1) and Greece ($303.4). The Houston-Sugar Land-Baytown MSA has a GDP of $378.9 billion, which would make it the 31st biggest national economy, bigger than Austria ($375.5) and Argentina ($368.9). New York-Long Island-Northern New Jersey ($1.28 trillion) isn’t all that far behind Canada ($1.57 trillion).


    While trotting out such comparisons is an interesting exercise, the comparison also gives us some important perspective.  Despite the fact that these cities, as well as many others, produce as much as large countries, they have nowhere near the same fiscal levers at their disposal. Further, they are subservient to higher levels of government. The same problem exists in Canada. The Greater Toronto Area’s economic output ($233.9) is nearly equivalent to Finland’s total GDP ($270.6). Note that this definition is far less expansive than the US metro areas listed above. If the definition were expanded to include the entire Golden Horseshoe, it would be closer to the Size of Norway ($414.3 billion).  Yet the City of Toronto can’t finance a public transit expansion without the two senior levels of government. Calgary ($62.5 billion), roughly the size of Lithuania, couldn’t decide to create a municipal sales tax. Vancouver ($85.5 billion), slightly bigger than Serbia, can’t even decide how to allocate gas tax dollars without a special deal with the federal government.

    The problem isn’t that we have too little government spending, but that revenue collection and spending decisions often happen at the wrong level. Revenue generation and spending should take place as close as possible to the point of delivery. There is no reason why someone in Moose Jaw should pay federal income taxes so that the Federal Government could partner with the province of New Brunswick to build a highway near Moncton. Similarly, there’s no reason why someone in Edmonton should send property tax dollars to the province so that it can pay for a transit expansion in Calgary. Not only is filtering money through multiple layers of bureaucracy inefficient, but it leads to bad decision making. Decisions both on the revenue, and expenditure side need to be made at the lowest level of government possible.

    In order to ensure that cities can meet their infrastructure requirements, provincial governments should gradually devolve spending responsibilities and revenue generating capacities to the municipalities, and the federal government should end the practice of intervening in infrastructure issues altogether. Some municipalities may choose to raise property taxes, others may increase user fees, and still others may experiment with municipal sales taxes. But regardless of how municipalities decide to raise revenue, they are better placed to determine how much revenue is required, and which projects are really essential. More importantly, devolution gives more direct control over decision making to the people that are actually impacted by the decisions. Devolution means more accountability, and more local input. And if tiny Iceland can fund it’s own infrastructure, there’s no reason why Winnipeg or Edmonton couldn’t do the same.

    This piece originally appeared at the Frontier Centre for Public Policy Blog.

    Steve Lafleur is a public policy analyst with the Frontier Center for Public Policy.

  • Transportation Infrastructure: Yankee Ingenuity Keeps California Moving

    A friend was explaining some philosophy to me the other day and he used an analogy to make his point: If you can get a cannibal to use a knife and fork, is that progress? Of course, the answer is "no". So when I heard the next day that transportation infrastructure performance in the US improved significantly at the height of the worst recession since the great depression I had to ask: is that progress?

    We do not want to stop all economic progress just so that a privileged few with access to resources may enjoy an easier ride on the I-95 interstate highway between Wall Street and Congress. Stopping economic growth is not a solution to the problem of crumbling infrastructure in America.

    In fact, my economic analysis shows that transportation infrastructure is a “leading indicator” of economic activity. In other words, infrastructure performance has to improve for a while – and stay improved – before economic activity will pick up in an area. Alternatively, infrastructure performance would have to decline for a while before businesses would leave that location, too. Think about it this way. From the perspective of a company already in business in a particular location, they would not pack up and leave town the first day that, for example, traffic congestion slows down the delivery of products to their customers. Companies like FedEx Freight plan distribution locations 20 years in advance. For a while, they will find a way around congestion. FedEx Freight uses elaborate technology to “route trucks around huge bottlenecks, but this adds circuitous miles and costs”. Their policy is to “minimize the impact as best you can.”

    We see evidence of how business finds a way to make it work even when government and infrastructure try to stand in their way. California ranked 43rd in 1995 and fell further to 47th in 2000 and 2007 among the 50 states (plus D.C.) in the U.S. Chamber of Commerce’s transportation infrastructure performance index. Although California’s infrastructure is crumbling, businesses are finding a way to work around it. California’s economy could grow faster than the rest of the US economy this year.

    In economics we talk about the efficient use of resources – getting the most out of what you have to work with. In a new study getting underway at the University of Delaware, early results indicate that businesses are operating successfully in the United States despite being hampered by problems like congestion and the lack of intermodal-connectivity (that is, being able to move products from trucks to trains and from trains to ships). California, in fact, may be a benchmark state for economic efficiency. They rank at the bottom for infrastructure performance but business is finding a way to make it work.

    My old pal, Larry Summers – former Economic Advisor to President Obama and subverter of all things economic – took a last final swipe at spending on transportation infrastructure in April 2011. In his first public appearance at Harvard University after leaving the White House, he talked about investment in infrastructure as a way to “…tackle high levels of unemployment, especially among the low-skilled.” He just doesn’t get it. He continues to believe that the way to stimulate the economy is to give tax breaks to business – as if they will build their own roads. He just didn’t get that infrastructure is what supports all economic activity. It’s the stuff that business does business on, not the classical economic “capital” that business brings to the table.

    In fact, it costs businesses to have to work around the crumbling infrastructure. When you ask academic, government and researchers to measure that cost, you get a wide range of views about what constitutes a direct or an indirect cost to business from traffic congestion. But some of these costs are undeniable. There is a cost of computer technology for monitoring congestion; the cost of employees for communicating with drivers about alternate routes; the cost of extra fuel; driver overtime resulting from congestion; refunds to customers for missing guaranteed delivery deadlines, etc. etc.

    So, there’s a benefit to business from improving the performance of transportation infrastructure. They will be saving the money that they are spending now to work-around the infrastructure. And money not spent is at least as good as a tax break.

    Disclosure: Dr. Trimbath’s research on the economic impact of transportation infrastructure performance was supported by the National Chamber Foundation and sponsored in part by FedEx Freight. The 2009 Transportation Performance Index will be released on July 19, 2011 in Washington, D.C. It will show a substantial improvement over 2008.

  • Creating the Next American System

    Michael Lind of the New America Foundation has just published an excellent and inspiring article in Democracy Journal about the need for a new financial and physical infrastructure.

    “One of the goals of reforming and regulating finance is to ensure that American industry and American infrastructure have access to the private and public investment they need,” Lind writes. “Industry, infrastructure, and finance form a system—an American System. And a new American system, well-designed and well-implemented, will be crucial in revitalizing American economic prosperity in the twenty-first century.”

    Lind talks about previous “American systems” of finance and organization that were adopted over time to adjust to the economic realities of the age and how today, we are in dire need of creating a new system that reacts to the new realities we face.

    Some of these ideas include the creation of a National Investment Corporation and a National Research & Development Bank and the creation of a Department of Infrastructure that merges some of the transportation agencies together. These are bold ideas explained in clear prose with illuminating historical examples.

    Many of his ideas lend themselves towards centralization and thus remind me of the New Deal a bit. The existence of the Works Progress Administration and the Public Works Administration was one of the rare times in American history when infrastructure finance was centralized. It was also one of the most prolific times in our history for the construction of vital and long lasting public infrastructure that still stands today.