“With the economy weak and borrowing cheap, it is daft that America’s public infrastructure spending is at a 20-year low, even as the country’s roads, bridges and dams are rated D+ by the American Society of Civil Engineers.” A new free-trade lover-turned-liberal superhero? Left-wing irrelevant magazine? Progressive think-tank looking for foundation money? Nope…straight from the mouths of The Economist.
In its March 22nd issue (online subscription), which I finally pulled up from the stack (yes, in my home, there still exists a stack…how quaint), The Economist gives a fair amount of play to that boring of all boring topics to some: bridges, roads, sewers…infrastructure. It’s a bit wonky but:
Much of the money to plug the gap needs to come from the public purse: even in an age of austerity many governments should be spending more. [emphasis added]
While I am sure we are all for public money being poured into fixing and upgrading the horrid infrastructure, and that push should never falter, there is actually plenty of money to tap into:
The potential pot of gold is elsewhere, in the $50 trillion of capital managed by pension funds, sovereign-wealth funds, insurance companies and other institutional investors. Only 0.8% of this is currently allocated to infrastructure. A tenfold increase would be a good target….In principle, investing in a power station or toll road ought to be an attractive prospect for institutional investors. The long life of these assets is a perfect match for the long-term liabilities of a pension fund. Infrastructure projects offer reliable cashflow, a hedge against inflation, low volatility and returns that are generally not correlated with other assets. In practice, though, many money managers have shied away, scared by the scale, complexity and political risk involved.
To very quickly summarize a very complex topic, this is where pension fund activism is a worthy endeavor. While I am all for the shareholder activism around corporation social behavior (whether that be of the Chevron oil spill in Ecuador or union rights or CEO salary), we can make a huge difference if pension fund money could be funneled to infrastructure. Fact is, the largest public pension funds–funds of workers’ deferred wages–ended up invested in the foolish mortgage scams, and financial casino machinations, as much as any other source of capital. Stupid, stupid, stupid… But, again, if we can shift the legal and political environment–and it’s a complex issue which I’ll write about some more–we can move money in a big way into productive investments.