[SIZE=+1]A SHIFT IN THE ATTACK CALLS FOR REVISED DEFENSE PARADIGM[/SIZE]
by
William Krehm
The New York Times (27/08, “Willing to Lease Your Bridge” by Jenny Anderson) reports a shift in the line of attack of the battered high financial sector: “Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest much of it raised in the last two years to finance a tidal wave of infrastructure projects in the United States and overseas.
“Their strategy is gaining steam in the United States as federal, state and local governments previously wary of private funds struggle under mounting deficits that have curbed their ability to improve crumbling roads, bridges and even airports with taxpayer money.
“With politicians like Gov. Arnold Schwarzenegger of California warning of a national infrastructure crisis, public resistance to private financing may start to ease.
“Budget gaps are starting to increase the viability of public-private partnerships, said Norman Y. Mineta, a former secretary of transportation recently hired by Credit Suisse as a senior adviser in such deals.
“This fall, Midway Airport of Chicago could become the first to pass into the hands of private investors. Just outside the nations capital, a $1.9 billion public-private partnership will finance new high-occupancy toll lanes around Washington. This week, Florida gave the green light to six groups that included JPMorgan, Lehman Brothers and the Carlyle Group to bid for a 50- to 75-year lease on Alligator Alley, a toll road known for sightings of sleeping alligators that stretches 78 miles down 1-75 in South Florida.
“Until recently, the use of private funds to build and manage large-scale American infrastructure assets was slow to take root. States and towns could raise taxes and user fees or turn to the municipal market.
“Americans have also been wary of foreign investors taking over their prized roads and bridges. When Macquarie of Australia and Cintra of Spain, two foreign funds with large portfolios of international investments, snapped up leases to the Chicago Skyway and the Indiana Toll Road. People said, “hold it, we dont want our infrastructure owned by foreigners,” Mr. Mineta said.
“The specter of investors reaping huge fees by financing assets like the Pennsylvania Turnpike also touches a raw nerve among taxpayers. They already feel they are paying top dollar for the government to maintain roads and bridges.
“And with good reason: private investors recoup their money by maximizing revenue either making the infrastructure better to allow for more cars, for example, or by raising tolls. (Concession agreements dictate everything from toll increases to the amount of time dead animals can remain on the road before being cleared.)
“Labor unions have been quick to point out that investors stand to reap handsome fees from the crisis in infrastructure.
“But in a world in which governments view infrastructure as a way to manage sustainable growth and raise productivity through the efficient movement of goods and people, an eroding economy has forced politicians to take another look.
“Traditionally, the federal government played a significant role in the development of the nations transportation backbone: Thomas Jefferson built canals and roads in the 1800s, Theodore Roosevelt expanded power generation in the early 1900s and during the New Deal (sic!). In the 1950s Dwight Eisenhower oversaw the building of the interstate highway system.
“But since the early 1990s, the United States has had no comprehensive transportation development, and responsibilities were increasingly pushed off to states, municipalities and millions of metropolitan planning organizations. Look at the physical neglect crumbling bridges, environmental concerns, said Robert Fuentes, a transportation and metropolitan growth expert of the Brookings Institution.
“The American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure. Last year, the Federal Highway Administration deemed 72,000 bridges, or more than 12% of the countrys total, structurally deficient. But by the end of this year, the highway Trust Fund will have a several billion dollar deficit.”
[SIZE=+1]
An Infrastructure Crisis Threatens[/SIZE]
“We are facing an infrastructure crisis in this country that threatens our status as an economic superpower and the health and safety of the people we serve, New York Mayor Michael R. Bloomberg told Congress this year.
“Some American pension funds see an investment opportunity. Our infrastructure is crumbling, from bridges in Minnesota to our airports and freeways, said Christopher Ailman, the head of the California State Teachers Retirement System. His board recently authorized up to about $800 million to invest in infrastructure. The Washington State Investment Board has allocated 5% of its fund for such investments.
“Some foreign pension funds that jump-ed into the game early have already reaped rewards. The $52 billion Ontario Municipal Employee Retirement System saw a 12.4 percent return last year on a $5 billion infrastructure investment pool, above the benchmark 9.9 percent, though down from 14% in 2006.
“The prospect of steady returns has drawn high-flying investors like Kohlberg, Kravis and Morgan Stanley to the table. Ten to 20 years from now infrastructure could be larger than real estate, said Mark Weisdorf, head of infrastructure investments at JPMorgan. In 2006 and 2007, more than $500 billion worth of commercial real estate deals were done.”
That is hardly reassuring. We would risk ending up with subprime bridges, roads and harbours if we stayed on that route.
But suppose we concentrated on re-examining our accountancy paradigms. Then we would find that our budgetary deficits were bogus since they ignored the vast but still inadequate investments that the government has been making. These have been treated as current expenditure when in fact they had been identified by Theodore Schultz, on the basis of the rapid recovery of Germany and Japan after World War II, as the most productive investments a government could make. Likewise the investment of government in physical infrastructure was under immense pressure but was finally recognized in the US but booked as “Savings” which they were not, since they are not in cash or near-cash as “savings” implied.
And on top of that in Canada the central bank is government-owned, which means that if infrastructure is financed by the federal government through the Bank of Canada, the interest paid on such financing comes back substantially to the federal government as dividends. There is, moreover, the detail that the Bank of Canada Act is still part of the law of the land, though completely disregarded.
So there is no legitimate reason for our government depending on banking corporations to finance whatever infra-structures we need when it can be done practically interest-free through our nationally owned central bank, after we have brought in double-entry bookkeeping. High time we did since it was first brought to Western Europe from Arab lands by the Crusaders more or less a thousand years ago. Time enough for our government to have caught up with it.
Globalization and Der
http://www.comer.org/
