New infrastructure spending demands new thinking, oversight

This is a slightly revised and updated version of an op-ed piece that first appeared in the electronic journal Stateline.org. Click on the title above for the link.

Much has been made of the need for infrastructural investment to stimulate the economy. Traditionally, economists advise against large-scale infrastructure investments because they take too long to inject increased spending into the system. But this recession is likely to be so long and deep that long-term investments will play an important role in getting us to the other side of this mess.

The states and the feds have a huge backlog of things they need to build and repair, from schools and bridges to airports and mass-transit systems. Recent years have highlighted the costs of not tending to infrastructure. The collapse of New Orleans’ levees in the wake of Hurricane Katrina was the main reason for the flooding of the city. The collapse of the bridge over the Mississippi River in Minneapolis on Aug. 1, 2007, was a deadly reminder of the full costs of delaying repairs and maintenance.

According to the American Society of Civil Engineers the backlog of infrastructure now exceeds $2.2 trillion, yes trillion with a t. In their report card for 2009 the Society gives the nation a D for its infrastructure provision and maintenance.

Photo: John Rennie Short

We are in a crisis. But it is useful to recall that the Chinese word for crisis consists of two letters: One signifies danger, the other opportunity. This crisis affords us an opportunity to both stimulate the economy and tend to our much-needed infrastructure backlog. And many of these jobs cannot be outsourced. The work is done in this country, adding to effective demand and providing a basis for sustained growth.

There are two potential hazards associated with large-scale infrastructural investments. The first is that the money will be allocated in the usual pork-barrel fashion with powerful U.S. House and Senate committee personnel steering funds to their districts and states irrespective of the benefits.

In order to short-circuit the possibilities of future bridges to nowhere, we need a bipartisan commission that evaluates objectively the cost and benefit of major infrastructural investment. We already have a model that works. The recommendations of the Defense Base Closure and Realignment Commission (BRAC) cannot be cherry-picked by members of Congress. The recommendations are voted up or down in a block so that individual members cannot influence the fate of individual bases. A similar procedure for a National Infrastructure Commission is essential to reducing wasteful spending.

A second potential problem is that, just like with wars, we tend to fight the next one with the strategies of the last one. We must avoid building new infrastructure geared towards the needs of the last economic growth wave.

A National Commission on Infrastructure would need a mandate to build for the future, not just for the short term and the present. The interstate system was perfect for the car age coming into its own in the 1950s. What we need now is infrastructure that promotes smart growth and long-term sustainable economic growth. Building more bridges or motorways just because that is what we always have done is to build for the 1950s, not the 2050s. New and improved infrastructure should be directed toward more creative use of mass-transit systems, refurbishing our aged inner cites and inner suburbs and improving citizens’ lives, and laying the basis for a greener economy.

We are in a crisis. From the nation’s last great crisis we created the New Deal. We need a New ‘New Deal,’ one that appropriately funds and fairly distributes infrastructure projects to states that lay the foundation for a smarter, greener, more competitive economy. We need a Metro Green Deal for a new infrastructure commission that allocates investments so that we can link public and private, city and suburb, rich and the poor in an America of and for the future.

A moral economy

The great historian, E. P. Thompson, first raised the issue of the moral economy of the crowd in a paper published in 1971. He was referring to the food riots, which occurred every ten years or so in late eighteenth-century England. He demolished the old belief that the riots were spasms of hunger, suggesting instead that they represented a ‘highly complex form of direct popular opinion’. They were about establishing the moral price of food rather than the going market rate.

We have witnessed the moral economy of the crowd last week in the US with the public outcry over the $165 million retention payments to workers in the bailed-out insurance giant AIG. The company had followed some very risky practices, jeopardized the entire US financial system, lost a great deal of money and was eventually bailed out by the federal authorities.

On the surface, the retention payments are small compared to the $170 billion that the company received. With more to come. And many of the people responsible for the risky behavior had long left the company. But the popular sentiment was not a calibrated public policy response; it was a restatement of a moral economy in the face of a market economy out of step with current realities and popular concerns.

Crowds in Washington DC. Photo: John Rennie Short

The financial service sector at the top level is over rewarded. The system of bonuses and retention packages originated when both profits and risks were borne by partners in trading companies. Now, in large public companies, the upper executives overpay themselves, a practice authorized and condoned by compliant, collusive boards, while the risks and costs are socialized and paid by the shareholders or eventually the government and the public. The former CEO of Countrywide, a mortgage company that specialized in risky subprime mortgages, made out very well in the last six months of 2007. Angelo Mozilo, who looks like a lizard in an expensive suit, was paid almost $2 million in salary, given $20 million in stock and sold $121 million in stock. The company meanwhile lost $1. 6 billion while the share prices fell 80 percent. Bad luck for the shareholders, but no problem for Mozilo.

It is against the background of the widespread appreciation of privatized benefits and the public nature of the costs that people responded to the AIG bonuses. What is surprising is how quickly the political system responded to peoples’ anger: within a week of the bonuses becoming public, the House introduced a measure to tax the benefits up to 90 percent.

The close connection between the public mood and federal response is rare. The founders were distrustful of a full and functioning government by all the people. The Congress and the other two branches, the executive and the judicial (an oligarchy of lifetime appointees whose ideology always seems half a century behind the general public), limit and blunt the expression of the popular will into policies and politics. Policies in Washington DC are shaped by interest groups who hone regulations to meet their needs. The political system listens to the power of money. Politicians desperately need money to stay competitive, win races and stay in power. Those with most money have the best access: they have the power to influence and advise. Ordinary people exercise political choice at elections but those with money exercise real political power.

So the events last week in Washington were highly unusual. The consequent legislation may not stand up. Already experts are pointing to its haste and questioning its legality. The proposed legislation was not well thought out, and it was done in haste and anger. But so are much of US federal policies. It was a raw expression of a true democracy. It was the moral economy of the crowd armed with blogs and emails rather than pitchforks and street demonstrations, reaffirming values of fairness and community over greed and self. The moral economy expressed against an amoral economy.

Suburban Gothic

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Photo: John Rennie Short

Recent book review: Olympic Cities

This is shortened version of a book review first published in the Annals of Association of American Geographers. Click on the title above to access the link.

The summer Olympics are a global spectacular event. The first games of the modern era, held in Athens in 1896 involved 241 athletes from only fourteen countries and limited press coverage. Over the years, the Games have grown in size, scope and international media coverage. Over 10,500 athletes from over 200 countries participated in the 2008 Games in Beijing. The Games are now the most watched events on television, with a truly global audience. The Olympic Games embody the increasing globalization of the world; they represent a significant regime of international regulation, provide a shared cultural experience and create important platform for economic globalization as transnational corporations advertise in and through the Games. The increasingly global Games are hosted by cities. The Games are a global event that unfold in a particular place. There is increased academic attention. The 2007 collection, Olympic Cities; City Agendas, Planning, and the World’s Games. 1896-2012, edited by John and Margaret Gold, . John R. Gold and Margaret M. Gold is a very useful addition to the literature.

Centennial Olympic Park, Atlanta. Photo: John Rennie Short

The book is in three parts; the first considers the four main elements of Olympics festivals. The editors note a shift in the Summer Games from a shared but minor partnership with World Fairs through to the centrality of the modern Games. Stephen Essex and Brian Chalkley look at the stages in the evolution of the Winter Games from minimal infrastructure transformation, 1924-1932, through growing infrastructural demand to tools of regional development and large-scale transformations. The Olympics as cultural festivals is a less well know element. Margaret Gold and George Revill show ‘the cultural dimension of the games still struggles to gain significant international or even public recognition’ (pp. 81). They go on to point out that the Olympic Arts Festival can help to rebrand the city and encourage cultural tourism. The Paralympic Games are the most recent element of the modern Games. Their origins lie in the efforts of the staff of Stoke Mandeville hospital in England in the late 1940s to encourage physical therapy for paraplegics. The Stoke Mandeville Games took place in 1952. The Paralympics became part of the Summer Games in Rome 1960 and the 1964 Tokyo Games, then dropped only to reappear in Seoul in 1988 since when they have become part of every Summer Games. From 23 countries and 400 athletes in 1960 they have also grown; almost 4000 athletes from 150 countries will compete in the Beijing Paralympics. Part of London’s successful bid to host the 2012 Games was its commitment to make the Paralympic even more central to the Olympics festival.

Part 2 takes a more thematic look at the Games with separate chapters on financing, promotion, accommodating the spectacle and urban regeneration. As a very quick review they are useful, but readers looking for a closer examination of the costs and benefits, and the role of the games in urban renewal will have to look at more detailed studies.

Part 3 is a series of eight case studies: Berlin, Mexico City, Montreal, Barcelona, Sydney, Athens, Beijing, and London. The earliest is the Berlin Games of 1936 and one of the most important in terms of global spectacular and urban impacts. The subsequent selection is curious. We jump from 1936 to 1968 and some of the more recent Games are not considered. Another edition might want to include all the Games since 1968

This is a comprhensive collection that provides a historical perspective on the rise of the Olympics as a global event in held in particular cities, is suggestive of thematic issues and gives informative and detailed case studies. The issues of environmental sustainability and social justice are regularly addressed. It is an excellent addition to a growing literature on an event that embodies the global-national-urban nexus in all its complexities and paradoxes.

Recent article: Cities and The Summer Olympic Games

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Abstract:
This study examines the relationship between the increasing globalization of the Summer Olympics and the affect on host cities. The impact of the Games on city structure, the competition to host the Games, the selling of the Games to urban communities, the real costs and benefits, the city as a focus of global media attention and the role of the Games in the global city imaginary are critically discussed.


Olympic Stadium in Athens: Photo John Rennie Short

Opening Paragraph
“And the winner is…”
At a ceremony that began at 7:30 a.m. (local Singapore time) on July 6, 2005, the President of the International Olympic Committee (IOC) announced the winning bid to host the 2012 Summer Olympic games. The five finalists - London, Madrid, Moscow, New York, and Paris - were narrowed down in four rounds of voting to Paris and London. Dr. Jacques Rogge, in a message carried live around the world, named London the winner. In Trafalgar Square, in the heart of London, jubilant Londoners celebrated the victory, while stunned Parisians gathering outside the City Hall openly wept....

Devaluation of Ideas as well as Stocks

There has been a massive devaluation of our stock. To be sure the Dow Jones Industrial Average fell over 53 percent from a high of 14,165 on October 9, 2007 to 6,678 on March 9, 2009. And the stock of companies previously considered blue chip have fared even more dramatically worse: Citibank has lost over 95 percent of its stock value in little more than year. As Marx and Engels first noted, all that is solid melts into air. But it is not just the value of companies and stock markets that is plummeting; so is the intellectual stock of ideas that underpins the present crisis. Three ideas in particular are worthy of some note.

The first is the idea of small government. In his first inaugural address delivered on the west front of the US Capitol on January 20, 1981, Ronald Reagan said, “In this present crisis, government is not the solution to our problem; government is the problem.” No American president, or indeed any government leader this side of sanity, would use the same or similar words to address the present crisis. There is now recognition that markets left to their own devices can wreak havoc as well as bring economic growth. There is a sense that government is the problem solver of last resort when markets fail to work. Just as in the Great Depression of the past, so in the Great Recession of the present, we discover again that governments are important and have a vital role in economic growth and management. This recognition does not answer the question of what precise role the government should play. The continual reference to a New Deal is in many ways a clinging to the past. The original New Deal maintained monopolies, kept prices high and while it did reduce employment, it was always tinged with a narrow economic nationalism that needs to be avoided in the present circumstances of such a linked global system. So let’s have a new term to mark a new beginning, perhaps Global Compact or a nod to an even older reference, The New Social Contract.

New Deal Poster


The second idea that has lost value is the notion that deregulation is the cure for our ills. Markets are always embedded in cultures, societies and states, so there is really no such thing as a pure market. The call for deregulation was really a demand for an overturning of government oversight, mandated standards and systems of control. In the wake of the economic meltdown these now seem like good things; it as if we have rediscovered previously undervalued stocks that are holding their value in the present crisis.

The third idea is that financial globalization, especially the free flow of capital, is a good thing that needs to be encouraged by little or no controls. Unfettered, unregulated flows, especially of the more exotic credit swaps, hedge bets and futures trading, have been creating major problems for years. We had a preview of their inherent instabilities. There was the case of Nick Leeson, a trader in Singapore who brought Barings Bank to collapse with not very smart trades in Japanese stock index futures. In 1995 his losses reached $1.4 billion and the bank was declared insolvent. Then there the futures trader Jerome Kerviel who in 2008 cost the French bank Societe General $7.14 billion, about a fifth of its total capitalization. Both incidents were designated as problems of rogue traders whereas in fact they reflected, embodied, and predicted systemic failings of the entire system. We cannot say there were no warnings.


In the wake of all rapid devaluations we need to re-evaluate our intellectual stock portfolio. The blue chips of small government, deregulation and the unregulated flow of capital are failing and falling. We need to invest in some new, or in many cases old and undervalued, ideas that may give us a better return and create some longer lasting value.

Book Series: Critical Introductions To Urbanism and The City

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Book Series: Space, Place and Society

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The Neighborhood Effect or The Social Nature of a Capitalist Economy

Like many people I am appalled at the prospect of bailing out banks and feckless homeowners. And the pundits are having a field day with the notion of a rule-governed, tax-paying people--that’s us--subsidizing scoundrels and incompetents--that’s them. But much of the anger is based on the mistaken notion that our economic self-interest is undermined by such intervention. This individualistic ideology is particularly strong in the United States. And there is a very real issue of the moral hazard of the public subsidization of reckless private behavior. But we also have to be aware that our financial security and economic health is crucially dependent on other people. Let’s consider the housing crisis as an example. As an individual owner-occupier, I am concerned with the value of my home. But this value is based not only on the characteristics of the individual dwelling but also on the going price of my neighbors’ homes. If they go down in value, so do mine. The price of any home is a function of the homes around them. We can refer to this as the neighborhood effect. Foreclosures increase the number of vacant and abandoned properties and so home values, including mine, decrease. It is in our economic self-interest to have the mortgage crisis solved. And even if you live in a neighborhood untouched by foreclosures--less of a possibility as the crisis worsens--the housing market is based on long chains of purchase. House sales form chains from the top to the bottom of the market. When someone buys a property at the entry level, that enables the existing owner to sell and use the proceeds to buy a more expensive house that in turn allows the owner of a more expensive home to buy another place. A broken link has effects further up the chain.

Neighborhood effects and housing chains are just some of the ways that we as individual homeowners and purchasers are enmeshed in wider connections and ties. We need to remember this so that the debate can more effectively be about the details of stemming foreclosures and minimizing their neighborhood effects rather than on the principle of government intervention as an inherently bad thing. Underlying much of the criticism of economic policy is a mistaken assumption that we are economic isolates. We need to be aware of the social nature of even a capitalist economy, and more especially, of a functioning capitalist economy.