Today's mounting anxiety over weak growth prospects is more than just a bad hangover from the financial tumult of 2008. In the United States and several European countries, new jobs remain scarce. National incomes in some advanced countries still linger below pre-crisis levels. The medium-term outlook for the United States and Europe is dim. Not only will this make it more difficult for advanced economies to tackle fiscal and employment problems at home, but it will also reduce growth prospects for developing countries, many of which -- particularly in the Middle East and sub-Saharan Africa -- suffer from a lack of employment opportunities. The result? Millions trapped in poverty, creating fertile ground for social instability. While governments on both sides of the Atlantic are considering cutting budgets, what the world needs most right now is growth.
Without growth, it will be very painful and difficult for advanced economies to increase employment and significantly reduce their debt burden. But how to do it? The solution could take the form of a global infrastructure investment initiative, which would rest on two key pillars. First, advanced economies would need to spend billions of dollars on infrastructure projects, whether by upgrading old facilities or building new ones that release bottlenecks to growth. But even this might not be enough to generate sufficient growth and jobs. Thus, policymakers, entrepreneurs, and investors should also promote and facilitate infrastructure investments in developing countries where opportunities for such investments abound. This should not be seen as charity: Infrastructure investments in developing countries increase demand for capital goods, such as the turbines or excavators that are often produced in the United States and Europe.
Promoting infrastructure investments in developing countries, an idea that is also being advanced by the G-20, would boost exports, manufacturing employment, and growth in high-income countries, while reducing poverty and enhancing growth in the developing world. It's a win-win solution.
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It is important, now more than ever, for advanced economies to continue investing in infrastructure to create jobs and support growth. Good private investment opportunities are hard to find amid the current turmoil. Factories continue to carry spare capacity, and homes and office buildings remain vacant. Infrastructure investments can fill the void, creating much-needed jobs in the construction sector, which has been particularly hard hit, and generating demand for industrial products. Upgrading existing infrastructure and building new transit nodes, if well chosen, can enhance future productivity, raising competitiveness and growth and boosting countries' ability to repay the investments in the future. U.S. 10-year Treasury bonds have been trading at historically low levels since the financial crisis hit. I could therefore not agree more with my colleague Joseph Stiglitz of Columbia University, who recently wrote, "[T]he real answer, at least for countries such as the US that can borrow at low rates, is simple: use the money to make high-return investments."
But what about the fear of unsustainable debt burdens, which have Western governments searching for budget cuts? Lack of growth is one of the biggest threats to debt sustainability right now, and cutting growth-enhancing expenditure is misguided. And many infrastructure projects can actually be self-financing: Take, for example, toll bridges or highways. What's more, it is often cheaper to keep roads and other infrastructure in good shape through regular maintenance than to repair them once they are badly damaged.
With public coffers empty or at best strained, innovative mechanisms are required to attract private-sector financing for infrastructure projects, including the use of public-private partnerships, or PPPs. Well-designed infrastructure investments can generate secure and attractive returns for private investors in the current low-growth, high-risk environment. Government officials on both sides of the Atlantic have drawn up interesting proposals to encourage PPPs for infrastructure investment. U.S. President Barack Obama's administration, for example, has backed the creation of the National Infrastructure Reinvestment Bank, which could issue infrastructure bonds, provide subsidies to qualified infrastructure projects, and provide loan guarantees to state and local governments. Europe is considering the implementation of a new Europe 2020 Project Bond Initiative, which would use public guarantees to leverage private-sector financing from nontraditional investors, such as pension funds.
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