Regime Theory in Infrastructure Development


infOne of the central challenges we face in infrastructure development is to understand the interplay between political forces and economic forces. Political power and the power of free enterprise run in parallel tracks. Political science offers up a concept called “regime theory,” which takes as given a set of government institutions subject to some degree of popular control, coupled with an economy guided mainly by privately controlled investments. A regime is a set of arrangements by which this division is bridged.
Regimes bridge the divide between popular control of government and private control of economic resources. The requirements for a successful regime set forth by political theorists are: (a) the creation of a coalition that (b) can bring resources to bear on the challenges posed by (c) the agenda, and (d) an operational scheme that provides management to the sequence of events and distribution of resources demanded by that agenda. Local government and local businesses must be included in the forces and implementation demanded by even large scale projects.
The political power we look for in developing projects is the “power to,” or the capacity to act, rather than “power over” others or social control. In infrastructure development, we are usually looking to government actors for their ability to “do” something just as much as its ability to be “in control” of something. We need active and creative partners. Regimes can use selective incentives to secure participation in the local governing coalition. These might be items such as contracts and jobs, or might be a negotiated trade of governmental or industry support in an area removed from the regime’s current agenda, such as improved local housing or attention to civil rights.
Big agendas need big resources, which, many times, are beyond the reach of smaller actors. Controllers of big resources may also influence exactly what gets put on the agenda, because if they have the “power to” do something by bringing those resources to bear, then the mere feasibility of that agenda item may give it preference over other issues. An infrastructure project must be practical as well as visionary. Regime analysis says that success or failure is differentiated by the ability to garner resources appropriate to the agenda, and to sustain the agenda against attention shift. Institutional networks and big businesses that have more ready access to important resources therefore have more influence, but competing actors bring competing agenda items and may represent different constituents. Each of the actors, moreover, has varying strengths in different arenas. When looking into this complex mix of forces, investors are trying to understand the stability and potential of the players involved.
The requirements for a successful infrastructure project are no different from those required for successful implementation of any business plan in private enterprise. What are different are the risk-reward ratios generally available in the public vs. private sectors.
In private enterprise, one invests and one expects to be rewarded in proportion to that investment; similarly, one’s loss is usually restricted to the amount of the investment. In the public sphere, however, different groups and individuals contribute in one fashion or another (money, time, prestige) but the reward for that contribution may not be proportional to the investment or the reward may be spread out across society. The success or failure of an agenda may benefit the public, and not the individual contributors in proportion to the investment.
Multiple purposes can exist within a society for the items on an infrastructure development agenda. Therefore, an indispensable characteristic of a successful project management is that it is able to frame problems in such a way that many different groups and interests are engaged. If a broad purpose is not identified, people will be drawn more naturally toward limited aims. A successful project must be able to identify a broad, engaging “purpose” and build realistic programs to achieve this purpose. There must be a fit between the broad purpose and the immediate goals if the project is to remain strong and viable across multiyear investment horizons.
Several other theorists note that economic power is not completely in the hands of the “private sector,” but that this power is shared by governments who also wield their own monetary initiatives. If regime theory embraces a ratio of these two forces, then the power of each in comparison to the other could form an index, as in this equation:
Market control of production
Regime index = —————————
Popular control of government
In modern society it is rare to find a government that has complete control of everything in a country, and it is also impossible to find a society in which business interests have absolute control of development with no consideration of the public good. Therefore, we are always in between these two extremes, and the specific mixtures we find in any given infrastructure project will determine the amount of public and private investments and benefits for the actors involved. Some infrastructure projects (for example, public schools) may never be profitable under current market conditions, but are still necessary for citizenry to thrive. Other projects may be sponsored by government actors and private interests, but do bring a return on investment — toll roads or power generation might be examples. In any large scale infrastructure project, this natural index guides our thinking in how to approach and sustain development and financial partnerships in the long term.
National Standard Finance, LLC is a leading multinational institutional alternative investment company and asset manager that specializes in sovereign (government) and infrastructure investing. National Standard is capitalized by a consortium of large North American financial institutions and some of the world’s leading global investment banks which provide us with the financial backing to tackle the most complex and challenging financial transactions. National Standard maintains offices and staff across the global markets we serve.
A pioneer with best in class capabilities in global sovereign and infrastructure financial markets, National Standard is partnered with sovereign and sub-sovereign governments, helping design and fund infrastructure development programs. This includes leading government sponsored finance agencies and many of the world’s elite institutional investors, to create a progressive global capital syndicate dedicated to financing critical infrastructure and sovereign capital requirements around the world.
Hugo Barreca is President at National Standard Finance, LLC. Mr. Barreca can be reached at HBarreca@NatStandard.com. www.NatStandard.com

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