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Commentary
American Interest

How to Improve Infrastructure Without Taxpayer Money

Former Research Associate to Walter Russell Mead

Is it possible to make major investments in infrastructure without taxpayers footing the bill? That’s a question worth literally billions of dollars. The Harvard Business Review analyzes a case in which the answer has proven to be a resounding “yes”:

While much of our physical infrastructure has long been either government-owned or regulated as semi-governmental utilities, nearly all of today’s digital networks, though still heavily regulated, have been privately built and privately funded. Since 1996, according to trade group USTelecom, investors have poured over $1.4 trillion into building and rebuilding the commercial internet.

Americans today stand on the brink of next-generation wired and wireless networks that will offer speeds as much as 20 times faster than today’s best connections, making possible new applications and even new industries. We’ve only scratched the surface of ideas such as the internet of things; smart cities, homes, and energy grids; autonomous transportation; and much more that entrepreneurs will think up.

The Review takes a particularly close look at the 2010 National Broadband Plan, which proposed aggressive goals for broadband expansion and set out to meet them with very little taxpayer spending. Instead, the NBP targeted selling more radio spectrum and removing restrictions on permitting and rights of way. The analysis compares private investments enabled by regulatory reform and efforts funded directly by the federal government. The difference is clear: while private firms have brought 100 Mbps speeds to over 100 million Americans in just a few years, direct government expenditures have “delivered very little if any value.”

Can this approach be applied to physical infrastructure? In some cases, yes. Where there are profitable assets like toll roads and bridges, for instance, numerous case studies and real-world examples suggest that rewriting regulations can unleash private investment and obviate the need for large government expenditures. Privatizing physical infrastructure remains highly controversial, but the evidence suggests it can be done in a way that benefits and protects consumers. Moreover, infrastructure concessions often promise low, but stable returns to their owners. At a time of zero interest rates and uncertainty about traditionally-reliable assets like municipal bonds, there’s a big appetite for such investments. As infrastructure advocates often point out, low interest rates also strengthen the case for direct government investment in infrastructure. But, as we’ve written, writing blank checks because money is cheap today doesn’t do anything to reform the system for a future when money will be more expensive.

Stumbles notwithstanding, privatized infrastructure is improving the digital world. Policymakers should be thinking about how the same approach might work in the transportation of physical things too.