One CEO’s Solution to the $1 Trillion Infrastructure Funding Challenge

Donald Trump’s pledge to marshal a $1 trillion-plus injection into American infrastructure development isn’t all pie-in-the-sky, according to the head of the world’s biggest fund manager. It’s a critically-necessary investment than can be achieved by offering the private sector more scope to get involved, said Larry Fink.

In his annual letter to shareholders, Fink claims that the municipal finance system that helped build the country’s roads, railways and airports in the mid-20th century is too lumbered with pension liabilities to afford to invest much more. The government, too, also would struggle to participate, given budget pressures.

That leaves the private sector; though for it to get involved, he said, companies would need some incentive to risk investing in projects that typically involve making very large bets upfront in exchange for a slow and steady return in the decades that follow.

Fink suggests that one solution would be to create a new form of federally-subsidized bonds, at least for the upkeep of existing assets.

“U.S. POLICY MAKERS, WORKERS AND UNIONS MUST WORK TOGETHER TO FIND A MODEL THAT WILL ALLOW PRIVATE ENTERPRISE TO GENERATE THE LONG-TERM RETURNS NECESSARY TO ATTRACT CAPITAL AND BUILD A MORE PROSPEROUS FUTURE.”

 

To go further, and build modern infrastructures such as broadband, transport and electricity networks, Fink said America needs to rethink it’s attitude to privatization.

“First, substantial expertise must be dedicated to bringing projects to market in a format appropriate for institutional investment,” he wrote. “More fundamentally, these projects must deliver competitive returns, and that will often require efficiencies that only can be achieved through private ownership.”

Calls for more infrastructure privatization have grown louder in many parts of the world, as governments seek to plug infrastructure funding gaps. Opponents fear that to generate reliable returns for investors, companies, often in charge of monopoly assets, would hike prices for users.

Supporters like Fink argue that a need to turn a profit would put more pressure on private operators to run a tighter ship, reducing waste. But that also could mean job cuts.

In his letter, Fink points out that airports in London, Zurich and Sydney all are privately owned, while most U.S. airports are not. None of those three cities’ economies have suffered terribly as a result. (Though anyone who’s tried to park at Sydney Airport, for example, will find the experience quite punishing on their wallet).

“To unlock the capital America needs for infrastructure, U.S. policy makers, workers and unions must work together to find a model that will allow private enterprise to generate the long-term returns necessary to attract capital and build a more prosperous future, ” Fink said.

Meanwhile, another CEO summit looms. Fink’s call comes as Trump prepares to host another CEO summit later today. It will be attended by 20 CEOs, some who are part of Trump’s economic advisory group and “some new ones,” according to press secretary Sean Spicer.

The CEOs will initially meet in small “interactive groups” led by cabinet members, including Commerce Secretary Wilbur Ross, Education Secretary Betsy DeVos, Transportation Secretary Elaine Chao and EPA administrator Scott Pruitt.

Trump will then review a report presented by the groups, Spicer said.

SHARE
Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

PARTNER CENTER