If You Build It, Will They Come?
- If You Build It, Will They Come?
- The Promise and Peril of Infrastructure Investment
In the movie “Field of Dreams,” a mysterious voice urges Kevin Costner to unearth part of his cornfield and replace it with a baseball diamond. “If you build it, he will come,” the voice says. It takes Costner immense perseverance to fulfill his mission, but in the end, the field is completed and serves its purpose.
Today, it seems as if there is a mysterious voice speaking to politicians all over the world, urging them to build. Infrastructure has become the siren’s song that governments are tempted to follow as they search for strategies to boost economic growth. But the mission of designing an effective infrastructure program has proven frustrating for many who have attempted it. What seems like a panacea can be problematic.
Broadly stated, infrastructure includes anything that creates economic capacity, including physical and intellectual capital. This essay will focus on the former; we’ll discuss investments in education at a later date.
Physical infrastructure encompasses systems and facilities that are essential to economic functioning. Projects follow a hierarchy of needs: at the bottom are public works that support basic subsistence (water treatment, electricity) and at the top are endeavors that expand horizons (broadband). The McKinsey Institute estimates that global spending on physical infrastructure amounts to $2.5 trillion each year.
Investing in infrastructure generates several types of benefits:
- Maintenance of existing infrastructure reduces the risk of unfortunate occurrences. Aging architecture near geological faults, decaying power grids and poorly maintained levees in flood plains can introduce terrible human costs when they fail.
- Spending on infrastructure accrues directly to economic growth. Sales of essential materials increases, and those involved in construction and maintenance see their incomes enhanced. When these earnings are spent, economic activity is boosted.
- Progressive infrastructure can boost productivity. When people, products and ideas move more fluidly, the potential for creating output is higher. At a time when advances in productivity growth have been tepid, infrastructure is seen as an avenue to better outcomes.
Despite these apparent benefits, infrastructure investment has flagged in the developed world since the 2008 financial crisis. The modest interest rates of the past eight years should have made projects more attractive, but a series of hindrances have limited progress.