These tend to be approached as fairly simple equations responding to a specific challenge (“we need to move people and goods faster and more reliably”, “we are running out of generation capacity”, or “we cannot go on polluting our rivers”). Investment is generally rationalized using sector specific methodologies (such as road users’ value of time saved in traffic versus net costs to taxpayers).
Rethinking the investment paradigm
But what happens when one takes a step back to look at the wider challenge of economic growth and how it can be delivered through infrastructure investment? Is moving people from point A to point B really delivering the greatest value for the city or region overall, or should we instead be moving where they live?
In the UK, a number of city councils and sub-regional governments have started to rethink the way they approach infrastructure investment by asking themselves how – when compared against a range of potential investment options – different forms of infrastructure might be developed to enhance job creation and drive productivity growth, and – critically – how they might address the inevitable trade-offs.
Creating connectivity as a platform for growth
And when viewed against those criteria, one quickly starts to rethink the way that infrastructure delivers value to the economy. Digging deeper into transportation investments, for example, it becomes apparent that, rather than simply linking two points on a map, mass transit delivers value by connecting businesses to labor markets, businesses to businesses, or businesses to consumer markets. In other words, it’s about improving connectivity.
But there are other ways to improve connectivity. In Greater Manchester, this discussion led civic leaders to start to think about regeneration programs as a way to improve business connectivity, and housing programs as a means to improve labor markets. Rather than simply building out inter-regional transportation systems in order to save commuter travel times, they began to think more clearly about how housing, planning and transport can be improved to not only boost labor markets, but also to deliver a catalyst to communities that were less connected.
Getting bang for the buck
Essentially, what it comes down to is the question of what investment will deliver the most potential for job creation and productivity. And suddenly, rather than deciding on the value of a single mass transit system, the field is thrown wide open to also include civic planning, business promotion, urban regeneration and a host of other approaches and investments that may deliver a bigger bang for the investment buck.
Of course, this path of thinking creates a number of organizational and institutional challenges for governments at all levels. For one, it requires civic authorities to consider their investment options across a wide range of government departments that – on the whole – do not operate as a cohesive unit. So rather than thinking about a ‘transport budget’ or a ‘housing budget’, planners and administrators need to start thinking about an ‘economic growth budget’ where every dollar is channeled towards the programs that deliver the greatest value.
It also requires cities and civic leaders to think about the impact of their investment on their wider economic region and the net impact on its tax base. This necessitates close cooperation with a variety of different governments and institutions. Greater Manchester’s focus on creating economic value started long before the city’s formal establishment of a combined authority to address all dimensions of economic growth, and was initially formed on a basis of voluntary collaboration between the various city and local authorities. The combined authority was established once they had defined the mission and realized that a critical part of this was to break through traditional silos.
Being disciplined about prioritization
Finally, it also necessitates authorities to rethink the way they prioritize their investments. Again, Greater Manchester provides a valuable example. The first step was to agree amongst the various councils and civic departments about what metrics they wanted to achieve and how they would balance the overall regional impact against the localized benefits that would need to be distributed amongst them.
This led to a set of very disciplined criteria that was used to (independently) assess each of the proposals to ensure that investments were not only achieving their objectives, but also were distributed in a way that delivered the most value for the economy as a whole. This is done on a ‘whole life cost’ basis, and after taking into account the net impact on the whole city’s tax base. And while this process certainly required a significant investment of time and coordination, it has paid off. Greater Manchester is now seen as the best practice for driving economic growth from investment and is constantly cited by national and local governments around the world as a case study to be emulated.
The torch has now been picked up by dozens of regional governments around the UK (with the strong support of Whitehall) and is quickly gaining traction in a number of international markets as well. And while each region will approach the challenge somewhat differently (as no two places have identical economic or political geographies), one thing will remain constant: a single minded focus on driving economic value from infrastructure investments.
On March 21, 2012 the UK Government signed an innovative deal with Greater Manchester, allowing Greater Manchester to 'earn back' a portion of the additional tax generated by investing in infrastructure. Manchester is the first ever city in the country to secure such powers and will be able to reinvest the money in local economic development and infrastructure. The city has calculated that the deal will lead to 3,800 new jobs for local people and will protect 2,300 existing jobs.
By Lewis Atter, KPMG in the UK