To Rebuild the Nation’s Infrastructure We Have to Let Capitalism Work

With some projects standing stagnant for over 30 years, it is time to change the way we approach infrastructure project funding

By Alexander G. Markovsky

 

The implementation of Donald Trump’s $1.5-trillion plan to rebuild the United States infrastructure is a daunting task. Its Achilles’ heel is a reliance on a combination of government and private sector funding.

The Federal Government is already $20 trillion in debt, and state and local governments have exhausted their borrowing power. The so-called Public Private Partnership (P3), which is a program of private investment into government ownership, is incommensurable to the President’s initiative. So, if it isn’t the government or PPP, then where is the money going to come from?

The answer lies in ever-evolving capitalism. Significant economic developments over the past 20 years indicate that we are witnessing the dawn of a new era of capitalism. What distinguishes this period from previous ones is that corporations and private investment funds have accumulated enormous sums of money. American corporations have amassed trillions of dollars on their balance sheets. This mass of liquidity looking for markets to invest in has set up an interesting dynamic.

Until recently, only the government could handle projects the size of the interstate highway system. Now, large corporations and investment funds have sufficient resources to build projects on any scale. Hence, there is no need for federal, state, or local governments to finance and maintain modern infrastructure when private capital is available.

Privatization of government assets ensures sufficient funding, and introduces innovation and cost-effectiveness. This includes selling existing assets and creating an environment conducive for private enterprises to build, own, and operate roads, bridges, tunnels, treatment plants, airports, and more. Tolls and user fees will be collected to defray operating costs and retire debts. Revenue from the sale of existing assets can be used to reduce the state and national debts. The effect of privatization could be massive. It has the potential to create a long-term economic expansion that will dwarf the scale of the Pacific Railroad and the National Interstate and Defense Highways acts combined.

The chief obstacle to privatizing is an ingrained quasi-socialist mentality, making state and local governments the principal owners of the nation’s infrastructure. Beginning of 1980, owners started treating the assets as a revenue stream. Nationwide, tolling has become a familiar feature of the American landscape. The fundamental flaw of this policy is that the government, as law enforcer and protector of consumers from inherent flaws of the capitalist system, has become part of the system – it owns and operates for-profit enterprises. In those mutually exclusive capacities, the government is in a position to abuse its power. It’s not surprising owners have embraced monopolistic behavior, manipulating supply and demand to justify constantly raising taxes, user fees, and tolls, ostensibly for building and maintaining roads while neglecting the assets’ maintenance and repair.

Anyone who has traveled the New Jersey-Manhattan corridor has experienced the effects of the state monopoly, spending endless hours in traffic and paying exorbitant tolls. And there is no greater symbol of government monopolistic power than the George Washington Bridge, built in the 1930s with taxpayer money. Today, the New York and New Jersey Port Authority is charging travelers $15 for each trip, collecting $1.5 billion annually.

Whereas the product is being sold regardless of quality and costs, governments have no incentive to keep projects on schedule and within budget. Paradoxically, lenders love it. Since there is a low risk of borrowers going bankrupt, whatever is spent will eventually be covered by the taxpayers, with interest. The Central Artery/ Tunnel Project in Boston, Mass., known as the Big Dig, is the poster child for government waste and inefficiency. It was eight years behind schedule, and the cost ballooned from an estimated $2.6 billion to nearly $24 billion. Conflicts of interest, ineptitude, and corruption became the defining characteristics of the current policy.

Privatization of infrastructure is a product of the evolution of our economic system and historical inevitability. The system has to overcome the government monopoly that has created nearly insurmountable hurdles to private enterprise entering the field as owners and operators of the facilities.

There is a number of fully permitted and “shovel ready” but stranded infrastructure projects. Despite numerous proposals from firms with expertise and financial backing, the state governments would rather have the projects remain stranded for another 30 years than yield their ownership to a private entity.

The continuation of the familiar leads to stagnation, and yet, in the contemporary political environment, this conflict between two different concepts of the economy cannot be resolved by a political consensus. The Executive Branch must assume a decisive role in ushering in this multi-trillion dollar frontier of capitalism.

Alexander G. Markovsky was born in the Soviet Union and holds MS degrees in engineering, economics, and political science from Moscow University. He immigrated to the USA in 1976, and is now the owner and CEO of Litwin Management Services, LLC. He has contributed to The Hill, The Washington Times and more. He can be reached at alex.markovsky@ litwinms.com

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