Private investment leads to infrastructure projects.
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.