Yes, There Will Be a U.S. Infrastructure Bank
The only question is: Will it be a wholly owned subsidiary of the Chinese central bank?
March 16, 2011
The list of eminent American citizens and institutions that have tried to move the infrastructure issue forward is long and illustrious. That includes the venerable American Society of Civil Engineers. In 2013, it estimated that it would cost $3.6 trillion over seven years to improve the country’s infrastructure to an acceptable level.
As every homeowner knows, the longer one postpones necessary repairs, the more expensive and expansive they will eventually become. And yet, amid the continuing anti-spending fervor among the Republicans (and some Democrats) in the U.S. Congress, the common-sense notion of investing in the country’s infrastructure is highly contentious.
That is all the more astonishing coming from a Republican Party whose leaders have long sold the party as one of prudent business people and wise investors. With interest rates at historically low levels, now would be an excellent time to pay for the inevitable.
Instead, they choose to vilify a proper government planning role in this process and argue that the private sector knows best. And in the best of all sound bytes, they say private citizens should be able to keep their hard-earned money. That line may make for good short-term political gains, but at its core it is a stance that is anything but conservative or prudent business.
In fact, it is a radical gamble.
Eisenhower was a conservative
The last time widespread infrastructure spending was in vogue in the United States was the 1950s, when President Eisenhower, a former military man, was in office and built the federal highway system.
True, there was a period in the 1990s when firms in the United States invested without abandon and the backbone of the Internet was built out massively. That was achieved with investment capital provided by gullible U.S. private-sector investors (and those of other nations).
However, this investment wave — for all its presumably efficient private-sector roots — resulted in many a bankruptcy. Remember Global Crossing? It was a much-hyped investment, but the rollout and building process was not rational or well-planned.
And true, during the Clinton Administration (thanks to Al Gore), an effort was made to build a national broadband system — via surcharges on people’s landline, cellular and cable bills.
Does anyone need a reminder that, two decades later, Americans are still trying to get the job done?, The complaints about shaky cellphone coverage even within the Washington, D.C., area are stunning reminders about how much is still to be done. This is especially clear when compared to the wireless data networks in countries such as South Korea.
Many Americans might be surprised to hear that this state of affairs leaves China’s top leaders concerned that the United States is falling too far behind. Why do they worry? Because the U.S. political system has such a hard time bringing about rational, long-term policy decisions.
China’s leaders know that the fates of the United States and China are joined at the hip. With nearly $1 trillion in U.S. Treasury holdings, the Chinese government has a vested interest in the future performance of the United States.
To be sure, a country where half the body politic eats its seed corn by not investing enough in public infrastructure and instead relies on the inherent “wisdom” of private investors is a cause for concern.
At the same time, the Chinese feel that they cannot in good conscience invest in more Treasury paper. What’s the point, they ask, in funding a defense budget the United States could not otherwise afford — or bankrolling cash-flow deficits in the Social Security accounts of the baby boom generation?
Given all that, China’s leaders must be pondering a truly revolutionary thought: How about using their dollar-denominated funds to capitalize a National Infrastructure Development Bank for the United States (NIDB), as well as underwriting many of its upcoming investment projects?
At first glance, such a step would seem a heretical move for China’s still-communist leaders. However, today’s alliances are no longer so much a matter of ideology, but of cash-flow recycling and balance sheet optimization.
While the investment needs within China remain big, the country’s leaders do have a plan in place to fund them for decades. Whatever happens at home, they also have to make rational use of all the U.S. dollars they earn from exports to the United States.
What nobler, more rational and long-term-oriented purpose than to fund the NIDB?
China, after all, is a rapidly aging nation, with lots of financing needs to support its large population in old age. How better to meet those needs than by investing in a demographically young nation now (the United States) — and then waiting for the returns on that investment to flow back to China over time?
Not even the Chinese military could be opposed to this plan. While it might superficially be seen as a self-defeating, if not traitorous, act to strengthen one’s primary opponent, those generals are business savvy these days.
While the generals in China, as well as the leaders of the Chinese Community Party, may well be ready to underwrite the NIDB, it is U.S. politicians who will go apoplectic if such a proposal were ever to come to pass.
In the end, it will be an amazing moment in the annals of global capitalism when China — presumably the developing country, but really an old, mature power thinking about the global system and its own needs in a very long-term manner — will come to the aid of that upstart, the United States.
While it is presumed to be a mature industrial democracy, the United States really is a youngish country — and one that still has to contend with its errant ways.
China has a clear and comforting message for Washington and the entire United States: “Don’t worry, America. From our own history, we know about losing one’s path and how painful it can be for a country and its entire population — and also the world.
“We Chinese,” Premier Li Keqiang says when he is daydreaming, “are here to help. Let’s hope you Americans are enlightened enough to accept our assistance.
“Otherwise, you Americans will be in for a serious detour, one that will not only shortchange the future prospects of many Americans, but of the entire world economy. Let’s hope that outcome can be avoided.”
Editor’s note: This article was originally published on March 16, 2011 and was updated on June 5, 2014 by the author.
In the end, it will be an amazing moment in the annals of capitalism when China comes to the aid of the US.
In 2013, the American Society of Civil Engineers estimated it would cost $3.6T over 7 years to fix US infrastructure.
Vilifying a government role in infrastructure is a stance that is anything but conservative.
A country eating its seed corn by not investing enough in public infrastructure is a cause for concern. •
China needs to support its aging population. How better to finance that than by investing in a younger nation?