One of the save-the-economy notions floating around Washington these days is something called the American Infrastructure Financing Authority It’s a public-private approach to refurbishing and modernizing our roads, bridges, public transit, schools, and other infrastructure.
In its current proposal form, it would have the government front $10 billion in start up capital for infrastructure projects that would pay for themselves over time (e.g. through tolls), with private parties providing the bulk of the capital needed to fully fund these projects. The incentive for these private parties is government guarantees to protect their investments.
Not a bad idea. It’s pathetically small in terms of the badly aging infrastructure it hopes to improve and the jobs it seeks to create. But in the context of present-day Washington, surprisingly commonsensical.
Only there’s a better way. One that could generate far, far more capital toward infrastructure improvement and create far, far more jobs. It’s a private sector-only approach to these challenges.
Here’s the idea:
Corporate America has an estimated $1.5 trillion in house it isn’t using to expand because demand (at least in this country) doesn’t warrant investing this vast sum in expansion. This money is now also being seen by CFOs as necessary reserves in case the economy tanks still further. This $1.5 trillion is therefore not likely to go into a private infrastructure initiative.
Large corporations, however, have one other major asset that might be applied to this purpose. Their ability to borrow at the exceptionally low rates being held down by the Fed. While small businesses can’t tap this cheap money because banks and investors shy away from lending to them, large corporations with good looking balance sheets and the implied backing of the Fed, can tap this well easily. Thus a great deal of cheap borrowed money could potentially go into a large corporations-only private infrastructure initiative.
What would it cost an individual company to be part of such an initiative? Not much on a yearly basis. Borrowing rates (from banks or via bonds) for highly rated corporations are piddling today. A $10 million or $20 million project to improve schools, roads, public transit, bridge repair, or other infrastructure could be funded for a few hundred thousand in interest payments annually — and the principal easily rolled over years down the road.
Multiply that one private company-funded project by thousands of projects, you get big bucks flowing into infrastructure improvement and big number job creation. The source of funding here is banks or the market, with no government participation. The cost guarantor is not one government but many large corporate entities.
Now, one might ask, why should companies do this? One answer comes from not viewing large corporations as inherently evil entities and their top management as mindless parasites. These people know the consequences of deficient infrastructure better than most Americans, and the consequences of excessive long-term unemployment for company bottom lines. They’re also, by in large, decent people who don’t wish to watch their country’s economy going down the drain and their fellow Americans suffering.
In purely business terms, a company leveraging annual outlays of a few hundred thousand dollars in interest payments to put hundreds of people to work on worthwhile infrastructure projects is great public relations, and could almost certainly be written off as such or otherwise handled in a tax-friendly way via a corporate-related foundation.
Infrastructure that benefits everyone might also be especially beneficial to companies funding it. Roads on which companies trucks run, public transit and highways bringing company employees to work, clean water needed in huge qualities by many companies for their own operations, might be a special focus of any given company’s own initiative. And if this spending relieves a local government from a project’s cost, would that government object? A silly question. That government would simply have more money to spend on other infrastructure needs.
It’s obvious to anyone who knows how large corporations actually operate that the basic idea here is anything but new. Some computer companies have long supplied schools with their products to promote computer literacy and product identification that will help their sales in the future. Some financial service giants have long promoted financial education in schools because they want to gain creds with tomorrow’s investors. Big companies have been gifting public infrastructure in all sorts of ways over the years.
What’s new here is the scope of the proposal, its systematic and far more expansive nature. And most important, the funding mechanism — tapping the huge pool of capital in banks and in the market that is currently not going to where it should be going — infrastructure improvement and jobs creation — at a time when a Washington train wrecked government can’t (for fiscal reasons) or won’t (for political reasons) provide the capital to do what has to be done in this realm.
So Corporate America has to step up and do the job. Corporate America, which for sound business reasons won’t tap its $1.5 trillion in stockpiled wealth to reanimate the economy, must use its good credit borrowing status to unlock the unused (or misused) capital in banks and markets to repair America and put it back to work.
There are many vital things at stake here. One of them is the salvation of the kind of capitalism this country has long known and whose fruits we’ve long enjoyed.
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