What’s driving the growth in B.C.’s public sector infrastructure capital stock?
A series of BCBC publications have examined long-run trends in capital investment (Williams 2022a), the total capital stock (Williams 2022b), and the infrastructure capital stock (Williams 2022c), for Canada and B.C. One of the findings from Williams (2022c) was that B.C.’s total infrastructure capital stock per available worker is growing solely because of growth in the public sector stock. This holds true for other parts of Canada as well – except in Alberta, where the private sector is a major contributor to infrastructure. This blog examines B.C.’s public sector infrastructure capital stock in more detail.
What’s behind the increase?
Figure 1 shows B.C.’s public sector infrastructure capital stock per available worker by industry from 1981 to 2021. The main contributors to growth since the early 2000s are government business enterprises, municipalities and, to a lesser extent, hospitals (although the latter flattened out during the 2010s). Government-owned business enterprises include B.C. Hydro, B.C. Transit, B.C. Lottery Corporation, and ICBC (a full list is available here). They are the largest component of the public sector infrastructure capital stock – a situation that was last seen in the early 1980s.
The next largest component is municipalities, where the infrastructure capital stock per available worker has grown steadily and strongly since the 1980s. Education facilities (such as universities and schools) and other provincial infrastructure (excluding hospitals and education facilities) are the next most important but, like hospitals, have flattened out. Other components, such as federal infrastructure and residential care facilities, represent a small and declining portion of the public sector infrastructure capital stock in British Columbia.
Figure 1
How does B.C.’s public sector infrastructure capital stock compare with other regions?
Table 1 shows that the infrastructure capital stock held by government business enterprises in B.C. ($9,000 per available worker) exceeds the Rest of Canada ($8,200), Canada as whole ($7,600), and especially Alberta ($2,400). Municipalities hold the next largest share of infrastructure assets, at $7,800 per available worker in B.C. and Canada respectively, and $6,900 in the Rest of Canada. Notably, Alberta’s municipalities are far more capital-intensive than those in B.C., at $13,200 per available worker. At the other end of the spectrum, there are less than $100 per available worker in defence infrastructure assets and nursing home facilities, respectively, located in B.C. Other parts of Canada are not much higher. The small allocation to defence infrastructure in part reflects Canada’s reneging on its NATO commitment to spend 2% of GDP on defence capabilities.[1] Meanwhile, B.C. holds less infrastructure capital than Alberta in hospitals and educational facilities, and slightly more in Aboriginal infrastructure assets.
Table 1
Conclusion
Alberta’s public sector infrastructure capital stock per available worker is larger than in B.C. and the Rest of Canada. This is despite Alberta’s public sector being only 58% of the province’s total infrastructure stock, compared to 71% in B.C., 75% in the Rest of Canada, and 72% for Canada as a whole. The data shows that government-owned businesses are “big business” in B.C. and the Rest of Canada, but not in Alberta. Municipalities have also become much more infrastructure capital-intensive in B.C. over the past three decades, even though they still lag Alberta by a wide margin. Meanwhile, B.C. has not seen much recent growth in infrastructure capital associated with educational facilities or hospitals.
It is good news that Canada and B.C.’s total infrastructure capital stock is growing, but concerning to see the composition become increasingly unbalanced as the private sector retreats from infrastructure investment (except in Alberta). A more balanced composition of infrastructure investment between the public and private sectors would be desirable as the latter would contribute to capital deepening, innovation, and higher labour productivity in the business sector. Policymakers should prioritise regulatory and tax reforms that open opportunities for private sector infrastructure investment – for example, by reducing the lengthy delays to gain regulatory approvals.[1] The North Atlantic Treaty Organisation (NATO) estimates Canada will spend only 1.36% of GDP on national defence in 2021 (NATO, 2022). Canada makes the 5thlowest contribution to national defence spending out of 30 NATO countries. Canada has consistently reneged on NATO countries’ defence commitment of 2% of GDP, which was agreed by NATO defence ministers in 2006 to ensure the alliance’s military readiness.