The infrastructure package recently signed into law in the United States will lead to increasing productivity and innovation, but it also has the potential to widen the gap between the U.S. and Canadian economies.
Canada’s infrastructure has not received adequate rehabilitation since the 1970s.
The $1.2 trillion package not only highlights the relative lack of investment in Canada, but it also comes just as the floods in British Columbia are on track to becoming the most expensive natural disaster in Canadian history. The rising waters have done severe damage to the region’s infrastructure, and the effects to the supply chain are estimated to be in the billions of dollars.
The floods are only the latest in a series of events undermining Canada’s infrastructure, which, like that of its American neighbor, has not received adequate rehabilitation since the 1970s.
Canada’s infrastructure has not kept up with changes in the economy as it has become increasingly digital, and the infrastructure is certainly not prepared to handle extreme weather events like the floods that are happening with increasing frequency.
If Canada does not match the U.S. in updating its bridges, highways and ports, the U.S. will gain the competitive edge as the country with a lower cost of production, better transportation and higher productivity.
Canada also needs to build infrastructure for the digital economy, including providing high-speed internet, data centers and electric vehicle infrastructure. While people left cities for rural areas during the pandemic, they will stay only if the infrastructure supports their ability to work remotely. Otherwise, lacking basic infrastructure like reliable high-speed internet presents a barrier to growth and will lead to further brain drain.
Canada’s challenge
In Canada, the second-largest country in terms of land mass with one of the world’s lowest population densities, the cost per capita of building and maintaining infrastructure is extremely high. But it is not something Canada can afford to ignore.
New infrastructure also needs to be resilient to withstand extreme weather events, which will continue to cost Canada billions each year unless drastic investment and adaptation measures are implemented.
Last year, Canada launched a CA$10 billion infrastructure plan focused on renewable energy and broadband internet. Total 2020 infrastructure spending of the country stands at CA$81.58 billion. It remains to be seen how these efforts will match up to the U.S.
On the other hand, the productivity boost in the U.S. following its investments may result in some spillover benefits for Canada. More growth means the increasing U.S. demand for goods and services, including those from Canada.
In the end, infrastructure is what lays the groundwork for development. It’s needed to foster innovation and to help fix supply chain bottlenecks. Lack of investment presents a barrier to growth. It also prevents the realization of business opportunities.
The takeaway
The solution to the puzzle does not simply lie in building more roads. It is in modernizing the infrastructure that is crumbling under the pressure of today’s economy and a changing climate.
Middle market businesses need to seriously consider private investments in their infrastructure to remain competitive in the global marketplace.
