At the end of the 19th century, beginning of the 20th, a Liberal federal government, this one led by Sir Wilfrid Laurier, went railway mad. If one transcontinental railway, the Canadian Pacific Railway (CPR), completed in 1885, had been such a success, and it had been, then two or even three transcontinental railways could only be better. So, with varying degrees of government support, and cost estimates that ended up always being too low, often by a factor of two or more, railway builders, like Stephen Leacock’s horseman, ran off madly in all directions at once.

But mainly northward. What the CPR and associated land grants were doing to open up the strip of the country closest to the United States border, other routes presumably could do for its more northerly parts. Thus there was the Canadian Northern, with its Yellowhead Pass route through the Rockies. And the Grand Trunk Pacific, from Winnipeg to Prince Rupert, B.C., also via Yellowhead. And the National Transcontinental Railway, government-owned from the start, which ran from Winnipeg to Moncton by a northern route and was, according to a standard history of Canada, “foolish and unnecessary.”

And then came the First World War. Immigration stopped. Finance dried up. And a 1917 royal commission recommended nationalization. The transcontinental lines that weren’t part of the CPR were then merged into Canadian National Railways and, as a result, Parliament spent much of the 1920s discussing how to pay the country’s railway debts.

Does that not sound a little like today’s discussion of national pipeline policy? From a decade of almost no pipelines, under a legislative regime mockingly but not inaccurately called the “no more pipelines act,” the country now seems to be in a mood to build pipelines madly, in all directions, at once. And it has been given a finance minister, François-Philippe Champagne, who is a veritable Energizer Bunny of spending money on mega-projects. In fact, the similarity with Energizer is not just metaphorical. Batteries, and multi-billion-dollar EV battery plants, some to have been built by companies that have already gone bankrupt, have been his core interest. Making such a prodigious spender finance minister bodes poorly for the future of fiscal anchors.

It may be unpatriotic to say so, but maybe we should think harder before laying pipe all across the country. In his remarks at the Liberal leadership transfer, Liberal godfather Jean Chrétien suggested we build a natural gas pipeline from “Alberta, the family of my mother,” to “Quebec of my father.” And he added, “I think that if we do that, that will keep the steelworkers working in Canada for a long time” — thereby making the politician’s customary error of counting the cost of a project as a benefit.

Family ties are great, and helping out steelworkers in what U.S. President Donald Trump has made their time of need is an improvement over recent policy. All the Trudeau government promised the Alberta oil and gas workers it worked so hard to displace was to help them “transition” to new work, but definitely not in the oil and gas industry.

Before opting for a mega-project on the strength of a speechwriter’s throwaway line, it would be good to know the answers to a number of questions. How many Canadian steelworkers produce pipe? How much pipe does a new pipeline require? How long would it take steelworkers to make that much pipe? And is there work for them after that or will we have to keep building pipelines? And how much will a new pipeline cost, including the time-honoured overrun of 100-plus per cent? And what volume of gas will it pump? And what price, on average, will we get for that gas? And what will be the profit, if any, from selling it? Or would it be better to leave it in the ground?

In short, what’s the business case for a new pipeline? Or for any other piece of infrastructure our new budget policy of hiving off capital spending for special accounting treatment gets policymakers salivating over? To establish that business case, the numbers need to be crunched by actual businesses arranging their own private-sector financing. They will be more careful with money they actually have to pay back to investors and could lose their jobs over if they don’t.

Governments can certainly help by removing unreasonable procedural roadblocks to new infrastructure projects and not imposing new ones. But do we really want people who are driven by focus groups and how things will play in swing ridings making what should be hard-nosed decisions about where tens of billions of dollars of scarce capital go?

Prime Minister Mark Carney is not wrong to be skeptical about markets. Most mainstream economists are. Markets do a terrific job of allocating investments to where they’re likely to earn the greatest return — though only “likely” since investment is about the future and we humans lack the power of precognition, even if many politicians seem unaware of that. But markets can be oblivious to human consequences. The way to fix that, however, is not to somehow re-engineer them to be more caring — that’s not going to happen — but to let them do the work of figuring out what’s most efficient and then cleaning up afterwards with unemployment insurance, welfare, retraining and so on.

Let’s build pipelines if pipelines are profitable. Let’s not build them just to say “So there!” to Donald Trump.

Financial Post

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