The Infrastructure Infatuation : In the Works Economist January 2, 2021 p. 52

 If the grade (D+) that the United States receives for the condition of its infrastructure by the ASCE (American Society of Civil Engineers) does not dampen your spirits, the Economist article on the perennial buzz on an infrastructure boom to invigorate the economy will. As during the last economic slowdown of the Great Recession, the pandemic has renewed discussions about using infrastructure spending to boost the economy. The article recounts the historical and recent trends in infrastructure spending in the United States and elsewhere.

Ominously, the article begins with the cancellation of two projects in 2017--the renovation of the Lambert Flying Field, an airport in St. Louis, and the electric utility in Jacksonville, Florida. More hopeful, the article mentioned the $2 trillion promised by president-elect Joe Biden to upgrade roads, bridges, and electric car charging outlets. In contrast, the European Union has pledged 750bn euros ($918bn) and China 10tr yuan ($1.5 trillion) on new, greenfield projects. Other Asian and South American countries also plan to initiate projects. The pandemic, however, has complicated the picture, Public transport systems, lacking revenue from decreased ridership, need support.

An infusion of public funds in infrastructure should help the economy and workers displaced by the pandemic. "According to the IMF, increasing public investment by 1% of GDP across advanced and emerging economies would create 20m-33m jobs and lift GDP by 0.25-0.5% in the first year, and up to four times that after the second" (p. 52). Low interest rates should also act as an incentive as should investors and pension funds looking for safe yields.  New funds could benefit both brownfield projects, covering maintenance and upgrades of buildings, transportation, utilities, etc., and greenfield projects, such as new construction of digital networks.  

Among the roadblocks to infrastructure financing, the article mentions the Recovery and Reinvestment Act ($133bn) under President Obama in 2009 that focused on small "shovel ready" projects and the $200bn effort by President Trump that Congress could not find agreement on the distribution of cash. As to private investors, they tend to prefer brownfield projects to greenfield ones. Additionally, PPPs, public private partnerships worldwide have lost their appeal since their introduction and peak in 1990, from over $50bn in 2010 to over $20bn in 2019. The authors cite three reasons for this trend--"politics, poor execution, and precarious funding" (p. 53). Regarding politics, large construction projects might span the life of multiple political governments, which disrupts their oversight. For example, Andres Manuel Lopez Obrador in Mexico, cancelled a number of energy projects started by his predecessor. Also, PPPs require large stakeholder support and a few dissenters can derail them. Examples of poor execution are many. The article mentions projects in China that reduced rather than increased value for the country.  As to precarious funding, construction firms--often a partner of the PPP--want a return on their investment in three or four years, a short window of funding.  

The authors end the article by suggesting ways to overcome current impediments to infrastructure spending. They include giving investors a guarantee return on costs, shielding projects from political wrangling (Canada's infrastructure bank is separate from government), managing small well-executed projects to establish trust, improving procurement of materials, promoting renewable and sustainable projects, and having pension and other funds to manage their own projects. Emphasis on improvements  might change the direction of current spending.