A Skeletons Story.

The "Great Canadian Infrastructure Expenditure" is a grand plan, even if it does sort of lack any planning. Spending billions on rebuilding and reinforcing the skeletal structure of the CDN economy and social infrastructure is at the core of the plan. A stronger skeleton is required to support a heavier muscle mass. The muscle mass, in this scenario, is a more active economy and a social infrastructure (think things like roads, bridges, transit, hospitals etc.). If the bones underneath are chalky and subject to easily breaking, then it is hard to add more mass on top. So, the concept of rebuilding and reinforcing the sub structure makes a ton of sense. If Canada is going to move forward, it needs to spend now to remove and avoid terminal bottlenecks in the future.

Speaking of terminal, infrastructure spending is not limited to government agencies. While it is critical that broader social programs happen, individual firms and or business sectors must also invest in infrastructure. Even with the shift towards a more service oriented society, things still need to "move". This can be simple physical delivery or it can be on the back of more robust communications infrastructure. Imagine trying to run todays modern knowledge based sectors on a data network that could only handle the old 356 meg pulses? Getting your Facebook update would take a few days! So, infrastructure investment is endemic to almost all sectors. Unfortunately, as I may have alluded to above, there is a rather material lack of coordination with how this happens here (and, to be fair, CDA is not alone in this shortfall).Lack of planning seems to create scenarios in which relief from one bottleneck merely pushes the blockage a bit farther down the stream. The result is not that much different. Anything riding downstream still doesn't have unfettered access to the streams ultimate destination. There is a classic case of this happening now.

In the Agricultural sector, some pretty wise and forward thinking leaders have invested significantly in building shipping terminals at various ports, especially, but not limited to, the west coast designed to take advantage of what would seem to be a massive exporting opportunity for CDN manufacturers of Ag products. The combination of changing weather patterns and population explosions have made CDA's relatively constant "breadbasket's" weather and acreage ideal for satisfying demand for regions that have been damaged or lost to climate effects and human encroachment. Let's face it, western CDA's prairies are still pretty empty and, despite localized weather issues (like drought), still fairly well off weather wise. This is a huge advantage, so big exporting firms are spending in a big way to ramp up exporting facilities. This is very prudent and makes eminent sense. The problem, from an infrastructure perspective, is that while the head and the feet of this economic skeleton are being built up and strengthened, there is an awful lot of infrastructure in the middle that they don't control that is required to get product from the inland granaries to the seaside port terminals. The biggest issue for them is rail traffic.

This is not going to be an attack on the rail services. I think they do a pretty good job overall. The biggest problem that emerged over the past few years is one of capacity. Rail lines have capacity limits. A train can only be so long, especially if it has to climb the mountains. There can only be so many trains on a given track at a given time. These are physical issues. Capacity is always something managers of a service like railways need to optimize. Build too much and you get killed having to carry and support very expensive infrastructure. If you fall behind demand too much, alternatives, like trucking, start to eat at margins. So, when the operating model experiences change, they are forced to make decisions on investment. The problem, of course, is that investment in things like rail lines can not and does not happen overnight. These are big projects. So, several years ago when oil producing capacity in western CDA blew way past the pipelines capability to move it, demand for rail shipping of oil exploded. This was a very lucrative business for railways. Being economic beings, firms went where the money was. Infrastructure spending that did happen shifted to more north south than east west since oil needed to get to the south of the US for refining. This is all good news, unless you are trying to ship east west, like Ag producers have to do. It did not take too long before record crop production was being bottle necked in the prairies because rails lacked the physical capacity to move both oil (n-s) and grain (e-w). Oil was paying better so grain got relegated to second tier importance, even if it is a massive market. So, what happens now that Ag producers have stepped up capacity at both ends of their production process but the middle, controlled by others, is not yet catching up?

This raises the political contentious issue of whether it makes sense to allocate amounts of the "infrastructure funds" to helping private companies, like railways, expand so that they can support other economically significant sectors. Now the question becomes, "do we pay for a bridge to get repaired in New Brunswick" or give money to one of the big rail companies to help them expand to meet the demand created by a positive growth sector like Agriculture? Not an easy question for a politician to make. We don't have any sort of "plan"to help make these sorts of decisions easier by providing a framework which removes the whiff of political favouritism. One hates to see significant growth opportunities foregone but social infrastructure carries a lot of importance too. Piecemeal planning can sometimes create as many problems as it solves. I hope that in the case of the Ag business and the heavy investment they have made at their port facilities, there can be a way to reinforce the backbone that supports the whole economic framework of this model. CDA is not in any position to let significant growth opportunities get away on us. We have some natural advantages and we can't afford to let ourselves get in the way of leveraging them up. Instead of having "peeing contests" with foreign manufacturers of airplanes, lets focus on building a planning infrastructure that will support full skeletal reinforcement. After all, no matter how strong muscles might be, if the bones underneath can't support them, the limb will never work at full capacity!

See www.waynesviews.com for more of my thoughts