Privately owned infrastructure, where the owner reaps the benefits of good maintenance, better aligns incentives.
Conversations about infrastructure are commonly centered around government. Governments at various levels do own most roads, airports, and seaports in the United States, and those are vital and expensive. But in a recent blog post, Chris Edwards of the Cato Institute points out that the private sector is actually responsible for most infrastructure in this country, and that fact has interesting implications for how we ought to think about infrastructure policy.
Edwards writes:
The word “infrastructure” refers to long‐lived fixed assets that provide a backbone for other activities in the economy. In the United States, most infrastructure is provided by the private sector, not by governments. In 2021, gross fixed private nonresidential investment was $3.1 trillion, according to the U.S. Bureau of Economic Analysis. That includes investment in factories, freight rail, pipelines, refineries, power plants, cell towers, satellites, and many other items.
By contrast, total federal, state, and local government infrastructure investment in 2021 was $802 billion. Excluding national defense, government investment was $606 billion. Thus, private investment in infrastructure is five times larger than government investment in nondefense infrastructure.
One implication of the data is that if policymakers want to strengthen the nation’s infrastructure, they should enact reforms that spur private investment. In particular, they should reduce regulations and business income tax rates, which would increase returns and boost investment for a broad range of infrastructure assets.
If one were to adopt the Democrats’ definition of infrastructure, the proportion provided by the private sector would be even higher than Edwards says. But it’s hardly a redefinition of the term to say that pipelines or telecommunications facilities count as infrastructure.
The problem for politicians, of course, is that private-sector infrastructure isn’t controlled by them. And they probably wouldn’t want to bring it up because forms of infrastructure controlled by politicians commonly aren’t as well maintained as those from the private sector.
The U.S. rail network, for example, regularly scores much better on the infrastructure report card from the American Society of Civil Engineers than roads or airports. One important reason why is that the U.S. rail network, except for the Northeast Corridor and a few state-owned routes throughout the country, is owned, operated, and maintained by private railroads. Each railroad bears the burdens of poor maintenance and reaps the rewards of good maintenance of the tracks it owns, so incentives are better aligned to keep rail infrastructure strong.
Compare that to highways, where the costs and benefits are socialized. A trucking company might be upset at a low-quality highway, but it doesn’t own the road. It could complain to the government that owns the highway, but it’s only one of thousands of trucking companies, and the government has numerous other nontransportation tasks it must budget for. And no matter what the government decides to do with the highway, there aren’t clear profit-and-loss signals for it to know whether the decision paid off or not.
There is an inherent problem with the civil engineers’ scorecard, namely that it is done by civil engineers, the people who would benefit from low scores because they could encourage government to award them more projects to remedy them. And of all the things government spends money on, highways are among the least offensive and most beneficial to everyday life. But the fundamental economic point still stands that privately owned infrastructure, where the owner reaps the benefits of good maintenance, better aligns incentives to make sure infrastructure is well maintained.
That’s why calls for increasing nationalization of infrastructure are wrongheaded and calls for privatization should at least be given very serious consideration. Despite politicians’ focus on the infrastructure they control, most American infrastructure is already handled by the private sector. Instead of myopic focus on government spending in infrastructure conversations, the big-government regulatory policies that hinder private infrastructure efforts deserve more attention.