This article is part of a series by openDemocracy and the Bretton Woods Project on the crisis of multilateralism. The views expressed are those of the author’s only, and are not necessarily representative of either organisation.
In recent years Counter Balance has explored the new wave of large-scale infrastructure projects financed all over the world in an attempt to understand the main drivers behind the “global infrastructure agenda”. Through a new wave of financialised mega projects, infrastructure is being turned into a financial asset class, and International Financial Institutions (IFIs) are a key driving force behind this trend. This growing agenda creates massive risks, from detrimental climate impacts to debt burden for emerging economies.
Functioning infrastructure is a pre-requisite for our daily lives in a modern economy. Our use of all different kinds of infrastructure involves its inevitable degradation and, as technology and science advance, results in a continuous need to fix, replace, upgrade and constantly develop new infrastructure.
In parallel, the new “champions” of infrastructure rely on the role of infrastructure investments as a means to restore economic growth, demand and jobs in the global economy. Out of the ashes of the economic crisis, infrastructure is promoted as a ‘magic bullet’.
The new “global infrastructure agenda”
Since the financial crisis, a consensus has emerged on a “global infrastructure agenda” largely based on the assumption that there is a huge “infrastructure gap” to be filled. For example, the Organisation for Economic Co-operation and Development (OECD) estimates that an additional US$ 70 trillion in infrastructure will be needed by 2030.
Governments have been facing a dilemma: how to finance such infrastructure and boost economic growth with limited public resources, while meeting the harsh austerity logic and neoliberal dogmas they often abide by?
On the other hand, global capital markets, which have helped to concentrate private wealth in the hands of the few, have in turn been chasing investment opportunities in new profitable assets.
This is where the ‘magic’ is supposed to happen to match both needs. In the hopes of many governments, infrastructure is to become a new ‘asset class’, attracting private liquidity and lessening the financial burden on constrained public coffers.
To do so, various actors, including the World Bank, are called to put in place the various prerequisites for this new agenda to materialise. This is typically based on a series of key assumptions:
- Infrastructure projects have to be mega-sized to attract large amounts of capital for a long time.
- Infrastructure needs to be turned into an asset class so that investors can look at infrastructure as pure revenue streams, not as hospitals, schools, bridges, power plants or wind mills. Those financial assets will generate profits when traded on financial markets.
- An ad hoc financial environment has to be built in order to manage and trade the new financial assets: for instance, by dismantling restrictions on investments for pension and insurance funds, increasing derivative-based financial products, and developing debt markets.
- A new wave of public-private partnerships (PPPs) and privatisations need to happen, including infrastructure in the health or education sector.
Huge financial implications
As a result, the topic of infrastructure is at the top of the political agenda in high level meetings such as the G20 or the Global Infrastructure Forum, where every year representatives of the largest development banks in the world gather.
This agenda, which is led by the private sector to secure profits, needs public finance to develop as planned. Indeed, public funds are necessary for infrastructure projects to see daylight, but also to de-risk the participation of private actors. There is a real threat that public finance is actually captured by this agenda, to the detriment of local communities and citizens.
A joint report by 13 development banks noted that in 2017 they mobilized $73.3 billion of long-term private and institutional investor financing for infrastructure such as power, water, transportation and telecoms. Development banks also see their role in helping develop a pipeline of bankable projects and de-risking projects for private investors to invest in.
The risk is that public money ends up guaranteeing the profits of private investors from revenue streams associated with user fees paid by citizens. A logic of “accumulation by dispossession” aims at guaranteeing a “financial extraction” of wealth from local communities, ordinary citizens and territories at the benefit of few domestic and global investors seeking secure double-digit returns.
Infrastructure finance also represents a massive threat to future debt sustainability. Indeed, the billions and trillions planned to be spent in the coming decades for large-scale infrastructure projects are likely to pose a dilemma to many governments: will they accept further indebtedness, or be accused of failing to meet the needs of their population by not financing infrastructure projects? New financing schemes and related PPPs are likely to generate a new wave of foreign and domestic debt. If something goes wrong, ultimately host governments will pick up the bill.
Challenges around infrastructure mega-corridors
The “global infrastructure agenda” also seeks – in the name of development – to create new infrastructure “mega-corridors”.
Infrastructure corridors are not new. But the plans that are now being developed are on a scale never seen before – hence explaining the growing use of the term “mega-corridors”. No continent (apart from Antarctica) is excluded. From Africa to Asia, infrastructure masterplans have been drawn to reconfigure whole land masses (and the seas connecting them) into ‘production and distribution hubs’, ‘development corridors’, ‘special economic zones’ and ‘interconnectors’.
The “Big Daddy” of the corridor plans is China’s Belt and Road Initiative (BRI), which is often criticised for its geo-political implications but rarely for the physical and financial extraction underpinning it.
The gigantic scale of infrastructure proposed will profoundly transform and redesign entire territories, regions and economies, and consequently the life of billions of people. Mega-corridors are primarily aimed at enhancing export of raw materials and goods and integrating economies in global markets. They will also streamline transportation routes globally, and enhance access to a limited number of hubs where demand will be centralised.
In short, this agenda aims at speeding circulation in the production sphere globally and thus revamp economic globalisation. It will ultimately scale up an already failing development model – and its associated global division of labour – which could be locked in for decades to come.
While the G20 and the World Bank are obsessed with the “infrastructure gap” to be filled by scaling up investments “from Billions to Trillions”, they are paying little attention to the potential consequences. As has been pointed out by the office of the UN High Commissioner for Human Rights in its report ‘The other Infrastructure Gap: Sustainability’, the human rights impact of infrastructure projects and this planned expansion is largely ignored.
Then there is the devastating climate impact associated with this model, despite efforts at European level (through the High Level Expert Group on Sustainable Finance pushing), or recently by the OECD and the World Bank (see for example the recent report “Financing climate futures: rethinking infrastructure”) to label this agenda under the heading of “sustainable infrastructure”.
Large dams, power grids, transport projects, water and waste management provision or energy extraction/generation projects have tended to come with significant environmental and social costs. The top-down mega-project model that has prevailed for decades has usually proven to be ineffective in serving the needs of people and their communities, or of society in general, as affected communities and civil society groups monitoring infrastructure finance have long pointed out.
In addition, mega-corridors all over the world are based on high-carbon transport (airports, motorways) and energy infrastructure (including fossil fuels). As a result, the infrastructure agenda as promoted by the G20 and IFIs simply does not fit with decarbonization targets, or with commitments to tackle climate change on a global scale and align financial flows with the objectives of the Paris Agreement.
The scale of the issues at hand makes it very hard for civil society and critical decision-makers to grasp this new agenda and find ways to challenge it. There are also difficulties inherent to the mere concept of infrastructure: how is it possible to criticise an infrastructure-related agenda in countries where basic needs of the population – which could be well served by better infrastructure and public services – are not met? How to challenge the growing involvement of the private and financial sector, when in many countries the public sector has itself failed to deliver on basic infrastructure?
At the same time, the multi-faceted impacts and dimensions of such infrastructure projects – ranging from transparency, corruption, tax, debt, poverty eradication, human rights and environmental impacts – imply that a great diversity of local communities and social movements will inevitably face the challenges raised by this agenda in the coming years and decades.
The infrastructure and investment agenda is not just about bricks and mortar. It is about systematic wealth extraction from local communities, whose territories are permanently reshaped in the name of capital accumulation. This logic largely ignores the fact that the infrastructure that delivers the highest public good is generally not the one that guarantees the highest rate of return.
What is at stake here is for citizens, communities and social movements to reclaim infrastructure and essential services. Exposing this agenda is an important step to advance a public critique of infrastructure as a structural adjustment.
International institutions should aim at supporting infrastructure that prioritises social and environmental justice, instead of scaling-up efforts to financialise infrastructure and disconnect it from the needs of citizens and territories.
In this context, the current “global infrastructure agenda” stands at odds with such objectives, as it is primarily linked to an extractivist, financialised and top-down approach. Due to its profoundly undemocratic nature, this new agenda is highly likely to neglect the needs of the people who find themselves on the mega-corridors trajectory, and will deepen the inequality divide rather than tackle it.