The global economic recovery model emerging from the U.S. and the West is less clear, and not as compelling on its face. The model is decentralized, with little state assistance, and so - perhaps ironically - cautious rather than courageous. The result is the opposite of speed - a crucial weakness when confronting a systemic crisis.
The world needs to take action to drive rapid global recovery, and we need to take stock of who will lead that recovery. Infrastructure investment is the right engine to drive recovery, to be sure, but given the disastrous economic state of emerging markets three questions are critical: what kind of infrastructure investment - roads and bridges, clean water and hospitals, AI and connected technologies? who makes those decisions? and how quickly will those investments yield growth? Post Covid-19 the world economy requires something as imaginative and bold as the Marshall Plan that catalyzed decades of European growth.
Most analysts see a 2-3 year period before we get back to 2019 GDP levels, with as many as 60 million people descending into poverty during that time. The basic metrics are stark. Project finance levels in emerging markets are down 75% from last year, and according to the International Finance Corporation domestic investment in emerging economies will fall by $700 billion this year, and foreign direct investment will decline by $250 billion (a nearly 20% drop, likely a conservative estimate).
We are at a turning point for global leadership - and a much bigger moment than we think. Decisions on infrastructure investment - the source of investment, the use of technology - are now rooted in the much bigger question of where citizens, and their sovereignty, fit in the life of nations. The advent of connected networks, the cloud and AI have brought us to this Terminator moment.
A Strategy for Global Recovery Our focus needs to be on rapid investment, creating rapid recovery. The kinds of investments necessary - increasingly digital investments - are expensive, and where these investments should always empower citizens they often end up doing the opposite, enhancing greater state control. Leaders know all about this choice, from Brazil to Indonesia, and from Egypt to Kazakhstan, they are forced to choose between quick funding of projects, or slow and steady market solutions.
When emerging market decision-makers look out at the world they see two models, neither of which is purely satisfactory:
People’s Republic of China. China’s economic model generated extraordinary growth over the last forty years (GDP per capita went from $194 in 1980 to over $8,000 last year). The model is being refreshed with future growth increasingly focused on what President Xi calls the ‘new infrastructure initiative,’ a $2 trillion investment program over the next five years on 5G and AI, digitizing the economy. This is eye catching. First, 5G (Huawei, ZTE) is the technology cathedral, the next big thing, and a very big deal. The platform promises extraordinary job and business creation, for everything from smart city infrastructure, to driverless vehicles and big data. China’s lead is dramatic - they will have nearly one million 5G base stations installed by the end of 2020. In the U.S. Ericcson only began to deliver U.S. manufactured base stations last month.
China’s model has other advantages, especially including the capacity to drive a clear narrative. The country is is connecting its economy, digitally and physically, at the same time and will reap the advantages of whole new businesses, products and services. Other headlines: China plans to double high speed rail to 42,000 miles by 2035, and is including 5G deployment on all trains; and they will begin building at least 16 ultra high voltage transmission lines by the end of this year. This model of high speed digital connectivity is compelling - and note that everything is about speed. One last point, China’s infrastructure companies have not only state backing, but real heft: The market cap of China’s top three engineering construction firms is $479 billion, while the market cap of the top 3 publicly traded U.S. engineering construction firms is $19 billion.
The U.S. and the West. The global economic recovery model emerging from the U.S. and the West is less clear, and not as compelling on its face. The model is decentralized, with little state assistance, and so - perhaps ironically - cautious rather than courageous. The result is the opposite of speed - a crucial weakness when confronting a systemic crisis. The multilateral system (the World Bank and regional development banks) are slow to respond, not designed for speed - and so particularly frustrating for leaders around the world. As one head of state told me: “decisions take forever.”
The U.S. & Western model also muddies priorities: the current U.S. focus is on rebuilding traditional infrastructure, like roads and bridges; the EU’s focus is on creating green infrastructure, everything from wind energy to electric vehicles; and both the U.S. and the EU have generally avoided the big issues around ‘new infrastructure,’ focusing on privacy and surveillance rather using technology as a catalyst for productivity and greater liberty. The failure to launch quickly on 5G is a problem - not fatal, but requiring urgent action.
The other side of the Western narrative is the wild dynamism of the model, celebrating personal initiative. Take a few of the revolutionary deployments that have recently crossed my desk: a Pennsylvania firm, Momentum Dynamics, that recently deployed a wireless charging network in Oslo, potentially transforming the global electric vehicle network; the UK’s Magway uses advanced magnet technology to build a transformational underground - zero carbon - e-commerce delivery system; and Integrated Roadways, a Kansas firm, has created ‘smart pavement,’ producing valuable data for local, state and federal consumers - an infrastructure that produces the data that pays for new public infrastructure!
Big Plans - “Stirring Men’s Blood.” This is a Sputnik Moment for humanity. We are making thousands of little plans, when we need one big plan. We need to drive as much as $3 trillion to emerging market infrastructure through 2023, and we need to do it in a way that enhances market efficiency, personal liberty and the opportunities that economic productivity creates. The alternatives: a decade of slow growth, increasing chaos, the loss of global markets; and an inevitable loss of that bedrock of the market system, personal liberty. China is returning to growth faster than the West, and that growth will dazzle, full of digitally powered success stories. The death of the One Belt One Road Initiative (OBOR) - which is, above all a financing scheme - is greatly exaggerated, and is set to roar across the globe.
The result of our decisions now will determine the size, health and competitiveness of emerging markets for years to come. China is not the enemy, but their economic model needs to adjust to the requirements of competitive markets around the world - maximizing liberty requires a level playing field, period.
The U.S. and the West need to act quickly. First, on the strategy side, we need to build an initiative around our strengths — these are the priorities of citizens in emerging markets. Start with the issues that are closest to them, and that empower them and their children: health, mobility, good jobs, and opportunity.
Second, the initiative has to focus on strengthening the free marketplace. Neither model has done this well, for very different reasons. This includes rapid injections of investment (not loan forgiveness, grants and loan guarantees), along with the quick mobilization of local and global resources through new investment strategies, like like land value capture for transit and performance contracting for water, wastewater and transit.
Third, the West needs to be bold, something it hasn’t been for decades - and drive at least $2 trillion into emerging market recovery over the next 24-36 months. Current programs are timid and slow, magnifying the weaknesses of the too too complacent West.
Movement creates its own clarity. As Sun Tzu wrote, “opportunities multiply as they are seized” - and the U.S. & the West need to seize what are not just opportunities, but responsibilities of global leadership, and we need to do it as quickly and boldly as imaginable. This opinion piece was written for Forbes by Norman Anderson Chairman & CEO of CG/LA Infrastructure
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