Saturday, 30 December 2017

Finance, ideology and infrastructure


Of late, several issues around 'infrastructure' have been news...

The chair of the National Infrastructure Commission has just resigned:
Andrew Adonis quits as May infrastructure adviser - Financial Times

And he has quite a history: 

Adonis was a transport minister too, and leaves the High Speed 2 rail link, planned to open in 2025, as his monument. But he was also an education minister in Tony Blair’s government, creating academy schools, which have helped improve the life chances of hundreds of thousands of people. And he created Teach First.
Naturally, his achievements are controversial, but as a force for change Adonis has had no equal. He continued to drive ambitious and creative ideas as chair of the National Infrastructure Commission, to which George Osborne appointed him in 2015, because he wanted the Commission to have the “bipartisan authority to generate a national consensus over long-term thinking”. So much for that high-sounding idea.

Andrew Adonis’s resignation means the fight against Brexit may be turning into a campaign to rejoin the EU | The Independent

Another area has been rail infrastructure:

"We are in this crisis over the East Coast franchise where hundreds of millions of pounds is essentially being gifted to private companies by letting them off their contracts early. I have been pointing this out, the Government would far rather I wasn't pointing this out."
The Government was forced to deny claims it was bailing out private companies earlier this month after ministers said it would be intervening on the franchise and terminating the contract three years early. The franchise is operated by Stagecoach and Sir Richard Branson's Virgin.

Lord Adonis hits out at Transport Secretary over East Coast rail 'bailout'

And earlier this month Lord Adonis had yet another bone of contention - shared by many in these rural parts:
Mobile phone and broadband services need 'radical improvement' - BBC News
Lord Adonis says Ofcom must tackle 'deplorable' mobile coverage | Technology | The Guardian

Although Lord Adonis' HS2 initiative is facing more questions over money:
MPs call for legal action over 'shocking' HS2 payouts | UK news | The Guardian
HS2 redundancy pay 'shocking waste' of taxpayer cash - BBC News
Consider legal action over HS2 redundancies, MPs say


Last month MPs showed they are not impressed by the huge sums thrown at Hinkley:
British MPs question value of Hinkley Point project - World Nuclear
We’ve been nuked by Hinkley Point | Business | The Times & The Sunday Times

This piece from the FT earlier in the year was excoriating: 

The uncomfortable truth of UK infrastructure plans

From HS2 that benefits the few to Hinkley Point and its radioactive finances


The Infrastructure and Projects Authority has kindly brought us up to speed with the government’s major projects portfolio, worth a handy £455bn. The annual report is a cheery, upbeat document with encouraging examples of things that are going well, such as the Super Connected Cities Programme (who knew?). It’s not until you reach the pretty colour-coded summary of all the projects that the uncomfortable truth emerges.

The authority shades these from dark green (textbook) through green (OK) to amber (significant problems) amber/red (it’s all going wrong) and red (no realistic chance of success). Few projects are red. They include new reactor cores for nuclear submarines, the perennial problem of the A303 at Stonehenge and the M20 lorry area.

None of these moves the dial on public spending. One that does in the amber/red category is the HS2 rail link, that vanity project to connect Birmingham faster for the few at the expense of the many. It’s particularly rich that the authority’s latest verdict should coincide with transport secretary Chris Grayling scrapping three modest rail electrification plans (all also amber/red). As Private Eye has been warning for years, Network Rail never had a hope of meeting its commitments, so Mr Grayling is punishing it by restricting the state-backed company to maintenance rather than capital projects.

The money sink that is HS2 goes ahead, apparently, despite generous pay-offs to executives before a rail sleeper has been laid. Should this project obey the definition of a builder’s estimate — a sum equal to half the final cost — as one rail expert expects, the bill will be more than £100bn.

Surely not, says Mr Grayling, just look at the London Olympics — which shows that at least the transport secretary has a sense of humour. The final cost there was almost four times the initial estimate. The award of a major HS2 construction contract to Carillion, a company whose liabilities exceed its assets, suggests ominously that if the company’s bondholders do not rescue it, the taxpayer will.

Then there is Hinkley Point. Did you know that it’s all going swimmingly? It’s rated dark green, meaning “Successful delivery of the project on time, budget and quality appears highly likely.” This is the nuclear power station that nobody wants and the subject of (another) damning report from the National Audit Office.

Hinkley Point promises financial misery for the owner, the contractors and finally to every British business and household through higher costs for electricity. The owner, EDF of France, is in poor shape financially and struggling to make its home-built prototype comply with escalating safety regulations. It has just added two years and £1.5bn to the estimated Hinkley start-up date.

Britain’s nuclear policy dates back to 2008, an age when the oil price was only going to rise. Nine years on, the world has changed. The combination of abundant oil and gas and rising regulatory costs have sounded the death knell for big nuclear fission plants.

The NAO currently estimates the Hinkley Point subsidy at £60bn, locking Britain into high energy costs at a time of world abundance, with a devastating impact on competitiveness. The calculation, on the government’s estimates of fossil fuel prices, that a three-year delay will actually save consumers money is a demonstration of how barmy this whole fiasco has become.

Thanks to the sleight-of-hand — otherwise known as a “contract for differences” — with EDF, this financially radioactive project does not appear as a liability in the public accounts. The pain will appear in electricity bills. It’s a pretty brutal way to persuade us to use less energy.

The uncomfortable truth of UK infrastructure plans

And last week's Guardian's 'long read' piece detailed how eventually 'vast nuclear projects will be defeated by economics alone':

Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant

Building Britain’s first new nuclear reactor since 1995 will cost twice as much as the 2012 Olympics – and by the time it is finished, nuclear power could be a thing of the past. How could the government strike such a bad deal? 

Fri 22 Dec ‘17

Hinkley Point, on the Somerset coast, is the biggest building site in Europe. Here, on 430 acres of muddy fields scattered with towering cranes and bright yellow diggers, the first new nuclear power station in the UK since 1995 is slowly taking shape. When it is finally completed, Hinkley Point C will be the most expensive power station in the world. But to reach that stage, it will need to overcome an extraordinary tangle of financial, political and technical difficulties. The project was first proposed almost four decades ago, and its progress has been glacial, having faced relentless opposition from politicians, academics and economists every step of the way.

Some critics of the project have questioned whether Hinkley Point C’s nuclear reactor will even work. It is a new and controversial design, which has been dogged by construction problems and has yet to start functioning anywhere in the world. Some experts believe it could actually prove impossible to build. “It’s three times over cost and three times over time where it’s been built in Finland and France,” says Paul Dorfman, from the UCL Energy Institute. “This is a failed and failing reactor.”

Others have pointed to the cost. At present, the estimated total bill for Hinkley Point C is £20.3bn, more than twice the London Olympics. To pay for it, the British government has entered into a complex financial agreement with Électricité de France (EDF), the energy giant that is 83% owned by the French government, and China General Nuclear Power Group (CGN), a state-run Chinese energy company. Under this contract, British electricity consumers will pay billions over a 35-year period. According to Gérard Magnin, a former EDF director, the French company sees Hinkley as “a way to make the British fund the renaissance of nuclear in France”. He added: “We cannot be sure that in 2060 or 2065, British pensioners, who are currently at school, will not still be paying for the advancement of the nuclear industry in France.”

Many British observers agree that the deal is ludicrously favourable to EDF – “a dreadful deal, laughable” says Prof Steve Thomas, who works on energy policy at the University of Greenwich. But even insiders at EDF aren’t entirely happy with it. In the months before the EDF board finally signed off the deal in autumn 2016, the finance director resigned, along with Magnin. “The Hinkley Point project remains very risky,” Magnin told me. He is particularly concerned about EDF’s ability to complete the project before the current deadline of 2025. “Why have we reached this point?” asked Magnin. “It is the construction of a house of cards.” ...

Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant | News | The Guardian


On the one hand, free-market think tank the Cato Institute questions the Keynsian boost to the US economy of more government infrastructure:

Would More Government Infrastructure Spending Boost the U.S. Economy?

By Ryan Bourne

June 6, 2017

The focus on the supposed stimulus and productivity-enhancing effects of infrastructure spending means policy debates center heavily on government funding. 
Yet proposals for more federal spending, costly tax credits, or public-private partnerships ignore that the primary barriers to responsive infrastructure relate to structures and incentives. 
Rather than imposing further costs on taxpayers, the new administration should prioritize localizing decisionmaking, removing regulatory barriers to private investment, encouraging the use of user fees, and removing tax exemptions for public investment.

Would More Government Infrastructure Spending Boost the U.S. Economy? | Cato Institute

On the other hand, here's a view from a member of the Advisory Council of Infrastructure UK - who suggests authoritarian China as a model:

Free markets are a flawed way to plan and fund infrastructure

A centrally planned economy for some leaders is a blight on freedom, writes Keith Burnett

Opinion UK infrastructure

Artist's impression of the Birmingham and Fazeley viaduct on the proposed HS2 project

SEPTEMBER 14, 2015

One night in 1942, a man sat on the roof of King’s College, Cambridge, scanning the skies for German bombers. This lookout was well acquainted with the totalitarianism the Nazis wanted to impose. Having served on the Italian front during the first world war, the economist Friedrich Hayek had returned to Vienna to find it devastated by out of control price rises.

His conclusion was that centrally planned economies like Vienna’s were prone to hyperinflation and tyranny. It formed the heart of his 1944 book, The Road to Serfdom. For leaders who embrace his ideas, such as Britain’s Margaret Thatcher, a centrally planned economy is not just inefficient but a blight on freedom.

Today, under Hayek’s heirs, Britain’s infrastructure funding lies in an unhappy state of halfway-house marketisation. Long-range planning has been replaced by the short-termism that typifies the markets.

Meanwhile, lobby groups have the power to halt essential schemes. The result is a tendency to delay procurement of desperately needed infrastructure projects.

Take the HS2 railway between London and the Midlands. According to the government, it is vital to rebalance the economy away from the south east. But HS2 is battled by environmentalists, residents and taxpayers. It will be 2026 before the first 250mph trains can run.

In China, by contrast, there is no fear of big projects and no problem finding long-term investment. Its Shanghai-Beijing high-speed railway covers 1,300km in less than five hours. The job was completed within four years.

Similarly, the UK seems unable to settle on the best way to generate its power. A steady supply of nuclear energy, insulated from the volatility of the oil and gas market, would benefit consumers, companies and the economy. While the government threw the Hinkley Point C nuclear power station project open to the markets, it then had to guarantee above-market prices for 35 years in order to convince the French state-owned EDF to invest for the long term. Even so, EDF will not bring the plant into operation in 2023 as scheduled.

The question now is whether we choose instead to reach an explicit public consensus on the industrial and infrastructural needs of the nation. If we do that, would we be taking steps down the low “road to serfdom”? Or would that consensus promote conditions in which markets can provide consumers with what they need at a fair cost?

Our democratic process has prevented a completely free market for the National Health Service, schools and universities as well as in defence. British governments have been forced by public opinion to distance themselves from a wholesale embrace of the free market, and disingenuously speak of “consumer choice” mixed with regulation — the latter is state intervention by another name.

Hayek’s supposed disciples miss the fact that he acknowledged there are circumstances in which the market cannot work. National security and infrastructure may require government-decreed objectives: “There are common needs that can be satisfied only by collective action and which can be provided for without restricting individual liberty.”

Hayek was right about this. What we learn from China is that economic growth and civil prosperity cannot be delivered without giving governments responsibility for essential schemes.

Back on that chapel roof, it is possible that Hayek kept watch there alongside John Maynard Keynes, a fellow at the same college. Both were committed to the nation’s liberty. Keynes, an advocate of state intervention in infrastructure planning, later wrote to Hayek, asking: why and when do you need to intervene? Seven decades later, as our country struggles to update its transport infrastructure or replace ageing power stations, the need is as urgent as ever.

The writer is vice-chancellor of the University of Sheffield

Free markets are a flawed way to plan and fund infrastructure - Financial Times


Meanwhile in the United States, all the talk is about 'infrastructure':
Trump to announce plan aimed at fixing crumbling roads and bridges, source says - ABC News
Trump administration set to unveil $1 trillion infrastructure proposal in 2018 - Washington Examiner

But it doesn't look too promising:
States see Trump's infrastructure promise slipping away - Dec. 19, 2017 - CNN
Five obstacles to Trump's infrastructure ambitions | TheHill
One wrong move and Trump's infrastructure goals will come to a screeching halt | TheHill

With a handy overview from the White House Chronicle on PBS:

The coming year will be a year of talking about infrastructure. But you cannot cross a bridge with mere words, let alone repair it.
In what is going to be a financially constrained year, as the consequences of the tax cut are digested, look for big hopes and small dollars.
The midterm elections will dominate. Therefore, Republicans will push for privatizing the air traffic control system and initiating private-public partnerships in things where there will eventually be a revenue stream to justify the private investment — possibly seaports; possibly selling off federally owned properties, such as some airports; and giving accelerated regulatory relief to projects like new pipelines and transmission lines, one of the most difficult infrastructure undertakings.
During his presidential campaign, Trump talked about new infrastructure funding of $1 trillion. Now the talk is in the low billions. To really understand such a climbdown, understand that a trillion is a thousand billion. Real money. Two billion dollars — which has been bandied about lately — is, well, you do the math — it’s peanuts.

The infrastructure challenge — a lot to do, little time, money - San Antonio Express-News

And to finish, here's a view of the bigger picture from Common Dreams:

Will Trump’s Infrastructure Plan Become Another Attack on Democracy?

Published on Wednesday, December 27, 2017
by Common Dreams

Converting public things into private goods reinforces a trend toward corporate oligarchy.

by John Buell

"Things have not worked out and privatization has become a means by which politically and socially well positioned have increased their power." 

President Trump promises rapid economic growth compliments of his tax cut. Even if he is correct, however, the private sector expansion he celebrates will likely leave huge holes acknowledged even by many conservative economists. California is burning. Our highways, sewers, bridges, and tunnels are now graded at nearly failing. There is widespread agreement that repairs and restoration of our infrastructure must be funded on a massive scale. Yet what shape will this spending assume? Which projects will be funded? Who will own the new and renovated structures and with what responsibilities? If the tax cut model of gifts to the wealthy and well positioned is followed, the damage will include not only inconvenient or poorly maintained rails, roads, and other public services but also further erosion of our democracy itself.

In a prophetic essay a year ago in Boston Review Brown University political theorist Bonnie Honig, author of Public Things: Democracy in Disrepair, pointed out that the Trump family’s decision to opt out of residence at the White House in favor of life in Manhattan or Florida reflected a disdain for pubic things. Neoliberals differ on some issues, but one key notion most hold is the right to opt out of publically provided services or goods one does not need or want. This neoliberal mindset imposes substantial burdens on the rest of us. A recent Wall Street Journal article only confirms Honig’s concerns. The Wall Street Journal found that the president has spent more than 100 days at one of his properties, including more than a month each at his golf course in New Jersey and at Mar-a-Lago in Florida. Citizens for Responsibility and Ethics in Washington points out: ”visits to his properties in Florida costs the local Palm Beach government so much that it considered raising taxes.”

The opt- out culture has more widespread and destructive effects. As Honig puts it: “Charter schools and voucher programs invite locals to opt out of public schools while drawing on public funds that might have improved the public education system rather than provide an alternative to it.” When these schools succeed, often by excluding special needs children, their success is taken as proof of the inadequacy of public education.

Neoliberals generally resist or seek to limit the services that are provided by public entities. When these must be provided, the service should be privately owned and run like any other profit maximizing business. This requirement, however, exposes some of the tensions and contradiction within neoliberalism. What if, as is often the case, there are very few businesses that can provide the service? Won’t these firms be in position to charge monopoly prices for their services? If you believe in limited government—at least limited with respect to any possible downward redistribution—you will allow monopoly to serve in the faith that in the long run everything will work out. Economists more attuned to the real concerns that Smith, Mill, and Ricardo voiced regarding monopolies will demand anti trust or insist on regulation of “natural monopolies.”

In recent times, both here and internationally, the former course has prevailed. Things have not worked out and privatization has become a means by which politically and socially well positioned have increased their power. But it was not always that way. University of Missouri-Kansas City economist Michael Hudson puts it thus:

“To prevent such price gouging and to keep economies competitive with low costs of living and doing business, Europeans kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing the basic infrastructure services at cost, or even at subsidized prices or freely… The guiding idea is for public infrastructure to lower the cost of living and doing business…[With privatization]. the economy ends up being turned into a collection of tollbooths instead of factories…”

Trump’s detailed infrastructure proposals still are not out, but early suggestions about tax credits to corporations that supply such infrastructure are problematic. Corporations are likely to invest only in those projects with likelihood of monopoly profits, i. e. those where they can impose their own tollbooth. This will leave some very important services underdeveloped and others overly costly or inconvenient.

Converting public things into private goods reinforces a trend toward corporate oligarchy. Traditional fiscal conservatives hide their support of oligarchy behind warnings of dire consequences of government overspending. Their stated reason for opposition to generous public spending on public goods is a concern about possible bankruptcy. Ad nauseam they chastise us: Just as families that splurge beyond their means go bankrupt so too will nations that spend too much on public goods. The analogy is false. Our government, unlike its citizens, controls and issues its own currency. Trillions poured into the economy by the Federal Reserve for the bank bailout occasioned little more than a yawn in world financial markets and no inflation.
Republicans’ and centrist Democrats’ concerns about the debt are a smoke screen to attack Social Security. Neoliberals’ real fear is the greater equality generous public things might foster and the coalitions across borders, ethnicities, and faiths the construction and maintenance of such goods might encourage. Honig puts the case in Whitmanesque language: “The democratic experiment involves living cheek by jowl with others, sharing classrooms, roads, and buses, paying for them together, complaining about them together, and sometimes even praising and enjoying them together, as picnickers will do on a sunny afternoon in Central Park. But the neoliberal corrective absolves us of this necessity and responsibility. That Central Park—landscape architecture’s ode to the power of democratic beauty—is just a stone’s throw away from the barricaded Trump Tower is only one of the many sad ironies of the story to be told here.”

Public things and the democratic space they foster and are fostered by encourage both collective responses to common problems and an opportunity to address the injustices (remainders) that emerge from even the most egalitarian and idealistic processes. The physical state of our infrastructure reflects more than conventional faith in balanced budgets. It is an attack on democracy and must be resisted by appealing to and enhancing democracy itself.

Will Trump’s Infrastructure Plan Become Another Attack on Democracy? | By John Buell | Common Dreams

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