Construction in a Recession

The UK economy is in a double dip recession according to the ONS. Construction output dropped by 5.2% in this quarter. The omens are not good as a further contraction will take place post Olympics. The sector can expect to continue to decline for the next 9 months, if it follows trends from Atlanta, Athens and Sydney.

Is there a case to look to construction to help overcome the recession.

• Investment in infrastructure has an economic multiplier impact of 1 to 3. This means for every pound spent it creates economic activity 3 times as much.
• Construction absorbs large scale labour. Construction offers opportunities for skilled and un-skilled labour.
• Infrastructure construction can improve our long term competitiveness. Our transport and communication infrastructure lags behind our competitors and we need to improve to keep pace. Other sectors are more likely to invest in regions with good infrastructure  skills bases.
• Infrastructure investment and development supports both manufacturing and service sectors. The multiplier works through the construction supply chain.
• The lack of investment in infrastructure simply build up problems for the future. The State of Nation reports hints at the infrastructure requirements that need to be dealt with. The ASCE state of infrastructure reports alludes to a similar situation in the US.
• We have a world class construction industry. We have moved from being a joke to contractors and consultants that have skills and expertise that are required globally. Time to leverage this skill base.

If this was easy we would use construction as way of getting out of a recession. In the past the Japanese and Koreans used this approach. So what are the barriers:

• Austerity . The obsession with driving down government debt stops projects that are traditionally government supported. The economy needs stimulation as well. Simply cutting and stopping projects will not work.
• Choosing the right areas to support. We need investment in road, rail, high speed broadband and power. The government has to be a cheerleader and player. There must be no political vanity projects.
• The private sector are afraid of construction. We have had two commercial property and residential booms and bust in the last two decades. This undermines confidence.
• Ideology - there is a need to move on from PFI. Many sub-standard project were commissioned in the last decade. The mantra was if its PFI, its good. The centralised emergency systems, duplication of hospital services, school, etc are all example of poor decision making. Geographically, the UK, is small , so we can have a plan that works. We either take regional or centralist view. Private is not always better nor is the public sector. A balanced view is needed.
• Lead times to develop large scale infrastructure project are a problem. There are enough projects on the design boards, they should be moved forward.
• Risk - the government does not want to take the risk of more spending and changing their political stance. The private sector does not want to take any risk following the economic downturn.

These barriers must be addressed. 

The danger is we keep falling behind our competitors in infrastructure. A crumbling infrastructure is not good for competitiveness. We start losing our skill base. The migration of skills has started. We also face the danger of not getting the future generations interested in our sector. As future challenges such as climate change, resource depletion, ageing populations, overcrowding, energy and water shortages start we need the best and the brightest on our side.

Investment in infrastructure is needed for the overall economy not just construction.