Americans are industrious people. When we were forced into quarantine last year, we quickly figured out how to carry on from our living rooms and our kitchens. Thanks to the power of the internet, we stayed connected to work, school, friends, and family.
However, we didn’t all have the same tools. The digital divide became blisteringly apparent during the pandemic, as nearly 20% of American households were disconnected from the internet. Typical workarounds like Wi-Fi at offices, schools, and cafés were not available during the quarantine. While most Americans kept learning and working remotely, those without broadband fell far behind.
It’s obvious by now that the internet is not a luxury. Just like electricity, internet access is essential to modern life. We’ve also learned from the experience of homeschooling that the internet is critical to providing equal access to education. Yet too many people still don’t have adequate access.
We now have an opportunity to fix this. The historic Infrastructure Investment and Jobs Act will upgrade nearly all parts of our country’s infrastructure, including $65 billion dedicated to improving broadband access.
But $65 billion only goes so far. Even with the expected buildout, current speeds won’t improve much, and slow connections are a big obstacle to remote work and learning. How can we expect people to pull themselves up by their bootstraps if they don’t have access to the internet?
This paradigm applies across most parts of the legislation: aviation, renewable energy, waste management, water conservation, and especially public transport. The bill’s investment will get us far, but not quite far enough.
The underlying issue is that the U.S. simply does not spend enough to build and maintain high-quality infrastructure. We’re the largest economy in the world, yet we lag almost all G20 nations in infrastructure spending, and we rank below average in infrastructure quality rankings.
There is an obvious solution here: We need more private funding alongside public spending. Fortunately, private investors not only have the capital, but they also have a strong desire to invest in our country’s infrastructure.
To put this in context, the legislation allocates $1.2 trillion in spending, versus the infrastructure funding gap of $2.6 trillion. U.S. institutional investors could easily make up for the shortfall. They represent over $20 trillion in capacity, some of which is already allocated to infrastructure. Today, U.S. investors allocate more capital to international projects because there are not enough domestic opportunities.
There’s also a misperception that allowing the investment community to participate in these projects will pad the wallets of the super-rich. This is simply untrue, and we’ve got to get over it. The vast majority of institutional investment in the U.S. comes from pensions, 401(k)s, and nonprofits like foundations, endowments, and hospitals. Generating a return on these investments supports retirement, education, philanthropy, and health care. Infrastructure is particularly important for retirement accounts because they have similar timelines. The income streams from projects such as roads and bridges match up nicely against long-term retirement benefits.
Infrastructure also aligns with institutional investors’ values. Many universities would like to lower their carbon emissions and would gladly provide capital to invest in decarbonization pipelines if the opportunities were available. Other investors would help close the digital divide by funding projects that support broadband expansion, satellite internet, and fiber.
Private investment would also increase accountability and fill gaps with high-quality expertise not always available in the public sector. Studies have found that when the private sector is involved, infrastructure projects are more likely to meet deadlines and stay within budget.
We have a blueprint for how successful this can be. Canadian pensions have long leveraged infrastructure investments to get retirement dollars to their participants. They view infrastructure as a stand-alone asset class and allocate significant capital to it, and the Canadian government facilitates this with oversight and support from an infrastructure bank.
If we can get all these parts to work similarly in the U.S., we can fund more improvements that will benefit all Americans. Currently, the legislation does offer a few openings for private-public partnerships. We need to encourage the government to incorporate private funding as it administers these projects, and to guide public and private enterprises to work as partners.
This would be a winning arrangement that would bring a true alignment of interests and, best of all, would create a shared stake in the future of our country.
Zach Buchwald is BlackRock’s head of the institutional business for U.S. and Canada.
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