One of the popular economic memes of the 2000s has been that Australian needs more infrastructure. It has filled out many a think-tank report. In the form of the National Broadband Network, it helped Labor win government in 2007. It has led to a current crop of serious proposals for truly dumb projects, such as Melbourne’s Avalon Airport Rail Link, and merely dubious ones, such as Melbourne’s East-West Link freeway.
We have also built a great deal of infrastructure in recent years. And while we still have plenty to build, it may no longer be true that we have a generalised infrastructure shortage.
Some of the signs are captured in the graph below. It comes from a McKinsey Global Institute (MGI) report called Game changers: Five opportunities for US growth and renewal. MGI is the McKinsey the management consultancy’s macroeconomic think-tank. Be warned: it is not always the most rigorous of outfits, and its sources and methods for this report are not clear on a first reading.
For what it is worth, MGI is making the point that the US could use a deal more infrastructure. But tangentially, over on the right-hand side of the graph, MGI also makes the case that Australia is not in the same boat as the US. The graph suggests we are actually spending more than we need to do – just like that famously profligate infrastructure spender, Japan.
At the very least, if MGI’s figures are broadly sensible, we are not obviously underspending on infrastructure in general.
The graph tends to support the claims made by the Grattan Institute’s John Daley last year that “investing faster in Australian infrastructure is unlikely to substantially increase the size of the economy over the next decade” and that “Australian infrastructure spending is already at historic highs”. Daley, an ex-McKinsey executive, made the claims in a report called Game-changers: Economic reform priorities for Australia, which Club Troppo’s judging panel – me – found deserving of an Ozzie Award.
As the Grattan Institute report pointed out, overspending on something like infrastructure is far from costless. It leaves less money for everything else. (In Australia’s case, a quick look at the MGI report suggests the something on which we are underspending might be education.)
Why have we had all the scare stories about Australian infrastructure? They typically start with the Engineers Australia Infrastructure Report Card, where the nation generally gets a C mark and a mournful complaint that “little or no real overall progress has been made”. (Engineers Australia is the local engineers’ union/lobby group.) Hired economists then take this supposed infrastructure deficit and put some very loose, but large, dollar numbers around it. It has never been a very rigorous process. It has, however, attracted plenty of money over the years, some of it from large civil engineering firms.
Labor has not covered itself with glory on infrastructure policy. The most obvious example is the NBN, which badly needed some sort of independent assessment – an assessment which would likely have revealed it to be an inefficient way of improving broadband services. But by introducing Infrastructure Australia as an independent assessment body, Labor has at least created an institution which can rein in over-eager infrastructure spending. On that, its timing seems to have been exactly right.
Nothing in the above assessment means we should stop spending on infrastructure or working to make infrastructure planning and construction better. There’s a lot to be done, especially in places like south-east Queensland. This assessment does, however, suggest that we should pay attention to Infrastructure Australia’s processes, and make sure to assess infrastructure proposals with a critical eye.