One of the world’s leading experts in developmental economics has called for the adoption of five-year plans to enhance long-term decision making when it comes to infrastructure investment and other forms of public spending.
Jeffrey Sachs, Professor of Sustainable Development at Columbia University as well as special adviser to the United Nations Secretary-General on the Millennium Development Goals, says prevailing theories are no longer applicable to modern economic development, and that new approaches, which in fact depend upon methods long thought to be discredited, may be the best means of guiding infrastructure spending in future.
According to Sachs, the two mainstream schools of economic thought that predominate at present – free market economics and Keynesianism – have both failed to produce adequate results when it comes to fostering sound and equitable economic growth in the real world.
While free market economics permit the rich to prosper, it fails to deliver an equitable outcome for the rest of society and often makes life even more onerous for the indigent. Keynesian economics, on the other hand, has fallen short of its long-vaunted promise, with recent stimulus spending failing to increase business investment because companies have opted instead to squirrel away their cash reserves in tax-exempt offshore accounts.
Sachs says that despite their ostensibly adversarial relationship, both free market and Keynesian economics share a common flaw – a fundamental misunderstanding of the nature of modern investment.
Both schools of thought consider investment to be led by players in the private sector, because taxes are low and regulations lax in the case of free market economics, or because of increases in aggregate demanding in the case of Keynesianism.
Sachs claims, however, that in the modern world private-sector investor is in fact highly dependent upon the public sector when it comes to all forms of capital goods. Infrastructure in particular plays an highly critical role, since other forms of capital investment, such as business capital, cannot function effectively without it.
Sachs is now calling for governments to adopt the types of long-term investment strategies that were once so beloved of Marxist command economies, and are now still being deployed with surprising effectiveness by modern China’s state capitalist economy.
“The world’s fastest growing economy, China, relies on five-year plans for public investment…the US has no such institution, or indeed any agency that looks systematically at public-investment strategies,” said Sachs. “But all countries now need more than five-year plans: – they need 20-year, generation-long strategies to build the skills, infrastructure and low-carbon economy of the twenty-first century.”
Should Sachs’ advise prove to be prudent, Australia may already be well positioned to exercise greater foresight when it comes to infrastructure spending over the long-haul.
Despite the right-wing bent of the incumbent government, the Coalition’s current infrastructure plans would appear to be in keeping with Sachs’ call for a return to socialist-style long-term planning.
After campaigning on a platform of improvements to infrastructure, the Coalition has since announced the development of 15-year rolling plans for national infrastructure projects, which will be produced in close collaboration with Infrastructure Australia and revised once every five years.
Infrastructure Australia has also been conferred with expanded duties and powers in order to better leverage its role as an advisory body to government. These include providing cost-benefit analyses for all Commonwealth-funded projects worth more than $100 million, as well as publishing justifications for all project recommendations.