Leaders | Captain Sensible

Large economic gains can come from mundane improvements in policy

Three suggestions for better government

READERS OF The Economist are easily roused by debates over unconventional monetary policy, the merits of fiscal stimulus and innovative structural reforms. (Don’t deny it.) Other areas of economic policy may lack the same thrilling sense of excitement, but dullness is not the same as irrelevance. There are large gains to be had by doing drab things a little bit better. Take three examples: maintenance, management of state assets and public-sector accounting.

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Raising money for repairs is harder than finding the cash for flashy new projects that you can stick your name on. In recent decades America has built many useless new roads, yet the fraction of existing road surfaces that are too bumpy has risen from 10% in 1997 to 21% today. Potholes gradually damage vehicles that drive over them. Faulty locks on the Kiel Canal, which connects the Baltic and North seas, leave ships queuing to get through; sometimes they are forced on a detour around Denmark. Maintenance failures can also lead to fatal catastrophes like the recent bridge collapse in Genoa in Italy.

Yet if the costs of skimping on repairs can become tragically apparent, it is hard to spot maintenance shortfalls across the economy as a whole. Estimating how quickly assets deteriorate is tricky; so too is the job of tracking repairs, which are often undertaken by companies in-house (see article). Canada has the best figures. It reckons that firms spend 3.3% of GDP on maintenance, more than twice what the country shells out on research and development. That makes repairs important to the economy in the short term, as well as over time.

Penny-pinching governments often let infrastructure crumble regardless. Even stimulus programmes typically favour vanity projects. After the financial crisis America spent twice as much per person on transport projects in sparsely populated areas as it did in cities, where the needs are greatest. Diverting more money into maintenance would be an easy win for society.

If some public assets are poorly maintained, others are inefficiently used. Governments own huge asset portfolios, including swathes of land, firms such as utilities or post offices, and financial assets, such as investments held by public-sector pension funds. The IMF recently studied 31 big countries covering about three-fifths of the global economy and found their collective assets to be worth $101trn, or 219% of their combined GDP. The yields these assets produce vary wildly. SNCF, France’s state-owned railway, earned a return on capital of 7.9% in 2017; Amtrak, America’s closest equivalent, holds assets worth $15bn but makes a loss. The fund reckons that a country moving from the 25th to the 75th percentile for risk-adjusted returns on only some kinds of assets would add annual revenues worth 3% of GDP to its coffers. That is roughly what rich countries earn, on average, from collecting corporate taxes.

How best to encourage more maintenance or to raise asset yields? Our third boring suggestion, improving public-sector accounting, is part of the answer. At the moment governments focus too much on cashflow and annual borrowing. Crumbling infrastructure and forgone yields do not feature in these figures. So when the state tightens its belt, it often preserves day-to-day spending by cutting maintenance and investment, even when doing so harms the public sector’s net worth once all the beans are properly counted.

A businesslike focus on the balance-sheet would improve incentives. Finance ministers might invest more, were the resulting boost to public wealth made clear. And if all state bodies had to account for the capital tied up in their operations, they might feel obliged to put it to better use, or to sell it off. Only in one country, New Zealand, is public-sector accounting up to scratch. It updates its public-sector balance-sheet every month, allowing for a timely assessment of public-sector net worth. Britain produces good numbers, too, but with a delay of over a year—too long a lag for the figures to shape policy.

All this may sound more like a cure for insomnia than for economies’ ills. Yet getting basic issues right would produce greater gains than many of the brilliant ideas that politicians trumpet in order to dazzle voters. Being boring might not capture attention. But it could actually do some good.

This article appeared in the Leaders section of the print edition under the headline "Captain Sensible"

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