An Alternative View on Why Politicians Love Infrastructure Spending

From The New Yorker, "The Sochi Effect" by James Surowieki

 “Whatever happens on the ice and snow of Sochi in the next couple of weeks, one thing is certain: this Winter Olympics is the greatest financial boondoggle in the history of the Games. Back in 2007, Vladimir Putin said that Russia would spend twelve billion dollars on the Games. The actual amount is more than fifty billion. (By comparison, Vancouver’s Games, in 2010, cost seven billion dollars.) Exhaustive investigations by the opposition figures Boris Nemtsov, Leonid Martynyuk, and Alexei Navalny reveal dubious cost overruns and outright embezzlement. And all this lavish spending (largely paid for by Russian taxpayers) has been, as Nemtsov and Martynyuk write, “controlled largely by businesspeople and companies close to Putin.” “Sochi is emblematic of Russia’s economy: conflicts of interest and cronyism are endemic. But the link between corruption and construction is a problem across the globe. Transparency International has long cited the construction industry as the world’s most corrupt, pointing to the prevalence of bribery, bid rigging, and bill padding. And, while the sheer scale of graft in Sochi is unusual, the practice of politicians using construction contracts to line their pockets and dole out favors isn’t. In the past year alone, Quebec learned about systematic kickbacks and Mob influ­ence in the awarding of city construction contracts. In Turkey, Prime Minister Recep Tayyip Erdoğan has become embroiled in a vast scandal involving friendly construction tycoons who were given cheap loans and no-bid contracts. And a recent report from the accounting firm Grant Thornton estimated that, by 2025, the cost of fraud in the industry worldwide will have reached 1.5 trillion.” “What makes construction so prone to shady dealings? One reason is simply that governments are such huge players in the industry. Not only are they the biggest spenders on infrastructure; even private projects require government approvals, permits, worksite inspections, and the like. The more rules you have, and the more people enforcing them, the more opportunities there are for corruption. And, in many countries, the process of awarding contracts and permits is opaque. As Erik Lioy, a forensic accountant and fraud expert at Grant Thornton, told me, “When it’s not clear how projects get approved, people assume the worst, and that provides incentives to do a bribe or kickback.”

Joe Biden on infrastructure here.