I had an interesting discussion with North Battleford-based Liberal leader Ryan Bater the other day. The interview was part of a series of discussions with the leaders of the Saskatchewan Party, New Democratic Party and Liberal Party on their respective energy policies. Those verbatim interviews can be found in the upcoming Pipeline News (www.pipelinenews.ca) next week.
I've known Bater for a while, back to the days when he used to run the regional economic development authority in the Battlefords. He's a pretty smart cookie.
One point of Bater's comments had me intrigued. In response to a question on housing for workers in the oil patch, Bater said, "What's happening simultaneously with that is you have a lot of big government projects, as well. You have, essentially, a government spending money and competing with the private sector for labour, for materials and use of infrastructure. It would have been better to hold off on the big projects government is working on until things cooled off in the private sector, and do them at a later time when labour and materials are not only more available, but cost less."
It's an interesting notion. This is precisely what happened in Fort McMurray, but in the private sector. In 2007-08, the frenetic pace of construction inflated project costs incredibly. The reset of 2009 brought those costs down substantially, and the oil companies learned to pace out their mulit-billion dollar projects.
Norway has followed this concept, to an extent. Its sovereign wealth fund, which has quickly grown to one of the largest in the world, forbids investing oil riches in Norway. Flooding Norway with plenty of cash during good times would have an inflationary effect, reducing the value of all the money overall, and overheating the economy. This is what Bater sees from governments doing lots of infrastructure work during good times.
Saskatchewan, unlike many, if not most jurisdictions in North America, had been faced with a combined labour shortage and housing shortage. The two go hand-in-hand. Bater is saying that when the private sector is going full-tilt in areas such as the oil patch, don't go building hospitals.
There is some logic to his assertion. Balance things out, so the peaks aren't so high, and the valleys aren't so low. However, it is at precisely at these busy times when things like new power plants or other infrastructure projects are in the highest demand. It is also during good economic times that the government's coffers tend to be flush, and thus they have the money to spend on infrastructure projects.
For Bater's idea to work, governments would need a highly effective crystal ball to get the timing just right - when the economy falls into a slump, build a power plant. But these projects are often years in the planning, so it would be rather tough to sync large government infrastructure projects with down cycles. When it comes to power plants, demand growth is greatest when the economy is hot, not when it's cool. That's when you need them the most, to cope with growing demand.
Can the government avoid inflating the economy with big infrastructure during good times? Doubtful. But it's an interesting idea.
Brian Zinchuk is editor of Pipeline News. He can be reached at [email protected]
