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Is Infrastructure Spending the Super-Highway to Recovery?

As governments globally seek fresh means of stemming the economic devastation wrought by COVID-19 and its attendant lockdowns, a common consideration is infrastructure spending—hardly surprising, considering governments have historically turned to infrastructure as a means of creating jobs and, ideally in turn, goosing consumption (see: Alphabet Soup, FDR). Considering it’s a public good which can often go begging when the economic outlook is rosier, infrastructure seems a natural candidate amid a period of flagging aggregate demand. And indeed, 2020 has seen its share of planned infrastructure spending globally.

Exhibit A is China, where the National People’s Congress in May announced infrastructure, urbanization initiatives and major projects would be 2020 priorities. “Infrastructure” in the 21st century comprises more than just roads and rail lines—in China’s case, it will include roughly $1.4tn invested between now and 2025 to build 5G networks and make an autonomous driving push, among other technology-oriented efforts.

More traditional infrastructure is also on the menu, primarily via the Belt and Road Initiative—a multi-country effort to better connect China to its land-based neighbors via railways, pipelines, highways and maritime trade routes. However, many Belt and Road projects have encountered difficulties this year as countries who’ve taken out loans from China to finance local projects have struggled to make debt payments.

Europe’s recent focus has been primarily on green infrastructure: The EU will sell €225 billion in  green bonds as part of its pandemic recovery program—a sum that matches the total value of green bonds issued globally in 2019—though the bloc has yet to formalize what constitutes a “green project.” At the individual country level, Germany set aside €50 billion for green projects. France has indicated roughly one third of its €100 billion “France re-launch” package—a broad stimulus aimed at bringing down unemployment via longer-term investments, among other goals—will go to efforts aimed at speeding the country’s transition to a greener economy.

To date, the US government’s economically oriented COVID response measures have largely centered around direct payments, corporate tax cuts and small business loans. However, both President Trump and presidential candidate Joe Biden have infrastructure-based stimulus plans as well. Trump has proposed a $1 trillion infrastructure plan targeting roads and bridges, plus building out 5G wireless networks. Biden’s $2 trillion plan would be spent over four years, focusing on improving US infrastructure while making climate-friendly updates to buildings and technologies.

Like the US, Japan and the UK have, to this point, hesitated on significantly new infrastructure or construction investments—though the UK has accelerated some £5 billion of previously planned infrastructure investment. Then, too, PM Boris Johnson seems to have recently changed his tune on green investment—so maybe more is to come on that front in the UK.

Whether any or all of these plans make it off the ground and the final amount of actual spending remains to be seen. If and when any or all of them do, the heavy investments could yield meaningful returns in future decades, as we know from prior decades’ investments in railroads, highways, dams, airports and so on. (NB: Whether investing in physical infrastructure still yields the same return as would more digitally oriented infrastructure projects is undoubtedly open to debate.) But if history does indeed tend to rhyme, big, bold infrastructure projects have become so politically charged and challenging to pass, there often seems to be more rhetoric than actual resolve. Consider: Then-presidential candidate Mitt Romney and President Barack Obama sparred over the 2009 stimulus’s “bridges to nowhere”; California’s bullet train is languishing in the state’s central valley; Russia’s Nord Stream 2 seems increasingly bogged down, as has been the Keystone Pipeline in Canada and the US. Time will tell whether the current proposals become the next Autobahn or the next Second Avenue subway.