Oh! */?%^!

Anyone who has said, “Oh! */?%^!” recently, because their car hit a pothole, can count themselves familiar with the need to upgrade infrastructure. The question is why it is taking governments so long to start what will be long-term projects.

If your household spending has to be focused on the mortgage payments, electricity bills and local taxes, then there is always the option to put off painting the flaking window frames, repairing the leaking gutters or fixing the wiring, all of which need "doing", but do not have the same immediacy as the red warnings on the bills coming through the post.

Countries do the same. The US and Britain, in particular, have been concentrating on meeting day-to- day expenses of running their governments. In consequence, they have postponed "fixing the roof" – maintaining the integrity of their nations' infrastructure.

Past its sell-by date

As any businessman knows, lack of investment or "disinvestment" using your capital projects beyond their replacement dates means extra maintenance, breakdowns and loss of output. Business investment pays for itself through improved productivity.

When the bridges start collapsing, municipalities are being sued because of the damage to cars resulting from unrepaired potholes and the health and safety people start closing schools and hospitals because their structures are unsafe, nations know they can’t defer infrastructure spending any longer.

When investment in new infrastructure would give productivity a shot in the arm it would seem to be time to sharpen the needle.

The argument against such expenditure is often that it means government spending is competing with the needs of the private sector. That can push up prices for labour and for money. Raised wages and interest rates push up the rate of inflation.

False inflation fears

But when the private sector has not taken the investment baton offered to them via artificially low interest created by central bank stimulus and employment figures are weak, the risk of inflation is low while the productivity flags.

Interest rates are at historically low levels, commodity prices have descended from the dizzy heights of the "commodity supercycle" and pension funds and other investors need long-term paper to meet their liabilities when government bonds are offering negative interest rates and people are living just too darn long! Oh yes, and productivity is languishing and companies are sitting on cash piles that are costing them money to keep in banks vaults.

It’s difficult to see in these circumstances why countries are deferring infrastructure spending. Fund managers are looking for investments, pension funds are looking for long-term equity and bond opportunities to replace government paper offering a negative return and investment banks have the skills and capacity to advise, corral and syndicate.

The voices of children

"Nay sayers" argue that there are no "shovel ready projects". But surely the shovels are ready to fix potholes and repair infrastructure before new projects can get underway? Repairs of existing infrastructure still represent investment in infrastructure. And it bestows the same benefits. Indeed it is questionable whether some of the “prestige projects” that are in the infrastructure pipeline are what economies need.

It is an old saw that we should not leave debts for our children to pay off. That can be countered by saying that we can bestow the benefits by giving our children use of the infrastructure for which debt has been raised or on which a return is being paid where equity investment has been applied to infrastructure schemes. Perhaps its time governments got a “*/?%^!” move on!

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