An infrastructure bank in the United States is sorely needed and long overdue. Infrastructure is the backbone of the economy in any country, including ours. It helps drive economic growth and development as well. From railroads to bridges and from highways to airports, infrastructure refurbishment and growth in the U.S. would make us a stronger and more vibrant nation. It would also assist in creating jobs, many jobs. While we lead the world in numerous categories, we seem to have forgotten about the importance of infrastructure – at least on some level. Aging structures and lack of ample coverage can place the economy in peril. A cooperative scenario between the public and private sectors is ideal, whether on a PPP basis (“Public Private Partnership”) or other. Even though we may not be entirely familiar with the day-to-day functioning of an actual infrastructure bank, we should explore the establishment of one so that we can experience more sustained growth over long periods of time.
Various countries have had infrastructure banks at the center of their economic models. These banks have succeeded on differing levels, according to the specific needs of each country, as well as the other factors influencing development in this sector. Nonetheless, one can argue that a whole host of countries have been able to infuse public infrastructure money in a way that has helped those regions of the world to advance. By the same token, an infrastructure bank or infrastructure fund is not new to us in the United States either. Public-private financing cooperation on large-scale infrastructure development projects has been achieved on some of the most significant rescue efforts in history. In fact, in October 2013 the New York Times noted the following:
We used similar vehicles to reconstruct poor countries after World War II, through the World Bank. Likewise, we rebuilt post-war Europe with the Marshall Plan. After the tsunami hit South Asia in 2004, we turned to infrastructure banks, as we did after the earthquake in Haiti in 2010. There’s nothing new about leveraging private capital to rebuild at home. In the United States, post-Revolution Massachusetts found itself mired in debt but needing an infusion of money to rebuild. Private capital was brought in. Similarly after the Civil War, it was Lincoln’s Transcontinental Railroad that was to unite the country from shore to shore. We rebuilt New Orleans after Hurricane Katrina with a mix of public and private capital. (October 1, 2013, NYTimes.com, “A National Bank with One Goal: Infrastructure”).
Likewise, President Barack Obama has stated that this is a priority for our long-term economic prosperity. Others such as Senator Mark Warner of Virginia have been staunch proponents of the creation of an infrastructure fund as well. In fact, Senator Warner, a conservatively oriented Democrat with significant private sector experience, recently revived a bill to set a new financing authority in motion. In November 2013, a blog entitled TheHill.com, reported:
Sens. Mark Warner (D-Va.) and Roy Blunt (R-Mo.) are reviving a push to create a national infrastructure funding bank in a new bill he unveiled on Thursday. Warner and Blunt’s bill would create a “infrastructure financing authority” that would receive $10 billion in initial funding, his office said. The infrastructure funding would be used as leverage to lure private sector investments that could reap as much as $300 billion in new transportation projects, according to Warner’s office. The measure has been dubbed the Building and Renewing Infrastructure for Development and Growth in Employment (BRIDGE) Act.
Aptly dubbed “The BRIDGE Act,” this new funding authority would help to make an infrastructure financing entity a reality. By the same token, though, it may not go far enough. Granted, this has been a source of debate in Congress, and both reasonable and unreasonable minds have disagreed on the form and function of this new authority. However, we must be courageous so as to establish something new and innovative that will have a lasting positive impact on our society.
As a result, I would advocate the creation of an actual infrastructure bank and not just an infrastructure authority. Next, the infrastructure bank needs to be properly funded by Congress. While private participation on projects is needed, private money is expensive, short-term oriented and cautious. As many prominent financing experts have said, ‘government money is the cheapest money.’ In this case – believe it or not – government money is also the best money. Even though I am not a proponent of big government, and I am probably more fiscally conservative than many of my colleagues, this is one situation in which government money is imperative.
The creation of a new infrastructure bank should have at least $50 billion in funding, as Senator John Kerry (now Secretary of State) and Senator Kay Hutchison of Texas proposed in 2011. Actually, my proposal is that we fund the new bank to the tune of $100 billion initially. Why? Because large infrastructure projects require big money and because the government will make a return on its investment (albeit after a longer period of time). Also, this is one of the instances where government must take the lead. Not only is the government’s money the cheapest, but it is also the most secure in many ways. In this unique circumstance, government infrastructure money can be the most aggressive and risk-friendly. Private capital has shorter windows and more limiting parameters in terms of ROI. However, by working together, the public sector can help the private sector and vice-versa.
I applaud and commend Senator Mark Warner on his effort and I believe that we need to support him and others in the creation of a true infrastructure bank. There are many viable models out there, including the Brazilian infrastructure bank, BNDES. We also have history in this area, as noted above. Then, too, there was TARP, the Troubled Asset Relief Program in 2008/2009. While TARP was greeted with a large degree skepticism (and perhaps rightfully so), it was later considered to be an important capital injection into a failing economy – an ever-so-important global economy. The U.S. model can be new, exciting and innovative. It can utilize equity positions as opposed to strict debt, and it can be a demonstration to the world that we – as Americans – still have a desire and appetite to improve the economy at home and abroad on a large scale. Most importantly, we can stimulate and enhance the overall standard of living in our country on many levels and create new jobs. With courage and integrity, we can make this work.
The author, Antonio J. Soave, is the Chairman & CEO of Capistrano Global Advisory Services (CGA), an international joint venture, strategic alliance and M&A consulting firm. He is also a member of the International Advisory Board of the United States Institute of Peace (USIP), an independent, nonpartisan institution established and funded by Congress to increase the nation’s capacity to manage international conflict without violence. He is the founder and former Editor-in-Chief of the Journal of International Law & Practice at the Detroit College of Law (now Michigan State University). He has a BA in International Studies from The American University (Washington, DC), a Juris Doctor (law degree) from the Detroit College of Law, and a L.L.M. (Master’s of Law) in International Law from the University of San Diego. For more of Antonio’s writings, go to his blog at www.AntonioSoave.com.