'Wishful thinking' won't help health or infrastructure
The second biggest killer in America, after smoking, is caused by being overweight and obesity. Several hundreds of thousand deaths could be prevented each year with very simple, preventative measures. With more people living in cities, we eat more than we need to keep our bodies going while being less physically active at work and have better transportation options. The result — some 160 million Americans qualify as obese or overweight. A remedy for a healthier and longer life is staring us in the face — more exercise combined with healthier food, and no smoking.
Paying for the required investments in infrastructure and affordable housing seems to be associated with as much wishful thinking as exercise and healthy eating. We expect federal money once again to make U.S. cities an example to the world and that public debt will disappear by magic. Public-private partnerships, tax-exempt bonds, subsidized opportunity zones or an infrastructure bank will rain money on communities and pay for the smart cities of tomorrow. Just as magical drinks and wonder diets will give us the perfect body and healthier living.
In the meantime, San Francisco is not alone in being desperate for affordable housing. Pittsburgh is not the only U.S. city with an urgent water problem and bridges in need of repair. Houston and the Midwest floods are not the only place in America in need of climate change-related infrastructure investments. The level of preparedness for climate risk is now critical for every city in America. Mobilizing the financial resources with the help of our public assets, could be the key to saving the U.S. from climate disaster.
While cities, counties and states scramble to find new revenue streams, governments are sitting on a virtual “gold mine” — the public assets which they don’t even know they own. Estimates by the IMF indicate public assets are worth at least twice annual gross domestic product. Nevertheless, most governments largely ignore this wealth and the value that could be generated from it. In fact, estimates indicate that professional management of public assets could generate more revenues than are received from corporate taxes and could multiply the amount of funding available for infrastructure investments.
The public sector owns airports, ports, transportation systems, water utilities and significantly more real estate than is generally understood. The fact that the public sector is using an antiquated accounting system is an important factor why these real assets have not been put under more systematic professional management. In addition, most assets are often held in fragmented ownership structures, which further contributes to causes public assets to be managed in a sub-optimal way. In other words, assets that are hidden and not exposed to regular ”exercise” run the risk of being mismanaged, wasted and ultimately subject to corruption.
There is no free-lunch or short-cut to a healthy and strong body, only hard work. Waiting for federal money or allowing some private sector investor to take advantage of the lack of professionalism in the public sector leads to transactions like the Chicago Parking Meters fiasco and an undue transfer of public wealth to the private sector.
Instead the public sector can build their own ”fitness factories.” That means government-owned Public Wealth Funds capable of managing assets as professionally similar to a private firm, but without resorting to wholesale privatizations. That means a publicly owned independent holding company, able to hire the best professionals that can sweat public assets, to the benefit of all. Luckily, we do not need to reinvent the wheel. These institutions and mechanisms already exist and thrive in Asia and Europe,— not yet in the United States. The technology to oversee them was invented several hundred years ago with modern accounting. But the public sector is left in the Middle Ages when it comes to accounting and the management of public assets, and is left relying more on wishful thinking than hard facts to deal with urgent problems.
Singapore, once an abandoned garrison island, was left to its own devices when it gained independence from the British Empire and was expelled from Malaysia in the 1960’s. Against all odds and without significant natural resources, it has managed to thrive thanks to innovative and bold thinking. Not the least with regard to the creation of good economic institutions and the effective use of public assets.
Temasek and the Singapore Government Investment Corporation (GIC), the two public wealth funds, have helped fund the economic development of the city-state, while the Housing Development Board (HDB) has provided almost 80% of its citizens with affordable and well-maintained public housing.
The approach has proven itself across the world with great success. It was in times of scarcity that Japan Railways and MTR in Hong Kong developed what are probably some of the world’s most efficient railway systems without using a single tax dollar.
Similarly, Hamburg and Copenhagen in times of financial and economic difficulties realized that a government balance sheet also has assets and not only debt. The Copenhagen Public Wealth Fund was created in an economic slump with high unemployment. The government decided to turn the old harbour and a military garrison into what is now some of the most desirable residential areas with universities, schools, hospitals and kindergartens—all paid for without using taxes. Instead, the project returned surplus funds to the government that paid for the extension of the subway.
Having tried the same diet over and again without succeeding, and with grave challenges in the immediate future, it is time for America to do something different. Something where the short-term pain of institutional innovation leads to long-term gain for the entire country and renews the country’s commitment to posterity.