Pri­vate in­vest­ment leads to in­fra­struc­ture projects.

The Washington Post Sunday - - OUTLOOK -

In his re­cent bud­get pro­posal, the pres­i­dent called for spend­ing $200 bil­lion to “in­cen­tivize” pri­vate in­vest­ment to build in­fra­struc­ture. Again, this is a fa­mil­iar move. Obama reg­u­larly called for “lever­ag­ing” pri­vate com­pa­nies to achieve a larger civil works agenda, fo­cus­ing on an in­fra­struc­ture bank that would or­ga­nize this ef­fort.

What Trump and Obama hoped was that in­vest­ment in in­fra­struc­ture eq­uity by the pri­vate sec­tor would fuel a build­ing boom. What they have over­looked is that the pri­vate sec­tor has al­ways funded civil in­fra­struc­ture by un­der­writ­ing and buy­ing mu­nic­i­pal bonds, which al­low lo­cal gov­ern­ments to bor­row money from pri­vate in­vestors in ex­change for in­ter­est and tax ben­e­fits. What is now pro­posed is merely a dif­fer­ent fi­nanc­ing struc­ture: pri­vate in­vest­ment in eq­uity — in other words, an own­er­ship stake — in these public fa­cil­i­ties, which sup­pos­edly will mean more new projects.

But this is a mis­take. The mode of rais­ing cap­i­tal does not cause devel­op­ment. Projects hap­pen ei­ther when there is an in­vestable pri­vate op­por­tu­nity or when the gov­ern­ment levies a tax or au­tho­rizes a user charge, such as a toll, to fund the re­pay­ment of a cap­i­tal in­vest­ment. Pri­vate in­vest­ment is a way to raise cap­i­tal, but no ev­i­dence sug­gests that pri­vate in­vest­ment it­self causes projects to hap­pen.

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