President Barack Obama was dismissive of the private sector's willingness to build infrastructure or to make other investments for the public good in remarks April 2.
“You're hearing a lot of talk these days about government, and government is terrible ... and they're taking over and all this stuff,” Mr. Obama said during a question-and-answer session following a speech at a plant of Celgard LLC, Charlotte, N.C., according to a White House transcript.
“Look, I don't want government any more than is necessary, but there are some things that Bob, or any CEO, can't invest in,” Mr. Obama said referring to Robert B. Toth, president, CEO and director of Polypore International Inc., parent of Celgard.
“Bob is not going to build the roads to get to Celgard,” Mr. Obama continued. “No company is going to make investments for a public good. None of you would expect a private company to fund our military or our firefighters. There are just some things that you can't do on your own, and the private sector is not going to do. It's not profitable because if Bob was the guy who had to build the road, he'd have a whole bunch of other people driving on that road that weren't paying for it. So it's not a good investment for him.
“That's where government comes in. The same is true when it comes to something like the electricity grid. We're going to have to help create that infrastructure, just like broadband lines, just like a whole bunch of basic 21st-century infrastructure.”
Mr. Obama should know better, especially because as a state senator he was on a committee overseeing Illinois public retirement systems. Private-sector investors, including pension funds, endowments and foundations, play an increasingly larger role in owning or leasing — as well as developing, maintaining and operating — infrastructure projects in the United States and around the world. They are expanding and improving infrastructure.
Infrastructure typically has been financed and developed through public ownership. But it is a difficult challenge for public authorities to finance huge capital costs to develop, build or improve roads and other infrastructure, especially in a weak economy and tight state and local government budgets.
Governments need to turn infrastructure into an income-generating asset instead of a cost, so they can free up capital held in the assets for other government purposes. Investors are willing to assume the risk.
The 200 largest U.S. defined benefit funds had invested $2.9 billion in infrastructure, as of last Sept. 30, according to Pensions & Investments. Private developers and investors are sources of innovation in financing for projects, and in managing to benchmarks. Governments should welcome investors' willingness to assume risks of infrastructure.
The American Society of Civil Engineers estimates the nation needs to spend $2.2 trillion over the next five years on upkeep and necessary improvements on infrastructure. The federal and other governments cannot afford this huge cost. Mr. Obama ought to set a new tone. He should encourage government authorities to seek more investor involvement in development and operation of infrastructure, and take advantage of the capital resources of pension funds and other institutional investors. Pension funds, looking for risk-appropriate returns, are an attractive source of long-term patient capital, the kind Mr. Obama should appreciate.