Bridges to somewhere atleast…

Loads of holidays last week and coming weeks as well. So blogging has been weak.

An essay on the topic by Justin Yin. It was written in 2011 but missed it. He says — More austerity won’t save the global economy. Building infrastructure just might.

Without growth, it will be very painful and difficult for advanced economies to increase employment and significantly reduce their debt burden. But how to do it? The solution could take the form of a global infrastructure investment initiative, which would rest on two key pillars. First, advanced economies would need to spend billions of dollars on infrastructure projects, whether by upgrading old facilities or building new ones that release bottlenecks to growth. But even this might not be enough to generate sufficient growth and jobs. Thus, policymakers, entrepreneurs, and investors should also promote and facilitate infrastructure investments in developing countries where opportunities for such investments abound. This should not be seen as charity: Infrastructure investments in developing countries increase demand for capital goods, such as the turbines or excavators that are often produced in the United States and Europe.

Promoting infrastructure investments in developing countries, an idea that is also being advanced by the G-20, would boost exports, manufacturing employment, and growth in high-income countries, while reducing poverty and enhancing growth in the developing world. It’s a win-win solution.

Well, this is nothing new actually. Econs have suggested that fiscal stimulus should be towards creation of capital/infrastructure projects. As per Lin China did manage to get a significant part of stimulus in 2008-09 towards infrastructure creation. This was difficult to get going in most others as infra is long term stuff which looked difficult politically. The focus was instead on immediate benefits like cash for clunkers, higher subsidies etc etc.  In developing countries there are additional problems of land, clarity over property rights etc.

Infrastructure spending is actually welcome at any point of economic cycle. It has benefits over a long term. However, very few countries manage to keep their infra spending going. Political compulsions and uncertainty over whether electorate will value these gains is always tricky. Hence the appeal is always for short term policies.

Yashwant Sinha summarises the dilemma nicely:

Fourthly, politics will always dominate economics in India, at least in the forseeable future. Economic growth has never been an election issue in India. The Congress party ruled India for decades despite the Hindu rate of growth. The national highway project is regarded as the high point of the NDA government’s achievement, yet in 2004 general elections the NDA lost all the 14 seats it had won in 1998 along NH 2.



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