PPPs and Privatization for Infrastructure

November 17, 2011

I testified to the congressional Joint Economic Committee on Wednesday regarding infrastructure, which means roads, bridges, pipelines, railroads, and other such assets. Here are some of the points I raised:

  • Private sector infrastructure spending in the United States is more than four times larger than federal, state, and local government infrastructure spending. Thus, if Congress wants infrastructure, it should remove barriers to private investment.
  • Over the past 25 years, U.S. governments have spent about the same amount on infrastructure as a share of GDP as have other OECD countries, on average.
  • Most federal infrastructure spending, outside of defense, goes toward activities that are state, local, and private in nature.
  • A key problem with federal government involvement in infrastructure is that when it makes mistakes, it replicates those mistakes across the country. Think about the disastrous high-rise public housing projects built in dozens of cities in the 20th century. Or consider how the Obama administration is trying to impose its misguided high-speed rail vision on the states.
  • Politics often results in federal infrastructure spending being misallocated. For example, a large share of Amtrak spending goes to rural states where passenger trains don’t make any economic sense.
  • The way ahead is to devolve infrastructure spending to state and local governments and the private sector.
  • The United States lags many advanced nations in the growing use of privatization and public-private partnerships (PPP) for infrastructure. PPP deals are basically half way to full privatization. They’ve got some drawbacks, but they are a step forward toward market-based investment for items such as roads and bridges.
  • The industry reference guide for tracking PPP and privatization projects, Public Works Financing, includes only 2 American companies out of the 40 global companies that lead in these innovative projects.
  • U.S. policymakers should be asking: What have other countries privatized that we can privatize in this country? The answer is: air traffic control, airports, seaports, and many other items. For roads and bridges, the states can look at Virginia’s progress in shifting toward private funding and management of its projects.



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