{"id":8833,"date":"2022-09-12T01:52:42","date_gmt":"2022-09-12T01:52:42","guid":{"rendered":"http:\/\/lonecandle.com\/?p=8833"},"modified":"2022-09-12T01:52:42","modified_gmt":"2022-09-12T01:52:42","slug":"bidens-latest-global-infrastructure-plan-is-all-about-competing-with-china-thats-a-problem","status":"publish","type":"post","link":"https:\/\/lonecandle.com\/?p=8833","title":{"rendered":"Biden\u2019s latest global infrastructure plan is all about competing with China. That\u2019s a problem."},"content":{"rendered":"\n

\n\n“Global power is often seen as a zero-sum game, and policymakers in Washington fear that China\u2019s growing influence is coming at the expense of the US. Yet they haven\u2019t offered an alternative to the BRI, instead largely chastising<\/a> China for its intentions behind it and discouraging countries<\/a> from joining it.<\/p>\n\n\n\n

But that changed at the Group of Seven (G7) Summit last month, when President Joe Biden announced the Partnership for Global Infrastructure and Investment (PGII)<\/a>. With the PGII, G7 governments and private funders aim to invest $600 billion in low- and middle-income countries over the next five years, with $200 billion specifically earmarked from the US.<\/p>\n\n\n\n

The motivation isn\u2019t hard to discern: Counter China\u2019s BRI. \u201cImitation is the sincerest form of flattery,\u201d said Jorge Heine<\/a>, a professor at Boston University and Chile\u2019s former ambassador to China. \u201cIt has finally dawned on Western countries that there is actually a need for infrastructure in countries in Africa, Asia, and Latin America.\u201d”<\/p>\n\n\n\n

…<\/p>\n\n\n\n

“In his remarks announcing the PGII<\/a>, Biden stated: \u201cI\u2019m proud to announce the United States will mobilize $200 billion in public and private capital over the next five years.\u201d Despite that promise, however, the real money the US government has committed is far from $200 billion \u2014 adding up to about $170 million<\/a>.<\/p>\n\n\n\n

That discrepancy comes in part from how the US plans to finance this agenda. Kenny told me the US and the European Union have been keen to mostly rely on the concept of financial leverage<\/a>. For example, a government may offer to finance $1 of an infrastructure project with the idea that this will then spur and be matched by $10 of investment from the private sector. \u201cThere\u2019s this idea that you get from the millions and billions to these hundreds of billions by leveraging the private sector,\u201d Kenny said. But, he added, \u201cthe fact is the record of that has been grim<\/a>.\u201d Rather than a one-to-10 public-private financing ratio, \u201cwe\u2019re seeing a low one-to-one.\u201d<\/p>\n\n\n\n

The US is relying on leveraging to fund the PGII for two reasons. One, Congress is unlikely to authorize any more money for this kind of initiative, especially given its failure to pass increased funding for domestic programs (the rebranding of the initiative from \u201cBuild Back Better World\u201d was no coincidence<\/a>). So leveraging private companies \u201cmakes small amounts of US government money look bigger,\u201d Kenny said, while enabling the administration to take credit for the whole promised sum.”<\/p>\n\n\n\n

…<\/p>\n\n\n\n

“The other reason, according to Kenny, is a deeply embedded ideological belief, stemming back to the Washington Consensus<\/a> of the late 20th century, that the private sector beats government when it comes to delivering on goods like infrastructure. Reliance on the private sector also has the added benefit of preferring US companies and workers for various development projects, but Kenny added that US policymakers genuinely appear to believe this method makes these projects more affordable to low- and middle-income countries.<\/p>\n\n\n\n

This line of reasoning is shaky, though, as public-private partnerships like the ones the PGII proposes are often very complex.” <\/p>\n\n\n\n

…<\/p>\n\n\n\n

“China and the BRI have had a different model, which has proven more successful. Kenny told me that China has been more willing to finance infrastructure that will be owned and operated by Global South governments. Fundamentally, this allows projects to be built faster and more cost-effectively as governments are already responsible for most infrastructure (approximately 83 percent of infrastructure investment<\/a> worldwide is government-financed, per a 2017 study), and they don\u2019t need to bargain and haggle with private companies.”<\/p>\n\n\n\n

…<\/p>\n\n\n\n

“One key way for the US and G7 to support the Global South would be to better use existing multilateral institutions like the World Bank and regional development banks like the African Development Bank, especially because, as Kenny told me, the World Bank actually can do the concept of leverage pretty well. While the US is proposing the approach of a \u201cbespoke retailer\u201d that pursues public-private deals one project at a time (each maybe a $100 million investment), the World Bank is like a big \u201cwholesaler\u201d that leverages money from the whole market (in the range of hundreds of billions) to support a range of public sector projects.<\/p>\n\n\n\n

\u201cGovernments put in a little bit of capital to the World Bank, which then goes out and borrows massive amounts on private markets, issuing bonds at a 10:1 ratio,\u201d Kenny said, meaning that they can get a lot of money for construction and development projects for the Global South. The World Bank also used to be much more engaged in financing hard infrastructure like roads and railways, only for prioritiesin terms of what is funded to change in recent decades. A massive recapitalization of the World Bank, Kenny said, could be an important place to start.<\/p>\n\n\n\n

Dean Baker<\/a>, senior economist and co-founder of the Center for Economic and Policy Research, also suggested the issuance of \u201cspecial drawing rights<\/a>\u201d (SDRs) from the IMF to shore up the central banks of countries in the Global South. SDRs effectively act as \u201ccoupons<\/a>\u201d from the IMF \u2014 the closest thing to the world\u2019s central bank \u2014 and they function like cash transfers<\/a> to countries in times of crisis.<\/p>\n\n\n\n

SDRs were most recently issued to support countries around the world facing a financial crunch during the Covid-19 pandemic<\/a>, and were used by low- and middle-income countries to pay for vaccines and other health care needs. However, as the authors of a Brookings Institution analysis<\/a> of SDRs during the pandemic found, high-income and upper-middle-income countries currently receive the majority of SDRs, so distribution would need to become more equitable.<\/p>\n\n\n\n

The US would also be wise to focus on its strong suits. As Kenny wrote in a recent article<\/a>, the best way the US could help build the human capital of the world by way of providing scholarships and visas for access to its world-leading institutions of higher education, as well as increasing the number of work visas<\/a> issued. And many of these migrants would end up sending capital back to their home countries in the form of remittances<\/a>. A 2019 IMF study found that remittance flows<\/a> total up to greater amounts of cash to low- and middle-income countries (China excluded) than overseas development aid.”<\/p>\n\n\n\n

…<\/p>\n\n\n\n

“A final option for the US is to ditch the global competition frame and collaborate with China<\/a> to invest in the Global South. Baker argued that the \u201ccompetition basically makes zero sense\u201d due to the global scale of issues like the climate crisis, pandemics, and global development more generally.”<\/p>\n\n\n\n

…<\/p>\n\n\n\n

“Fundamentally, the Global South hasn\u2019t necessarily bought into the geopolitical ideological competition of \u201cdemocracy vs. autocracy\u201d between the US and China. The Global South, as seen in its position toward the Russian war on Ukraine<\/a>, is increasingly pursuing a strategy of what Heine termed \u201cactive nonalignment<\/a>,\u201d meaning rather than siding with either of the big powers in this supposed \u201cnew Cold War,\u201d they\u2019re more narrowly focused on their own economic growth and development.”<\/p>\n\n\n\n

https:\/\/www.vox.com\/future-perfect\/23279714\/biden-global-infrastructure-development-g7-china-belt-road-explained<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

“Global power is often seen as a zero-sum game, and policymakers in Washington fear that China\u2019s growing influence is coming at the expense of the US. Yet they haven\u2019t offered an alternative to the BRI, instead largely chastising China for its intentions behind it and discouraging countries from joining it.<\/p>\n

But that changed at the Group of Seven (G7) Summit last month, when President Joe Biden announced the Partnership for Global Infrastructure and Investment (PGII). With the PGII, G7 governments and private funders aim to invest $600 billion in low- and middle-income countries over the next five years, with $200 billion specifically earmarked from the US.<\/p>\n

The motivation isn\u2019t hard to discern: Counter China\u2019s BRI. \u201cImitation is the sincerest form of flattery,\u201d said Jorge Heine, a professor at Boston University and Chile\u2019s former ambassador to China. \u201cIt has finally dawned on Western countries that there is actually a need for infrastructure in countries in Africa, Asia, and Latin America.\u201d”<\/p>\n

…<\/p>\n

“In his remarks announcing the PGII, Biden stated: \u201cI\u2019m proud to announce the United States will mobilize $200 billion in public and private capital over the next five years.\u201d Despite that promise, however, the real money the US government has committed is far from $200 billion \u2014 adding up to about $170 million.<\/p>\n

That discrepancy comes in part from how the US plans to finance this agenda. Kenny told me the US and the European Union have been keen to mostly rely on the concept of financial leverage. For example, a government may offer to finance $1 of an infrastructure project with the idea that this will then spur and be matched by $10 of investment from the private sector. \u201cThere\u2019s this idea that you get from the millions and billions to these hundreds of billions by leveraging the private sector,\u201d Kenny said. But, he added, \u201cthe fact is the record of that has been grim.\u201d Rather than a one-to-10 public-private financing ratio, \u201cwe\u2019re seeing a low one-to-one.\u201d<\/p>\n

The US is relying on leveraging to fund the PGII for two reasons. One, Congress is unlikely to authorize any more money for this kind of initiative, especially given its failure to pass increased funding for domestic programs (the rebranding of the initiative from \u201cBuild Back Better World\u201d was no coincidence). So leveraging private companies \u201cmakes small amounts of US government money look bigger,\u201d Kenny said, while enabling the administration to take credit for the whole promised sum.”<\/p>\n

…<\/p>\n

“The other reason, according to Kenny, is a deeply embedded ideological belief, stemming back to the Washington Consensus of the late 20th century, that the private sector beats government when it comes to delivering on goods like infrastructure. Reliance on the private sector also has the added benefit of preferring US companies and workers for various development projects, but Kenny added that US policymakers genuinely appear to believe this method makes these projects more affordable to low- and middle-income countries.<\/p>\n

This line of reasoning is shaky, though, as public-private partnerships like the ones the PGII proposes are often very complex.” <\/p>\n

…<\/p>\n

“China and the BRI have had a different model, which has proven more successful. Kenny told me that China has been more willing to finance infrastructure that will be owned and operated by Global South governments. Fundamentally, this allows projects to be built faster and more cost-effectively as governments are already responsible for most infrastructure (approximately 83 percent of infrastructure investment worldwide is government-financed, per a 2017 study), and they don\u2019t need to bargain and haggle with private companies.”<\/p>\n

…<\/p>\n

“One key way for the US and G7 to support the Global South would be to better use existing multilateral institutions like the World Bank and regional development banks like the African Development Bank, especially because, as Kenny told me, the World Bank actually can do the concept of leverage pretty well. While the US is proposing the approach of a \u201cbespoke retailer\u201d that pursues public-private deals one project at a time (each maybe a $100 million investment), the World Bank is like a big \u201cwholesaler\u201d that leverages money from the whole market (in the range of hundreds of billions) to support a range of public sector projects.<\/p>\n

\u201cGovernments put in a little bit of capital to the World Bank, which then goes out and borrows massive amounts on private markets, issuing bonds at a 10:1 ratio,\u201d Kenny said, meaning that they can get a lot of money for construction and development projects for the Global South. The World Bank also used to be much more engaged in financing hard infrastructure like roads and railways, only for priorities in terms of what is funded to change in recent decades. A massive recapitalization of the World Bank, Kenny said, could be an important place to start.<\/p>\n

Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research, also suggested the issuance of \u201cspecial drawing rights\u201d (SDRs) from the IMF to shore up the central banks of countries in the Global South. SDRs effectively act as \u201ccoupons\u201d from the IMF \u2014 the closest thing to the world\u2019s central bank \u2014 and they function like cash transfers to countries in times of crisis.<\/p>\n

SDRs were most recently issued to support countries around the world facing a financial crunch during the Covid-19 pandemic, and were used by low- and middle-income countries to pay for vaccines and other health care needs. However, as the authors of a Brookings Institution analysis of SDRs during the pandemic found, high-income and upper-middle-income countries currently receive the majority of SDRs, so distribution would need to become more equitable.<\/p>\n

The US would also be wise to focus on its strong suits. As Kenny wrote in a recent article, the best way the US could help build the human capital of the world by way of providing scholarships and visas for access to its world-leading institutions of higher education, as well as increasing the number of work visas issued. And many of these migrants would end up sending capital back to their home countries in the form of remittances. A 2019 IMF study found that remittance flows total up to greater amounts of cash to low- and middle-income countries (China excluded) than overseas development aid.”<\/p>\n

…<\/p>\n

“A final option for the US is to ditch the global competition frame and collaborate with China to invest in the Global South. Baker argued that the \u201ccompetition basically makes zero sense\u201d due to the global scale of issues like the climate crisis, pandemics, and global development more generally.”<\/p>\n

…<\/p>\n

“Fundamentally, the Global South hasn\u2019t necessarily bought into the geopolitical ideological competition of \u201cdemocracy vs. autocracy\u201d between the US and China. The Global South, as seen in its position toward the Russian war on Ukraine, is increasingly pursuing a strategy of what Heine termed \u201cactive nonalignment,\u201d meaning rather than siding with either of the big powers in this supposed \u201cnew Cold War,\u201d they\u2019re more narrowly focused on their own economic growth and development.”<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[13],"tags":[89,272,355,1247,314,780,619],"class_list":["post-8833","post","type-post","status-publish","format-standard","hentry","category-article-share","tag-china","tag-foreign-affairs","tag-foreign-policy","tag-infrastructure","tag-international-relations","tag-joe-biden","tag-united-states"],"_links":{"self":[{"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/posts\/8833","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lonecandle.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8833"}],"version-history":[{"count":1,"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/posts\/8833\/revisions"}],"predecessor-version":[{"id":8834,"href":"https:\/\/lonecandle.com\/index.php?rest_route=\/wp\/v2\/posts\/8833\/revisions\/8834"}],"wp:attachment":[{"href":"https:\/\/lonecandle.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8833"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lonecandle.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8833"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lonecandle.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8833"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}