Infrastructure:  Europe, China – and America
By Shlomo  Maital 
 
    In Economics, there are not many principles we can cite with absolute certainty.  Here are two of them:
   1.  The rate of return on investment in Research and Development is in many cases astronomical.  In 1958 Prof. Zvi Griliches found that investing in research in hybrid corn “paid a return of at least 700 per cent”.   Few other social investments can rival this. Yet countries continue to underinvest in R&D.
   2.  The rate of return on investment in infrastructure (roads, transportation, communication, education) is equally astronomical.  Yet in the West countries continue to undersave and underinvest in infrastructure.
   The contrast between Europe, China – and the US under Trump is stark.
    The EU, not noted for bold innovation, is undertaking a huge infrastructure project that will link Malmo, a Scandinavian port, with Palermo, a port in Italy.  This project will help reduce the large gap between the wealthy Northern EU and the relatively poor Southern EU.  It will do much to knit the fractured EU together, in the wake of Brexit. 
     China has a bold vastly expensive program to build a new Silk Road, linking China with Europe, the Mideast and Africa.   The One Belt One Road initiative, now changed to “Belt and Road Initiative”   is, according to Wikipedia “one of the largest infrastructure and investment mega-projects in history, covering more than 68 countries, equivalent to 65% of the world’s population and 40% of the global GDP as of 2017.”
     And the US?   Well,  on a recent visit there, I used Waze (an application developed originally in Israel, now owned by Google) to navigate.  In the US,  Waze informs the driver of potholes. And, trust me – I heard about a LOT of potholes from Waze while driving in the eastern United states.  Some of them were big enough to swallow Trump’s ego.
      President Trump speaks often about infrastructure.  He has plans to fix it, including thousands of crumbling bridges. But here’s the catch.  The latest Trump tax cut put a huge hole in the government budget and added $1.5 trillion to the deficit.   So there is no money left for infrastructure investment.  The solution?  Trump thinks he can get private industry to finance it, using tax credits.
       This is science fiction.  Basic economics shows, the return on infrastructure investment is largely “social”,  that is,  not captured by private investors, but accruing in a diffuse manner to all of us.  So why would private money invest in it? 
         China, EU – and the US.  Another instance of how the US has become a Third World nation, and China, in the Third World, is becoming First World. 

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