WEB EXCLUSIVE: An Integrated Approach to Economic Stimulus

Canadians are acutely aware of the fact that the U.S.-led global recession is having a profound impact on the Canadian economy and consequently they are suffering immensely from the current financial crises. It was concluded that the global financial system has effectively collapsed, undermining investor, household and business confidence, and pushing the economy into an increasingly lengthy and severe recession. Real GDP, employment, industrial production and retail sales are falling sharply, and unemployment is rising quickly.

Many economists believe the current downturn will be the most severe since the Great Depression of the 1930s and this forecast is turning out to be more worrisome for every Canadian.  There are experts who have expressed their opinions that priming the economy now is unnecessary, ill-timed or even counter-productive.  The lessons we have learned from the history of economic stimulus are not that encouraging either, as tax cuts and increased spending enacted in hopes of jump-starting a sluggish economy haven't always worked. The main reasons expressed by some experts for these failures include:

• Sometimes policymakers took too long to recognize the problem or too long to act;
• Sometimes their actions weren't properly targeted, and most of the money didn't get spent; and
• Sometimes the policies were permanent, and the long-term damage in terms of increased deficits and debt outweighed the short-term benefit.

In spite of these admonitions, there is a hope that this cycle of "misfortune" can be mitigated only by aggressive, consistent, and fair government action.  Following this theme,

Canadian intellectuals, politicians, and economists have dedicated their best efforts to help define an economic stimulus package which is fair, appropriate, and effective and which is also capable of boosting, revitalizing, and protecting the Canadian economy with the focus to shift it on to more sustainable footing, meeting the financial as well as environmental challenges. 

This article will provide three examples of investments which could be included in an economic stimulus package to take advantage of an integrated approach which will maximize the return on investments.

Example A: Investing in infrastructure to create jobs:

The Federation of Canadian Municipalities (FCM) has been the national voice of municipal government since 1901.  With more than 1,775 members, FCM represents the interests of municipalities on policy and program matters that fall within federal jurisdiction.  Members include Canada's largest cities, small urban and rural communities, and 18 provincial and territorial municipal associations.

FCM announced on January 15^th that Canadian municipalities could create over 156,000 jobs and deliver $13.7 billion worth of infrastructure work this year, if accelerated and new federal funds are made available to them in the 2009 budget.  FCM has unveiled an extensive list of projects that are ready to go from coast to coast. These projects are strictly "shovel ready," which means they do not appear in a municipality's 2009 funded capital budget but could be started this year with additional funding.   It was also stressed that timing of the investment is crucial.  Getting these projects underway this spring is crucial in fighting this economic slowdown.

There are 144 public transit projects valued at $7.5 billion ready to go across Canada that would generate over 86,300 jobs, FCM's report notes.  Water and wastewater projects that are shovel ready total 386 and are valued at $2.7 billion, potentially creating nearly 31,000 jobs. Roads and bridges projects are next, with $2 billion in value spread across 362 projects, with the potential to create over 23,000 jobs.  FCM recommends to the federal government that it make job creation a central policy objective of any new short-term infrastructure program and that government focus on shovel-ready projects, including repair and rehabilitation needs.

It was suggested that municipalities must invest GTF funds in line with clear eligibility criteria, guided by federally-approved capital investment plans.  End-of-year reports are required annually to demonstrate compliance with program rules. These types of requirements should also apply to any new funds in the 2009 budget, believes FCM.

"Every community with these projects will benefit from new jobs and new infrastructure," adds Jean Perrault, president of the FCM. "A significant number of new infrastructure projects must get underway during the 2009 construction season to help counter the recession."

FCM also recommends that red tape be cut to accelerate major projects and "soon-to-expire" capital funding for public transit and affordable housing be expanded. Protection and acceleration of funding for smaller urban, rural and northern communities should also be a priority, according to FCM.

Example B: Investing in energy efficiency to create green collar jobs

The Pembina Institute, a federally registered charitable organization, has prepared a set of recommendations for an economic stimulus aimed at stimulating the creation of jobs while helping Canada's private sector vault into the clean economy, all while meeting the commitment to reduce pollution. The focus is on expanding and leveraging existing federal and provincial programs and initiatives.  These recommendations are based on the anticipated economic stimulus from the federal government which is estimated to be over $25 billion in loans and spending with the objective to create "Green Collar Jobs" by injecting stimulus dollars into renewable energy, building retrofits, public transit, clean cars, training and other green economy initiatives. 

They also recommend moving quickly to implement a cap-and-trade system on greenhouse gas emissions. This portfolio of recommendations is aimed at providing increased certainty for investors in Canada in the rapidly emerging "clean energy and infrastructure" industry. In the next few years, they expect that this industry could leverage significant private investments, create on the order of 50,000 jobs, and put Canada's economy on course to be competitive in a world of increasing pressure to significantly reduce greenhouse gas emissions.

Even though specific recommendations are articulated for each aspect of their focus by Marlo Raynolds in the document Strategic investment for green jobs and a competitive and environmentally economy, which was published under the umbrella of the Pembina Institute on December 18, 2008, because of the space restrictions, this article is reviewing only one aspect of their focus which is Energy Efficiency.  Here is a summarized version of the recommendations on Energy Efficiency:

Here is the summary:

It was stated in the report that the Government of Canada is collaborating with provinces and territories on the promotion of homes, buildings and efficient equipment under the Council of Energy Ministers "Moving Forward on Energy Efficiency" process.  All of the above initiatives would support this collaboration and leverage significant additional support from provinces and territories.

Example C: Invest in abandoned construction projects to restore jobs

U.S. Treasury Secretary Henry Paulson spoke at a press conference acknowledging that efforts to stimulate that nation's moribund economy have so far been "a failure," and that the economy remains cold and unresponsive.

Harvard's Martin Feldstein, head of the National Bureau of Economic Research, was one of many economists last winter calling for federal action to avert a recession. "What's really needed is a fiscal stimulus, enacted now and triggered to take effect if the economy deteriorates substantially in 2008," he wrote. He liked the idea of tax rebates, which is what Congress and the president eventually agreed on. How did that turn out? According to Feldstein, it's a failure.

President Barack Obama wants more transparency and strict guidelines for using the second $350 billion of the bailout fund Congress approved last fall to stabilize the nation's financial system.  The Congressional Oversight Panel raised detailed questions last week about how banks are spending the first $350 billion, how the money will combat the rising tide of home foreclosures, and Treasury's overall strategy for the rescue. In instance after instance, the panel said, the Treasury Department did not offer adequate responses.

The main reason for the failure of the initial economic stimulus in the United States as well as in the United Kingdom has to do with the fact that there were no strings attached to those packages.  Since then it is recognized that there is definitely a need for greater transparency and any future economic stimulus have to go through under a scrutiny of strict guidelines. 

It is amazing to note that there are unbelievable number of proposals that are devoted to describing how to invest the economic stimulus funds into projects which will create new jobs, however, there is almost nothing published on the subject to encourage investments in the abandoned construction projects with the objective to reactivate the employment of those who were working before the financial crises started.  Perhaps the only exception to this statement was a proposal which was masterminded by Les Bjola, the main objective of which is to bring back the workforce to the construction sites by converting economic stimulus into loans which will provide the desired structure of transparency.

Les Bjola, a successful real estate developer who is known for the multibillion dollar development of the Bear Mountain Golf Resort and Country Club near Victoria, B.C. has recently stated that the focus of any economic stimulus should be to stimulate the Main Stream and he defined Main Stream, "where the real jobs are and where the impact is."  He further stated that banks and Tier 2 lenders have closed their doors.  Mezz lenders have stepped up at 20 per cent to 25 per cent making projects impossible. The real impact is on the projects in progress where funds have been invested to complete 50 or 60 percent of the projects and then everything stopped. Builders are faced with an impossible situation.  They cannot afford to abandon their projects because of their investment but at the same time they cannot secure funds to go ahead and complete their projects. 

Bjola's argument is that there is no market for an unfinished project and moving ahead also means that workers will start contributing to the economy which is needed badly.  He has articulated the following framework, suggesting a solution to "Main Stream Credit" for land development and or construction projects:

The focus of the three examples presented above is limited to jobs.  These three proposals plus hundreds of others representing various interests including the job creation were brought to the attention of the Finance Minister.  Huge efforts are being invested in the process to analyze the proposed submissions and develop an integrated approach that will help mitigate the current financial crises. 

Dr. Mir F. Ali is a Sustainability Analyst with Turner Lane Development Corporation, a real estate development company with the commitment to build sustainable communities.