Day: March 7, 2017

Investment in infrastructure development has been a problem in the United States for nearly two hundred years. Policymakers and politicians claim it’s now at its worst, and America’s infrastructure problem is crumbling.

Experts say that an increase in federal spending is needed to fix the problem, and to encourage America’s economy to grow. However, Bold Business looks at whether this tact really is the best way to improve infrastructure standards across the United States.

According to Chris Edwards at downsizing government.org, most projects are delivered by the private sector, such as power stations, pipelines, freight railways, and cell phone networks, and are a key economy driver for the country. However, the main problems lie within the infrastructure provided by the United States government, such as bridges and highways.

Federal involvement often leads to “waste and inefficiency”. Funds are mis-allocated and “projects get bogged down in mis-management and cost overruns”. These sorts of problems have “plagued federal infrastructure since the 19th century,” the report states.

The report argues that “the states and private sector are more likely to make sound investments without federal aid and regulations distorting their decision-making.”

The study looked at other developed countries and how they push their infrastructure projects through privatization, yielding great success stories over the past 30 years to deliver better airports, highways, seaports, etc.

The conclusion of the report determined that federal policymakers should “study the reforms abroad and work to reduce barriers to private infrastructure investment in the United States”. It also states that they should harness entrepreneurs and private investors to “fund, build, and manage infrastructure development” which would “reduce taxpayer burdens, improve economic efficiency, and spur innovation”.

Research compiled by downsizinggovernment.org, mentions that in 2015, most of America’s infrastructure was provided by the private sector. In fact, $2.3 trillion was spent on investments that included development of pipelines, factories, power stations, cell phone networks and in many other areas. In comparison, during the same time frame, the total federal, state, and local government infrastructure investment was $613 billion.

The rise in complaints and mis-management of funds led to a decrease in the amount government investment had been made on development.

It is therefore blindingly obvious that if policymakers want to see an increase in investment, they should push for policy reform to increase spending. The report states that one reform would be to “cut the federal corporate income tax rate, which would increase the returns to a broad range of private infrastructure, and thus spur greater investment”.

However, it’s not all doom and gloom as some sectors have seen an improvement which dispels the notion that the government is under-investing across the board.

For example, the Federal Highway Administration (FHWA) report showed improvement on the nation’s bridges. The surface quality of highways has also improved. Since 1989, the FHWA has seen improvement all round and concluded that the interstate system is “in good shape relative to its past condition”.

Despite this success story, there are often calls for increased federal spending, but advocates ignore the inefficiencies and failures of past federal projects.

Federal aid is mainly based on formulas and political motives, not on demands, the report states. Therefore, aid is never usually attributed to the areas that need it the most. The report argues that the solution to America’s infrastructure challenges is by encouraging the private sector to have a greater role in infrastructure development.

There has been a tried-and-tested trend toward privatization globally, and as stated earlier on this move has proved successful for other nations. The measure eases the pressure on public funds and can drive the economy.

The OECD states that the United States is lagging other nations including Australia, Canada and Europe in privatization of infrastructure.

Policymakers have called for the American government to privatize the infrastructure it owns to pull it out of one of the worst states it has been in for years. Not only would it benefit the users but would also generate the economy by creating new opportunities for investors, entrepreneurs, and businesses.

For the United States to improve its infrastructure and to be mentioned in the same realm as other developed nations, it would appear the answer lies more in privatization than by increasing federal spending.