In yet another op-ed in the Wall Street Journal Bob Hellman asserts that the private sector can build roads and bridges without running into the cost overruns that have plagued public sector infrastructure projects for much of the last 50 years:
The delayed-again Gordie Howe International Bridge connecting Detroit and Windsor, Ontario, is North America’s latest infrastructure boondoggle. Built on the Canadian government’s tab but involving U.S. oversight, the bridge had a budget at project launch in 2017 of $4.4 billion. It’s already a year late and $2 billion over budget. No opening date has been set.
Private-sector funding and operation is the answer to these recurring infrastructure nightmares. This would bring discipline and accountability that the government can’t match.
Freeing private investors to help solve America’s infrastructure crisis will require bold local and national political leadership. Solving the political challenges will be the tough part—the capital and the know-how are there waiting.
The initial planning for the 1.6-mile Gordie Howe Bridge started about 25 years ago. After a protracted approval and permitting process, construction finally got under way in 2018, and it was supposed to last a little over six years. But the planned 2024 opening was delayed a full year, only to be delayed again to 2026.
It’s a familiar story. Major infrastructure projects are chronically late, bust their budgets, and are poorly maintained and operated by the bureaucracies that spawned. A highway expansion in Alabama that began at $2 billion quietly creeps toward $5 billion. A new Chicago airport terminal scheduled to open in 2026 won’t welcome its first passengers until 2032. Water systems and transit lines face similar fates.
I agree with him that such projects could be addressed by the private sector. There are a number of questions he doesn’t answer. The most important one is why don’t they? I think it’s because investors find the risks exceed the rewards. I don’t see anything changing that calculus.
A second question is related. Does he actually think that private investors would tackle rural infrastructure projects without massive subsidies? I think that they’d be more willing to tackle urban infrastructure projects with, potentially, millions of users daily. How about rural infrastructure projects?
I believe that highway construction first limited competition through wealthy companies pushing costly regulations ( many years ago) followed by USAID-NGO types of graft with the bidding and funding. If an honest private contractor won a bid they could perhaps build more quickly but not at a lower cost.
I am skeptical about the proposal because this doesn’t address the reasons why they are seriously late or overbudget.
1) Changing requirements. This occurs so often we don’t realize how ruinous it is, but each change due to permits, lawsuits, change in politicians in charge, has a cost.
2) Litigation / permitting risk. Beyond the nominal cost of lawyers and permits, these things take years of time and non-accountants don’t realize the money value of time.
On rural infrastructure; the question is are we willing to be imaginative, that the infrastructure solutions for rural areas can be different from urban areas. Take internet access, it isn’t feasible without big subsidies for traditional broadband, but profitable for Starlink without the subsidies (even through they will take subsidies).
Private corporations are subject to even more regulations and control than public agencies. Enormous delays and cost overruns are built-in. Nuclear power is the prime example.
As to rural infrastructure, we are in a rural electrification cooperative. We theoretically “own” some nonnegotiable shares, and we get to vote for trustees every once in a while. The coops exist, because no private utility would run their networks into a very low demand, unprofitable areas.
I doubt the US any longer has the expertise to design and build a nuclear power plant nor the ability to manufacture its components. I believe all pressure vessels must be sourced from a Japanese company, and the waiting list runs to years. Meanwhile, Russian and Chinese companies are building, operating, and maintaining numerous plants all over the nonWestern world, including Turkey.
The US and European technological capabilities are in sharp decline. Eight of the ten best technological universities in the world are in China, as is a majority of the top twenty.
Meh. European countries tend to build without the massive delays and cost overruns. I would highly recommend reading Brian Porter’s Construction Physics on the topic. So it’s really not government per se but government in the US and even then mostly just in certain areas or certain projects. As CO points out a lot of this comes from constant delays from the special interest groups suing and demanding changes. Some of it also comes from the fact that in the US cities try to use local contractors. In Europe they have 4 or 5 major companies that do these big projects so they are much more efficient.
There is a history of some private roads inn the US but the results are pretty mixed. They are subject to the same rules as a government project. Also, to be clear, the government is rarely building these projects. They are hiring private contractors. Look at the defense sector. It’s private contractors. It’s clear that Congress uses defense spending as welfare for the states but the contractors themselves are not innocent.
Steve
Just moving down from Daves comment to comments
I have a different view.
As a preamble, we ( I guess I should stop saying “we,” as I turned the firm over to the kids several years ago, and simply pontificate from the Investment Committee now). We have made quite a name in the PE business in infrastructure and construction. Who knew there was gold to be made in concrete products, safety products, HVAC etc. if you know what you are doing…..
But back to it. I think Dave gets it backwards. I love rural projects. Hate urban projects. Graft. Fewer bidders Your crews in rural areas can negotiate cheap hotels. Transport costs? Cheap. With no subsidy, you can price just fine. Just perform.
Curious makes a perfect and correct point, except……..so much of the dishonesty and graft and regulatory focus is on urban. Give me rural.
Bob makes the most interesting point. We, too, are in a rural electricity area. It functions pretty well, no gouging. Perhaps a premium. But not much. Rational capital decisions etc.