On private interests

There's not much doubt that the financial meltdown has led to proposed solutions based largely on ideological lines. But for those thinking that the lone danger to the public sector is coming from Ton Flanagan's musings about an all-out assault on existing institutions, one of the Libs' more prominent strategists is presenting another extremely worrisome position:

If Harper (or any government) decided today to accelerate infrastructure spending, it would be at least 3-6 months at the earliest before specific projects were lined up. At that point, the projects would (if they're of any significant size) start going through an environmental assessment process and receiving other regulatory approvals - a process that can take anywhere from 6 months to many years (in the case of an east-west transmission line, for example, you are likely looking at a 3-5 year regulatory approvals process, and that may be optimistic). If the project is a public-private partnership, which most of these projects should be, you also need to line up a private-sector partner through some form of competitive process and close-financing.

Now, I'm no fan of P3s in most cases, as the assumed benefits seem to be entirely illusory in practice. But to the extent there's any sensible argument to be made for them, it's normally based on an excess of capital available in private markets compared to a relative lack of available money from governments, such that there's at least a case to be made for using private funding in the short term in exchange for publicly-funded profits down the road.

But that "excess of capital" point is an important one. The reality seems to be to the opposite effect: instead of there being a surplus of investors and private capital looking for projects to fund, we're currently facing a combination of evaporating credit markets and investor reticence. And that's exactly why government stimulus is needed to try to turn around the downturn in the first place.

Moreover, the crash in asset values also means that what capital is out there can follow Stephen Harper's advice by pursuing fire-sale bargains, rather than having to pay normal prices for its returns. So much in the same way that any asset sell-off would result in the federal government taking a cut rate for what it now owns, so too would any process of seeking private partners result in a far worse deal for the public purse than would be available at virtually any other time.

And what's worse, the effect could also be more to divert capital rather than to actually improve the current flow of funding. While there might be some incremental increase in the amount of capital made available under P3 projects, it seems to me most likely that investors in a position to put their money behind large-scale infrastructure development would be equally willing and eager to seek bargain capital investments in the private sector without any government stimulus. Which means that a P3 program would all too probably serve only to provide a publicly-guaranteed profit margin to those who are already willing to invest, rather than actually improving the current level of economic activity.

Based on those considerations, the smart public play would seem to be to use the resources of government to build publicly-owned infrastructure. But those eager to funnel public money into private hands are apparently no less eager to use the economic downturn to their advantage than those who are looking to eliminate government entirely. And both pose a significant danger to our prospects of minimizing the damage and emerging with a functional government once it's over.

Update: As pogge points out, Deficit Jim figures to be entirely on board.