Category Archives: infrastructure

How an Expanded Conception of Capitalism Requires us to Move Political Struggles to Unexpected Spaces

Attracting a large audience, political theorist Nancy Fraser visited Stockholm a couple of days ago to present her view of a socialism for the 21st century. However, the talk was not only about socialism but also about its antagonist, capitalism, which, according to Fraser, must be subjected to a more refined analysis in order for a credible socialist alternative to be formulated. Current analyses of capitalism, Fraser argues, are inadequate as it is stuck in the Marxist notion of capitalism as an economic system. Rather, for this system to even function, it is dependent on a range of non-economic conditions. Here, the list of preconditions provided by Fraser is long; it is about the social reproduction so often emphasized by feminist theorists, including the unpaid work in the confines of the family, the exploitation of “cheap gifts” from nature such as raw material and energy, public goods provided by states, such as infrastructure, judicial protections for property rights and the access to policing measures. These very conditions of possibility for capitalism must be incorporated into an analysis of capitalism as well as in the critique against it.

As I listen to Fraser’s talk, I start to think of what the consequences of this expanded conception of capitalism has for political struggle. As I interpret her, this must mean moving political struggles to new spaces and creating new political frontiers of struggle. One precondition for capitalism, mentioned by Fraser, is infrastructure. Here, we can think of the transporting possibilities in the form of roads and railways so important for the transport of material. It can also mean the financial infrastructure needed to move money with a single push on a button. However, as I sit there, bracing myself for a tedious ride home on the subway, I realize that there is something about the very infrastructure of modern cities that provides the perfect precondition for capitalism: its ability to direct and discipline flows.

As someone not being used to live in a big city, I have become fascinated by travelling in local traffic to and from work every day. Taking the subway has taught me something about human disciplining. Although living in a metropolis, people behave in a predictable way: they stand quietly at the platform and wait for the subway, enter it and endure the often unpleasant experience of standing in a crowded car, and in the station they follow the flows to the next subway train, standing in line in long escalators. Although people sometimes walk slowly, sometimes run, the behavior is remarkably stable: you just go with the flow to your end destination where you sit down and work. Philosopher Gilles Deleuze and psychoanalyst Félix Guattari1 would perhaps call this “the striation of space”, that is, the ordering of space so that speed can be restricted and circulation regulated. This is an important precondition for capitalism. In the words of human geographer Mekonnen Tesfahuney and political scientist Magnus Dahlstedt:

Power and control over different flows (capital, commodities, services and people), on various geographical scales, have a crucial function in capitalist economies and states. The capitalist economy requires complex and wide-ranging infrastructures of planning, coordination and execution, in the assembly, circulation and distribution of materials, commodities and capital in time-space. Accumulation would be practically impossible without such infrastructure.2

Thus, the transport system of big cities is a perfect example of what Fraser calls the preconditions for capitalism as it directs and disciplines flows, transporting people from place to place, ensuring that they can do their work as good citizens in a capitalist economy. In this way, the struggle against capitalism must move its efforts to these spaces that work as preconditions for capitalism. In the case of infrastructure, it means disrupting the way that large cities are planned to facilitate the flows that are so important for the functioning of capitalism, and imagine spaces that do not serve the interests of capital accumulation. Although a difficult task, Fraser shows that an expanded conception of capitalism, which I have tried to use as an analytical frame here, forces us to exercise our struggles on different fronts, even during the practice of the most mundane tasks in daily life.

  1. Deleuze, G & Guattari, F (2013 [1987]). A thousand plateaus. New York: Bloomsbury.
  2. Tesfahuney, M. & Dahlstedt, M. Maze of camps: (Im)mobilities, racism and spaces of exception, (p. 179) in Holmgren Troy, M. & Wennö, E. (Ed.) (2008). Space, Haunting, Discourse. Newcastle: Cambridge Scholars Publishing.

If China Can Fund Infrastructure with Its Own Credit, So Can We

May 15th-19th has been designated “National Infrastructure Week” by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: “It’s time to rebuild.” Ever since ASCE began issuing its “National Infrastructure Report Card” in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can’t we?

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and why they are not satisfactory solutions to the nation’s growing infrastructure deficit.

The Endless Debate over Funding and the Relentless Push to Privatize

 In a May 15, 2017 report on In the Public Interest, the debate taking shape heading into National Infrastructure Week was summarized like this:

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of ‘public-private partnerships’), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money—and where that money would come from. Over 500 projects are being pitched to the White House. . . .

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . . released a letter encouraging Congress “to prioritize fiscal responsibility” and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . —to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled “How Two Billionaires Are Destroying High Speed Rail in America,” author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit’s competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump’s $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But “establishment Republicans” have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled “Why Do Republicans Really Oppose Infrastructure Spending?”:

Republicans – at the behest of their mega-bank/private equity patrons – really, deeply want to privatize the nation’s infrastructure and turn such public resources into privately owned, profit centers.  More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure  . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets.  Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as “distressed assets” (i.e., cheaper to buy).

A similar argument was advanced by Noam Chomsky in a 2011 lecture titled “The State-Corporate Complex: A Threat to Freedom and Survival”. He said:

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change. You say okay, privatize them . . . .

What’s Wrong with Public-Private Partnerships?

Privatization (or “asset relocation” as it is sometimes euphemistically called) means selling public utilities to private equity investors, who them rent them back to the public, squeezing their profits from high user fees and tolls.  Private equity investment now generates an average return of about 11.8 percent annually on a ten-year basis. That puts the cost to the public of financing $1 trillion in infrastructure projects over 10 years at around $1.18 trillion, more than doubling the cost. Moving assets off the government’s balance sheet by privatizing them looks attractive to politicians concerned with this year’s bottom line, but it’s a bad deal for the public. Decades from now, people will still be paying higher tolls for the sake of Wall Street profits on an asset that could have belonged to them all along.

One example is the Dulles Greenway, a toll road outside Washington, D.C., nicknamed the “Champagne Highway” due to its extraordinarily high rates and severe underutilization in a region crippled by chronic traffic problems. Local (mostly Republican) officials have tried in vain for years to either force the private owners to lower the toll rates or have the state take the road into public ownership. In 2014, the private operators of the Indiana Toll Road, one of the best-known public-private partnerships (PPPs), filed for bankruptcy after demand dropped, due at least in part to rising toll rates. Other high profile PPP bankruptcies have occurred in San Diego, CA; Richmond, VA; and Texas.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

A Better Way to Design an Infrastructure Bank

The Trump team has also reportedly discussed the possibility of an infrastructure bank, but that proposal faces similar hurdles. The details of the proposal are as yet unknown, but past conceptions of an infrastructure bank envision a quasi-bank (not a physical, deposit-taking institution) seeded by the federal government, possibly from taxes on the repatriation of offshore corporate profits. The bank would issue bonds, tax credits, and loan guarantees to state and local governments to leverage private sector investment. As with the private equity proposal, an infrastructure bank would rely on public-private partnerships and investors who would be disinclined to invest in projects that did not generate hefty returns. And those returns would again be paid by the public in the form of tolls, fees, higher rates, and payments from state and local governments.

There is another way to set up a publicly-owned bank. Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND). It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota.  According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too.

For more detail on this and other ways to solve the infrastructure problem without raising taxes, slashing services, or privatizing public assets, see Ellen Brown, “Rebuilding America’s Infrastructure,” a policy brief for the Next System Project, March 2017.

Trump’s Speech to Congress

After struggling mightily with whether or not to tune in, I was able to overcome my fears and convince myself to sit down in the privacy of my den and watch President Trump present his first address to the U.S. Congress.  What fears?  Well, maybe not quite the same fears that motivated early Christians to outlaw dancing as the “work of the Devil,” but in that general ballpark.

As it turned out, my trepidation was unfounded.  Trump’s “Devil Dance” was both spectacularly tame and, simultaneously, spectacularly ambitious (but not in a good way). Even acknowledging that presidents are allowed to inspirationally bullshit us during their inaugural addresses and speeches to a joint Congress, Trump clearly abused that privilege.  Basically, the man went off the deep end and promised us Utopia.

Unless I missed something, Trump not only pledged to cut taxes on everybody and everything—corporations, the rich, the superrich, the middle-class, the poor—he vowed to get rid of those pesky regulations that hamper businesses.  Accordingly, the following morning’s stock market was up a couple hundred points.

And despite what has to be a staggering loss of tax revenue, President Trump also promised to launch a massive government-sponsored program to repair our infrastructure (our roads, bridges, dams, aqueducts, hydro-electric plants, nuclear reactors, airports, seaports, all of it).

He even went so far as to assure us that “all of the problems” that plague us can be solved.  He actually said that.  All of our problems.  In short, he promised that everything wrong with this country can be fixed.

Presumably, this included drug addiction, inadequate health care, crime, spousal abuse, homelessness, malnutrition, substandard education, low-paying jobs, and the shabby treatment of veterans.  He did fail to mention the rising cost of cable TV, but let’s assume he meant that as well.

Earlier in the week, to placate the saber-rattlers and flag-wavers, he had announced that he wanted to increase the military budget by some $34 billion.   Of course, for all this money Trump is talking about spending–money we clearly don’t have—Congress (even a docile, Republican-dominated Congress) is going to have to approve it, and that may not be easy.

Let’s not forget that there is no shortage of “deficit hawks” in Congress—Republicans mainly, but Democrats also—who can’t bear to see the government continue to accrue debt.  These are people who are already pissed off at the amount of money being wastefully spent on office supplies.  As appropriate as it would be, does anyone honestly expect them to approve of a massive, New Deal-style infrastructure program?

The simple truth is that you can’t have both.  You can’t have national health care and a massive infrastructure rebuild, and at the same time be increasing an already bloated defense budget.  And you can’t do it by pretending that corporations and wealthy people shouldn’t have to pay their fair share of taxes.  But putting all that aside, it was a stunningly “optimistic” speech, one for the ages.  Alas, it meant absolutely nothing.