We need a fresh vision on US infrastructure projects

October 21, 2008

Sir, Clive Crook draws some interesting parallels between current economic conditions in the US and the emergence of the New Deal 75 years ago (“Back in business”, Analysis, October 16). Although it is certainly plausible to look back to the days of Franklin Roosevelt for a model of how the US might reinvest in its basic infrastructure, the conversation really needs to be more nuanced.

Our situation today is fundamentally different from the massive unemployment and surplus industrial capacity that existed in the 1930s and just throwing money into infrastructure projects will not produce the results we need. Despite our penchant for acting first and thinking later, the US has a wonderful opportunity to take a strategic approach to infrastructure investment.

First, we don’t have nearly enough trained people for the skilled craft jobs that modern infrastructure projects require. This isn’t pick and shovel work any more and something the government could do, and do fairly quickly, is to support training in the construction trades for the vast number of young and underemployed people for whom college is not the career solution. These are good paying jobs that can’t be outsourced; construction, like politics, is local.

Second, we need to be more creative with how we fund and finance all this work. The traditional federal role as grantor to state and local governments is no longer sustainable, particularly while our financial house is in total disarray. Many projects of truly national import such as rebuilding the electrical grid, untangling rail bottlenecks and improving goods movement will require public money being put into private systems, heretofore capitalist heresy.

However, the blurring lines between the public and private sectors that have emerged during the financial crisis provide an opportunity to rethink the federal role in infrastructure as equity investor as opposed to underwriter. The project finance model that drives the “P3” (plan, prepare, perform) process could deliver returns to a government infrastructure bank as readily as a private equity fund and arguably with greater public benefit. How to make this work would be a good exercise for the former Masters of the Universe who now find themselves with little to do.

In any event, the US must and will recapitalise its infrastructure to thrive in the 21st century. The immediate question is whether we should just call for a new deal or change the game entirely.

Richard G. Little,
Director,
The Keston Institute for Public Finance and Infrastructure Policy,
University of Southern California,
Los Angeles, CA, US

Link: http://www.ft.com/cms/s/0/893527c4-9f09-11dd-98bd-000077b07658.html?nclick_check=1