Build Back Better: smarter investment decision making

“Build back better” has become a mantra of our time. In the US, the Biden administration is trying to secure a multi-trillion-dollar package of infrastructure spending to drive change. Cambridge Econometrics have ECONorthWest have been considering how local policy makers can make the most of the opportunity to enhance economic productivity, improve social and regional equity, protect the environment, AND deliver a strong return on investment. Anthony Barker provides a short summary here.

Across the globe, governments are planning for COVID-19 recovery with economic strategies and investment plans that expedite transition to a clean energy world and directly address decades or more of unequal access to opportunity. In the US these ambitious but worthy goals are outlined in Biden’s Build Back Better package of initiatives.

Given the intent, the key question to address is: if we’re going to invest trillions of dollars, how do we do it so that it puts our communities on a better, more socially-sustainable path?

For us, it requires projects that deliver for the long-term in an equitable way and at the same time address the real long-term challenges we face. In short, we think it comes down to smarter investment decision-making by:

• Leveraging lessons learned from past major investment initiatives
• Assessing a wider range of benefits when evaluating options
• Using the latest tools and thinking about triple bottom line – economy, society and environment – impacts

Lessons from the Great Recession

The key lesson from the US response to the 2008/2009 Great Recession, in the form of the American Recovery and Reinvestment Act (ARRA), is that accelerating infrastructure investments into “shovel ready” projects is easier said than done, and can lead to poor strategic decisions.

With part one of Biden’s agenda (the America Rescue Plan) already underway there should be less urgency in the speed of spending and more attention paid to the potential for sustained mid- to long-term benefits of infrastructure investment, and to the supporting initiatives needed to increase the chance of success.

Assessing a wider range of benefits when evaluating investment options

To achieve the ideals, policy-makers will need to be supported by thinking and tools that encompass everything we know to be important, and agencies will need to measure impacts at the various timescales and geographies across which they occur. Building back better and smarter means addressing the challenges faced by the economy, society, and the environment simultaneously.

How economic tools and strategic thinking can help

Policy-makers will need to be supported by thinking and tools that encompass everything we know to be important, and agencies will need to measure impacts at the various timescales and geographies across which they occur. The appropriate response will differ greatly from one place to another, reflecting local strengths, challenges, and assets.

We advise:

• Being sensitive to a wide range of social and environmental impacts and the distribution of those impacts
• Applying models with a clear, real-world, logic that quantifies the interactions between the economy, society and the environment
• Greater use of scenario analysis to examine alternative policy packages to better understand dynamic relationships under conditions of uncertainty
• Better consideration and identification of distributional effects, both spatially and on segments of the population
• Thoughtful consideration of innovative financing and operations to best deliver cost-effective infrastructure

You can find a fuller discussion of the issues in this briefing paper.

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