One of the proposals leaked by the White House in advance of the president’s jobs speech tonight involves the creation of an infrastructure bank to help fund necessary improvements in roads, airports, and harbors across the country. This might or might not be a good idea, depending on what kind of infrastructure investment the president is talking about.
Injecting private investment — and the market discipline it brings — would be a great way to rebuild our infrastructure and create jobs without costing the government much of anything, and it is a tried and true policy to boot: Selling long-term leases to private entities for toll roads, airports, and runway slots has been going on in the social-democratic governments of Europe for years. The results have been what one would expect from privatizing something formerly run by the government, namely improved efficiency and taxpayer savings.
But at this point it’s not clear that this is the version of an infrastructure bank that the president is entertaining, since allowing private investment in this way would involve angering certain constituencies. For instance, privatizing roads is a move that environmentalists would favor (most smog is a product of congestion, and free-flowing freeways mean much less gas consumed), but poverty advocates would protest that it would disadvantage the poor unless a portion of the revenues were siphoned off to mass transit. Unions would demand that any road improvements be built with union labor paid “prevailing” wages. Both requirements would make private investment in roads much less cost-effective and dramatically limit the scope of projects for which privatization would be feasible.
It is worth looking back at the pitched battle the Bush administration fought to try to auction takeoff and landing slots at New York airports, where the absence of any market mechanism has resulted in horrific congestion each and every peak travel hour. Just about every transportation economist worth his salt advocated such a move, but the plan was fought tooth and nail both by the airlines and Sen. Chuck Schumer, who has been a fierce opponent of market forces his whole life. Is Obama really going to fight the next Democratic leader in the Senate over this? Fat chance.
This brings us to another question: If the Obama administration is serious about encouraging private infrastructure investment, why do we need the government to be a partner at all? Why not let the private sector operate on its own? For instance, if Macquarie wants to take over Midway Airport for 50 years or rebuild and toll a portion of I-80, and is willing to pay the government for the right to do so, what could the government, other than a bunch of costly constraints?
While there may not be an economic motive for creating a public-private partnership, there is most certainly a political reason for the president to do so, since it allows the government to determine where the investments go and how the returns are spent, and to carefully circumscribe the conditions under which the investments are made. In other words, the administration could make sure that its constituencies are satiated. That’s not a recipe for an efficient, timely stimulus.
Obama is a man of rhetoric first and foremost, and I suspect his proposal for an infrastructure bank is one that he assumed (and hoped) would be reflexively shot down by the Republicans so that he could use it as evidence of their recalcitrance even when he reaches across the aisle to court private-sector investment.
Truth be told, Republicans in Congress haven’t been all that enthusiastic about encouraging private-sector infrastructure investment — like Democrats, they like doling out transportation dollars, and they don’t especially want to anger unions either.
But there is the germ of a good idea here, and it should not be allowed to wither away. Republicans should call the president’s bluff and agree to immediately set up a path to get private-sector investment into infrastructure, without the stifling union requirements that would come with any government partnership, and without the parochial steering of investment by members of Congress.
Encouraging private investment can be done without the complicated, contentious battle that would invariably result from the creation of an entirely new entity like an infrastructure bank. Instead, the Department of Transportation should simply put out a list — Here are some roads, here are a few airports, and here are some overly congested runways that we can fix via private investment and markets — and then solicit bids on 50-year leases for each item. Congress could then pass a bill to accomplish exactly that, without prevailing wages or other onerous government regulations, and dare the president to veto it.
Such a plan would threaten the status quo and the constituencies of both parties and would take some degree of hand-holding to implement, but the potential benefits — a potent stimulus and improvement to our infrastructure — would be huge.
— Ike Brannon is director of economic policy at the American Action Forum.