Bottlenecks Against Better German Infrastructure

An expert commission has said investing more public money in infrastructure improvements would lead to a stronger German economy—and the government isn’t short of money. So what’s holding up needed investments?

For years, German economists have warned that the level of public and private investment in the country’s public and private capital stock was dangerously low. Hard infrastructure such as roads, bridges and broadband fiber optic networks have been getting insufficient funding. Many school and pre-school buildings also need updating, according to senior economists at leading think-tanks like the German Institute for Economic Research (DIW), German Institute for Urbanism (DIFU) or Bertelsmann Foundation.

 “The estimated backlog of public investments in hard infrastructure as of 2015 was about €136 billion ($162 billion) worth, and in 2016 it was still €126 billion,” Henrik Scheller, a researcher at DIFU, told DW. “These are estimates of the cost of upgrades to basic hard infrastructure required by existing laws—for example, investments in bridge maintenance, road improvements, or properly built schools and kindergartens.”

This figure does not include additional investments that might be desirable, Scheller said–for example, a national network of fast-recharging stations for electric vehicles, improved electricity transmission networks, or a national network of broadband cables.

 Lacking Professional Staff

The average annual public spending on infrastructure amongst Organization for Economic Cooperation and Development, a club of world’s wealthiest industrial countries, is 3.3% of gross domestic product. Germany’s is only 2%, Scheller said—a surprisingly large gap.

Markus Hoch, an economist at Prognos, a consulting company, told DW that researchers at Prognos and at Bertelsmann Foundation, a think-tank, have run economic models concluding that spending more public money on infrastructure would lead to a higher GDP and a stronger, more productive German economy—even if the investment money needed were diverted from consumption by levying higher taxes.

The challenge, according to senior economist Martin Gornig of DIW, isn’t so much a lack of available money, as a lack of professional staff qualified to plan and manage infrastructure projects within some of Germany’s municipalities—especially the poorest ones, where the work is needed most.

“When government budgets were stressed in the early 2000, less well-off municipalities had little money availability for infrastructure construction or maintenance, so they laid off planning staff. Now the money is potentially available, but these municipalities no longer have the expert staff needed for carrying out infrastructure projects,” Gornig told DW.

Gornig explained that the federal government has no direct authority over infrastructure spending, which is a constitutional responsibility of the municipalities—“and that’s appropriate, since the municipalities are in the best position to know what’s really needed in terms of local infrastructure.”

But municipalities don’t have deep pockets like those of the federal government. So what’s needed, Gornig said, is a predictable, efficient way to channel federal money to the municipalities that need it most.

If a country as wealthy and famous for technological capacity, logistics and project management as Germany has difficulty ensuring its poorer municipalities are able to build and maintain modern infrastructure, even though the federal government has no shortage of funds, one can imagine how much more difficult a challenge is faced by developing countries with less money and less technical capacity.