- The Washington Times - Monday, January 24, 2011

ANALYSIS/OPINION:

President Obama’s State of the Union address Tuesday night is expected to highlight the United States’ serious infrastructure problem and his proposals for addressing it. Lately, he’s been pointing to our worrisome lag behind Chinese innovation and infrastructure as America’s new “Sputnik moment,” citing in particular China’s 10,000 miles of high-speed rail by 2020 to the United States’ 400. In fact, Mr. Obama is absolutely right about the problem. The American Society of Civil Engineers (ASCE) has reported it will take $2.2 trillion over the next few years just to maintain the status quo - with an urgency that calls to mind the failure of the New Orleans levees and the collapse of the Interstate 35W bridge over the Mississippi River. Surely, no one wants another disaster.

The question is, what to do about it? The Obama administration has been centering its proposals on investment, on the importance of applying public and private monies to the problem - and that approach is said to be the one that will be offered in his address. Certainly, money is important - but so is vision. Without a clear, comprehensive, long-term plan for the development and maintenance of the country’s infrastructure, that money might be wasted and the opportunity squandered.

Other countries have gotten it right, from the Building Canada program begun in 2007 to the United Kingdom’s National Infrastructure Plan announced in October, which both emphasize public policy and decision-making over the championing of specific initiatives. Britain’s plan calls for creating “the optimum environment for investment,” improving the “quality of data to inform decision-taking,” “efficient and effective funding models” and “addressing regulatory failures.” But most important, it calls for delivering “transformational, large-scale projects that are part of a clear, long-term strategy.”

This stands in stark contrast to the American announcements on infrastructure. A quickly produced “Economic Analysis” from the Treasury Department last October focused on only one sector (transportation) and on one initiative (a national infrastructure bank). The plan calls for rebuilding 150,000 miles of road over the next six years. But that is less than 4 percent of the roads in America. The projected budget allocation of $50 billion from the infrastructure bank - even if it leverages private capital - doesn’t come close to the ASCE’s estimate of the infrastructure deficit.

Shortfalls are not the only consequence of a plan without vision. Bridges to nowhere, economic distortions caused by hidden costs and misunderstandings between public and private entities are some of the most obvious hazards. All can be avoided through the kind of comprehensive, policy-based approach recommended by last summer’s report from the World Economic Forum on infrastructure financing. I believe there are several key elements to such a comprehensive infrastructure policy.

First, the federal government must redefine its leadership when it comes to infrastructure. Monolithic, top-down control no longer works. Certainly, a national government should have a national vision - both to raise public awareness and enthusiasm for addressing infrastructure needs and for projects that are appropriate only on a national scale. But it should also facilitate the development of such a vision at every level of government, actively encouraging local solutions. Empowering those constituencies can be a potent way to achieve buy-in - and avoid the bottleneck of a solely national solution. Governments at every level must discuss clearly and openly how proceeds will be used, which will go a long way in avoiding the controversy that has tagged some recent privatizations.

Next, the public sector should build an internal capability for evaluating projects, analyzing the pros and cons in the context of the economics. Reliance on third parties will not provide a sufficient basis on which to make judgments. A centralized entity - whether it is hosted by a national infrastructure bank or a national conference of mayors - could serve as a clearinghouse of information for regional and local infrastructure staff that would conserve precious resources and disseminate best practices. The National Highways Authority of India, for example, devised public-private concession templates that have been successfully applied by local governments to their own projects.

In addition, municipalities are often unsure whether their proposed financing or offering price is within the norm. An independent, centralized resource could provide the support they need to make informed decisions, roughly equivalent to the role of independent reviewer served by the Congressional Budget Office.

These strategies will help ensure that policy objectives are correctly identified, consensus exists and the available tools are understood and used appropriately. If the U.S. government were to take such a long-range, comprehensive approach to infrastructure, it might just make the state of the union itself that much more secure.

Sadek Wahba is chief investment officer and global head of Morgan Stanley Infrastructure. He was on the Expert Committee that contributed to the World Economic Forum’s recent report, “Paving the Way: Maximizing the Value of Private Finance in Infrastructure.”

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