- By Justin Yifu LinJustin Yifu Lin is senior vice president and chief economist of the World Bank.
It may seem obvious, but three years and counting into the economic crisis we need to say it: An economy that’s not growing fast enough will struggle to pay its bills and create jobs. And that’s exactly what’s happening. Growth in the developing world, while still well above that of advanced countries in 2011, was hit hard by the extreme volatility in international financial markets, which in turn hurt domestic demand in many emerging-market economies and also had spillover effects in terms of capital flows and trade. Meanwhile, the International Labor Organization estimated a 2011 global unemployment rate of 6.1 percent — that’s 203.3 million people out of work.
Clearly, something must be done — and here’s an idea that could benefit economies large and small, wealthy and poor: a massive global investment in infrastructure, financed with the creativity required in this age of austerity and aimed at jump-starting growth.
Higher growth can only be realized through worldwide investment, yet as long as factories continue to carry spare capacity and homes and office buildings remain vacant, the private sector is unlikely to lead the way. Governments must play an active role, and the solution could take the form of a global infrastructure investment initiative of at least $1 trillion. A worldwide initiative of this type has not been attempted before. There are, however, proposed infrastructure plans for East Asia, Europe, and the Middle East. We should make these plans real, and global, by building consensus among multilateral development institutions, as well as through the G-20 and other important groupings.
Investments in infrastructure projects create jobs and growth now and enhance productivity in the future. For example, in the United States, just $1 billion in new investment in transportation, school buildings, water systems, and energy could create 18,000 jobs, mainly in the construction and manufacturing sectors, which have been particularly hard hit by the recession.
Infrastructure improvement is needed to keep advanced countries competitive. With government budgets tightening, however, such an initiative would need to rely on self-financing infrastructure projects, such as toll bridges and high-speed trains, or use innovative financing mechanisms that encourage private participation.
It’s also vital to promote and facilitate infrastructure investments in developing countries where bottlenecks and low productivity choke off growth. In countries like Nigeria and Tanzania, lack of access to water, sanitation, roads, and electricity not only impinges on the daily lives of hundreds of millions, but also renders firms less competitive. How can you compete if you don’t have electricity? Many businesses are never started because the required infrastructure services are not available. A little creative financing could go a long way.
It’s time for rich and poor countries alike to join hands to literally build the future. Infrastructure investments in developing countries will increase demand for capital goods such as the turbines and excavators that are often produced in the United States and Europe. Infrastructure investments in developing countries will boost exports, manufacturing employment, and growth in high-income countries, while reducing poverty and enhancing growth in the developing world. It’s a win-win solution. So what are we waiting for?