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If China Can Fund Infrastructure with Its Own Credit, So Can We

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From flickr.com: infrastructure {MID-88135}
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This week has been designated "National Infrastructure Week" by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: "It's time to rebuild." Ever since ASCE began issuing its "National Infrastructure Report Card" in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can't we?

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"Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too."

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and at why they are not satisfactory solutions to the nation's growing infrastructure deficit.

The Endless Debate over Funding and the Relentless Push to Privatize

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In a May 15, 2017, report on In the Public Interest, the debate taking shape heading into National Infrastructure Week was summarized like this:

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of 'public-private partnerships'), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money--and where that money would come from. Over 500 projects are being pitched to the White House...

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . . released a letter encouraging Congress "to prioritize fiscal responsibility" and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . --to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled "How Two Billionaires Are Destroying High Speed Rail in America," author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit's competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump's $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But "establishment Republicans" have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled "Why Do Republicans Really Oppose Infrastructure Spending?":

Republicans -- at the behest of their mega-bank/private equity patrons -- really, deeply want to privatize the nation's infrastructure and turn such public resources into privately owned, profit centers. More than anything else, this privatization fetish explains Republicans' efforts to gut and discredit public infrastructure . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets. Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as "distressed assets" (i.e., cheaper to buy).

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A similar argument was advanced by Noam Chomsky in a 2011 lecture titled "The State-Corporate Complex: A Threat to Freedom and Survival". He said:

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don't work and people get angry and they want a change. You say okay, privatize them . . . .

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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