BiGS Actionable Intelligence:
Editor's Note: This is the first of several viewpoints that we will run from MBA students who are members of the Geoeconomics Group at HBS. In these pieces, writers will share their insights gained from engaging with business leaders and scholars around the world on business' role in society. This viewpoint is from Kate Swain-Smith, co-founder of the Geoeconomics Group. Kate started her career in the Boston Mayor's Office, and more recently served as an advisor to the US Secretary of Labor in the Biden-Harris Administration. She will graduate with her MBA from HBS in 2025.
BOSTON — A few years ago, the notion of breaking ground on an $879 million Golden Gate Bridge seismic retrofit project may have seemed lofty. But the passage of three large legislative packages that took effect in 2021 and 2022 made financing megaprojects like these suddenly easier. The bills delivered historic levels of federal funding and tax incentives to localities and businesses in key industries across the country, supporting projects ranging from port dredging in South Carolina to bolster supply chain capacity, to expanding EV charging stations across the U.S.
These billions are available thanks to three major bills signed by President Biden: the Bipartisan Infrastructure Law (BIL, 2021), the CHIPS and Science Act (2022), and the Inflation Reduction Act (IRA, 2022). The types of funding include formula grants to states; discretionary grants that eligible entities—including private companies—compete for; tax credits; and loans. Combined, the bills pave the way for an industrial strategy to bolster U.S. competitiveness, onshore advanced manufacturing, and upgrade domestic infrastructure to improve the movement of people (roads), goods (ports), and ideas (high-speed broadband).
In the past, the private sector might have viewed public investments as something unrelated to their own business activities. However, BIL, CHIPS, and IRA funds have direct implications for industry and overall U.S. GDP and have been designed to “crowd in” the additional private capital that is needed for infrastructure projects and the clean energy transformation, rather than to crowd out or duplicate. The public funds attract private capital by providing longer-term certainty and overcoming market frictions or failures that may impede the development of nascent technologies.
To date, the legislative packages have catalyzed a combined $877 billion in private capital for critical industries. Goldman Sachs estimates that the IRA alone will spur $3 trillion in investment [DB1] across sectors in clean energy technology in the coming decade. This private capital is critical. Public funds aren’t enough to close the “investment gap” in these industries in America.
What’s the bigger picture? More private capital and businesses are being tapped to address far-reaching economic challenges, such as renovating infrastructure like the Golden Gate Bridge, the shift to clean energy, and the demand for advanced manufacturing. Stakeholders from many sectors—including private businesses, local public authorities, financial institutions, workers, and communities—expect results.
How are projects best implemented?
How will these new projects be implemented and how can we ensure that these investments bring the benefits promised?
One option is public-private partnerships—known as “PPPs” in the finance industry— that allow large-scale government projects to be completed with private funding. Pioneered in the United Kingdom, governments and businesses have used them as a way to share capital, risk, and ownership to finance major investments. PPPs are often lauded as innovative vehicles for facilitating deeper cooperation than old models of risk-based contracts or procurement, such as a one-way contractual payment for goods and services. However, the arrangements remain relatively rare in the U.S., representing just 1% to 2% of infrastructure spending, in contrast with 5% to 20% in Europe.
Why we may start seeing more PPPs in the U.S.
That may soon change. The Bipartisan Policy Center forecast that BIL and IRA will spur significant market demand for PPPs across the United States, given the significant increase in money available and the strings attached. These strings include mandatory matched funding, value-for-money analysis, and up-front identification of partners that are community-based or workforce-development organizations. We see that shift in action already with the Department of Transportation’s Innovative Finance and Asset Concession Grant Program (IFACGP), which dedicates more than $57 million to help public entities identify, evaluate, and plan partnerships to build, operate, and maintain infrastructure. We also see increasing demand for PPPs in research and development. Earlier this summer, the Department of Energy announced $5 million to fund PPPs for fusion research.
When do private-public partnerships succeed?
Agreeing to transformational projects financed by the new legislation is not the same as implementing them—let alone delivering the lasting positive economic and environmental impacts that they promise to bring to communities across the U.S. There is mixed data on the success of PPPs, according to an article in the Harvard Business Review.
Bent Flyvbjerg, a University of Oxford professor and expert on megaprojects, lays out damning evidence in his new book, How Big Things Get Done. Most projects[KS2] (92%) do not hit their budget or timeline goals, he writes. (Flyvbjerg defines megaproject as large-scale, complex, and ambitious ventures that can impact millions of people and cost more than $1 billion, involving stakeholders from the public and private sectors.)
So, what are the necessary conditions for these large projects to succeed?
Trust between both parties is one needed ingredient for success, Flyvbjerg writes. “If something goes wrong, the project’s fate depends on the strength of those relationships. And when something goes wrong, it’s too late to start developing and cultivating them. Build your bridges before you need them.”
To dig into this further, The BiGS Fix spoke with Dustin Tingley, author of Uncertain Futures: How to Unlock the Climate Impasse. The energy transition is not moving fast, he said, due to credible issues that threaten public support. Asked how both public and private leaders can start to build and strengthen relationships, Tingley said, “It’s incumbent on private capital to try to signal in ways that go above and beyond that they are embedding themselves in the communities they work in.”
Public officials must actively support and oversee these partnerships, according to Tingley, noting that blaming companies for problems only shifts responsibility away from elected leaders.
To improve relationship-building, Tingley recommends that all parties involved in a public-private partnership should clearly define their roles and responsibilities and outline the incentives. Without clarity, there is a risk of encountering obstacles that could hinder progress, he said.