CAMBRIDGE – It is breathtaking to watch world leaders put aside their differences and agree to a single strategy to boost global economic growth. It is heartbreaking when that strategy doesn’t do much good. At the G20’s recent summit in Hangzhou, China – its tenth since the 2008 global financial crisis – member governments once again pledged to invest in infrastructure in advanced economies to boost growth, and in the developing world to fight poverty. But it is still mainly a pledge.
According to the McKinsey Global Institute, the world still invests only $2.5 trillion annually in transportation, water, power, and telecommunication networks, well short of the estimated $3.3 trillion needed just to keep up with current trends. In fact, most G20 countries actually invest less today in infrastructure than they did before the financial crisis, even as national leaders acknowledge that these investments can spur growth.
This is still more confounding at a time when the world is awash with cash. With central banks keeping interest rates near zero – and in some cases even probing negative territory – it is hard to find another time in history when borrowing was so cheap.
While governments may be reluctant to take on new debt, private investors seeking higher returns than government bonds can offer have always participated in infrastructure financing. Even if post-financial crisis regulations are tying banks’ hands, pension funds and insurance companies still need precisely the kinds of long-term, steady-return investments that infrastructure projects offer. So why does so much infrastructure remain unbuilt?