How to make sure that roads, transit, water and power systems, and other infrastructure get the funding and attention they need took center stage during discussions of the infrastructure council at the World Economic Forum’s Summit on the Global Agenda, a three-day conference held in Abu Dhabi, United Arab Emirates, in November. Basic and advanced infrastructure systems are key to unlocking the world’s economic development potential, but infrastructure investment in most countries continues to be far less than what many infrastructure experts and stakeholders view as optimal.
Members of the forum’s Global Agenda Council for Infrastructure discussed what the infrastructure bottlenecks are and what can be done to spur more infrastructure investment. As ULI’s representative on the council, I encouraged the group to focus on the issue of infrastructure funding, and to think more about how people who care about infrastructure can talk about it in a way that is more persuasive and inspiring.
The Importance of Funding
Council members agreed that much good work has been done in the World Economic Forum and elsewhere to examine financing bottlenecks and formulate strategies for effective public/private partnerships. However, less effort has gone into thinking systematically about how infrastructure is funded.
Although many people conflate the two, funding and financing are not the same. Funding provides the revenue that pays for infrastructure. Funding is often collected through user charges, fees, and taxes. Financing takes those revenue streams, usually spread over many years, and turns them into capital that can be used today to build and operate needed infrastructure.
The infrastructure funding question in many ways takes the industry back to basics. Among the questions the council explored:
- What is the best way to pay for infrastructure? Should governments employ user charges or fees, use general tax revenues, or draw from other sources? What new infrastructure revenue models are needed, and which models from the past continue to work? Strategies based on value-capture techniques or real estate evoked particular interest from meeting participants because they hold the potential for bringing new money to the table and better connecting infrastructure and land use.
- How should rates or prices be set? Should the goal be full cost recovery, or the recovery of operations and maintenance expenses? Should fees be based on the infrastructure’s value to the user, or set to optimize use of the asset? What processes should be used to determine infrastructure pricing?
- What role does social equity play? How can governments ensure that infrastructure prices are fair and equitable for users, and that the benefits of infrastructure investments are equitably shared? What provisions should be made for those least able to pay?
The council members agreed that a critical need exists for greater agreement about infrastructure funding, as well as for identification of best practices and models from a variety of sectors, countries, and government levels.
Without a more fundamental examination of how they do pay and should pay for infrastructure—and of how much people are willing and able to pay—governments often resort to what infrastructure council chair Thomas Maier, managing director for infrastructure at the European Bank for Reconstruction and Development, called “the art of the politically possible” to set infrastructure prices. Rates and fees are often set too low to be financially sustainable, and systematic deterioration of infrastructure and low levels of investment result.
The infrastructure council and the World Economic Forum are planning further work around the infrastructure funding question.
Inspiring Infrastructure Investment
No discussion of funding would be complete without an examination of the value people derive from adequate infrastructure and of the values and priorities reflected by decisions about infrastructure. The World Economic Forum’s infrastructure group discussed this core issue as well.
Often, the case for infrastructure investment is based solely on economic rationales. If we do not invest in infrastructure, the argument goes, the economy will suffer. What’s more, it is argued that infrastructure is in such poor shape that huge sums of money are needed to repair old infrastructure and build new systems. Though both statements may be true, they are not particularly motivating.
Infrastructure leaders should do more to inspire people with what investment in infrastructure can do for them. We need to make a better case that the investment will lead to a better future for people, and paint a clearer picture of that future—one that is brighter and more prosperous, inclusive, sustainable, interconnected, and healthy.
We also need to make sure that the infrastructure we are building actually helps achieve those goals, and that the improvements are centered on people and on creating communities that can help them thrive in the coming decades. Only then will people—and, in turn, their governments—be willing to pay for infrastructure investment and make it the priority it should be.
How the Meeting Was Structured
Those who attended the summit were part of the World Economic Forum’s Global Agenda Council network and represent government, private sector companies, multilateral development banks, nonprofits, and universities. The council deliberations, which are now in their fifth year, are designed to complement and inform the forum’s signature event—the discussions held each January in Davos, Switzerland—as well as other global gatherings. This year’s Davos summit was scheduled for January 22–25, 2014.
Global Agenda Council meetings focus on topics including terrorism and systemic risk, manufacturing, entrepreneurship, the future of the media and the internet, and urban development. The agenda council for infrastructure, a relatively new council, convened for the second time in Abu Dhabi. (The report from the first meeting, in Dubai in 2012, is available at www.uli.org/infrastructure.) Each council is composed of about a dozen specialists drawn from a cross-section of countries and disciplines.
Not all the discussion at the summit focused on infrastructure. The World Economic Forum released the Outlook on the Global Agenda 2014 report, which identifies rising tensions in the Middle East and North Africa, along with widening income disparities, persistent structural unemployment (especially among the young), and cyber threats as the top trends for 2014. Ranking ninth among the top trends is the growing importance of mega-cities. The report reflects input collected from Global Agenda Council members via survey.
Each council at the summit prepared “transformation maps”—diagrams designed to show the connections between issues and topics and to identify trends that will shape the future. Trends highlighted by many councils included growing global prosperity and the rise of the middle class, population and demographic shifts, and the effects of climate change.
Summit participants tended to focus on risks and problems. For example, Salil Shetty, president of Amnesty International, noted that ubiquitous information, combined with growing inequality, is a volatile mix. “Exclusion,” he said, “is the feeling that you belong to a group of permanent losers.”
But a note of optimism was sounded at the closing plenary by Harvard University international relations professor Joseph Nye. “Ask yourself if you would rather be living in the 1930s or today,” Nye said. Despite the challenges the world faces, he concluded, “I’d rather be alive today.”
Rachel MacCleery is senior vice president for content at ULI, where she manages the organization’s Infrastructure and Building Healthy Places initiatives.