Private Investment in Infrastructure
I recently received a message regarding a conference on infrastructure investment and policy. Prior to the conference, the organizers wanted to know if I am in favor of private investment in infrastructure.
I think we are missing the point here. All infrastructure investments are private. They either come from private companies and corporations or governments and public agencies, which get the money from taxpayers. Ultimately, all investments come from "private" individuals who not only pay for the infrastructure but, most likely, will become its users. It is my view, and you can take it with a grain of salt, that governments should be regarded as the loyal managers of a kind of investment fund participated by citizens and businesses through taxes. Therefore, governments don't really own the money, they just administer it, and only in so far as they are expected to do it better than us. This means that, whatever the source of the money, we have to make sure that the return on investment is maximized.
More than a decade ago, I convinced the Institution of Civil Engineers in Barcelona to develop a methodology to evaluate the socioeconomic profitability of infrastructure investments. It combined cost-benefit analysis for the variables that could be monetized using a trusted and reliable methodology, multi-criteria analysis to add other variables that couldn't be monetized but needed to be formalized and given a certain weight according to their perceived impact, and macro-economic impact analysis to take into account the interactions among all sectors of the economy, using input-output tables, and obtain the number of jobs created and the economic growth generated. The objective was to derive a more comprehensive ROI for infrastructure investments and be able to better prioritize projects, something particularly important at the onset of the economic crisis.
The methodology was a success. The ICE held several seminars to explain the methodology and a number of public agencies, consultancies and engineering firms began to use it. This was part of a more ambitious strategy that sought to integrate a more thorough economic analysis into infrastructure planning documents —a kind of Economic Impact Statement similar to the Environmental Impact Statement, describing the expected economic impact and the conditions under which the project would be given the go-ahead— and create a research center or agency that would monitor the efficiency and profitability of infrastructure investments, ex ante and ex post. The proposed economic analysis methodology could be applied, in principle, to any investment, not only infrastructures. While the supervisory agency was established, the more formalized approach to economic impact was not put in force.
The ultimate goal was to be able to evaluate infrastructure projects and policies in as objective a way as possible and select, rate and prioritize them accordingly. On the basis of that knowledge, it might be possible to determine a government's policies overall ROI and ascertain the appropriateness and suitability of "private" investments versus "public" investments, which usually mean issuing more government debt (transferring the fiscal burden to future generations) rather than increasing taxes (levying the required money from the current generation).