China’s worldwide investments have expanded dramatically over the past decade, particular in infrastructure projects. In the European Union and elsewhere, this has raised some concerns about security and other geopolitical and economic matters. So we invited our European panel of economic experts to express their views on whether Europe’s governments should consider favoring local firms for public infrastructure projects over potentially lower-cost bidders from elsewhere in the world.
On bids for infrastructure projects, the average European would be better off if Europe’s governments favored European firms over Chinese firms (or firms from any other country with non-profit-related geopolitical strategies) — even if it means sometimes choosing a higher-cost bidder.
Of our 50 experts, 36 participated in this survey, and the reaction was mixed. Weighted by each expert’s confidence in their response, 27% agreed, 24% were uncertain, 40% disagreed, and 9% strongly disagreed. The short comments that the experts are able to include when they participate in the survey reveal some of the key issues.
Of those who agreed with the statement, Lubos Pastor of Chicago Booth replied succinctly: ‘Money isn’t everything’. Beata Javorcik at Oxford said that: ‘This answer holds only for projects related to critical infrastructure (electricity generation, ports, etc.) but not for roads, etc.’ And Daniel Sturm at the London School of Economics noted that: ‘This is really a question about geopolitics rather than economics, but it seems unwise to become too dependent on a non-democratic regime.’
Several experts who said that they were uncertain were explicit about the trade-offs involved in such a policy. Francesco Giavazzi at Bocconi University was clear: ‘Security concerns could justify protectionism but only if they are serious.’ John Vickers at Oxford took the same view: ‘It depends on whether there are serious security issues in play. If not, don’t restrict bidders.’
Similarly, Christian Leuz of Chicago Booth noted: ‘Depends on reason; protectionism clearly bad for consumers; but if a bid is skewed due to other motives, then costs not only consideration.’ Peter Neary at Oxford concurred: ‘It depends; the trade-off is between security and buying from the best supplier; excluding all foreign bidders is just protectionism.’
Agnès Bénassy-Quéré of the Paris School of Economics drew a distinction between a short- and long-term policy focus: ‘Probably not in the short term. More uncertain in the longer term due to scale/lock-in effects, security issues; depends on the sector.’ Olivier Blanchard of the Peterson Institute also foresaw reasons for such a policy: ‘I can see the case for it in some limited circumstances (major disruptions, economies of scale); I also can see the clear room for abuse.’
Of those who disagreed with the statement, Franklin Allen of Imperial College London said:
‘For 5G, high-speed trains, etc., Chinese technology is better than European, US or Japanese; it would be a shame for Europe not to use it.’ Per Krusell at Stockholm University also referred to product quality: ‘I take it that the comparison includes all components (quality, on-time delivery, etc); helping inefficient companies doesn’t improve them.’ And Pol Antras at Harvard commented: “If foreigners want to sell us goods/services at subsidized prices it’s generally good to let them do it. I’m not sure any caveats apply here.’
Focusing specifically on geopolitical concerns, Patrick Honohan of Trinity College Dublin, who also disagreed, said: ‘Geopolitical politics of firm’s home government not per se the most relevant factor in awarding contracts.’ And Jan Pieter Krahnen of Goethe University Frankfurt concluded that: ‘The response to geopolitical interests is a wise strong set of conditionalities if awarded, rather than exclusion from the bidding process.’
All comments made by the experts are in the full survey results.
Romesh Vaitilingam
@econromesh
June 2019
On bids for infrastructure projects, the average European would be better off if Europe’s governments favored European firms over Chinese firms (or firms from any other country with non-profit-related geopolitical strategies) — even if it means sometimes choosing a higher-cost bidder.
Responses
Responses weighted by each expert's confidence
Participant | University | Vote | Confidence | Bio/Vote History |
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Franklin Allen |
Imperial College London | Bio/Vote History | ||
For 5G, high speed trains, etc., Chinese technology is better than European, US or Japanese. It would be a shame for Euope not to use it.
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Pol Antras |
Harvard | Bio/Vote History | ||
If foreigners want to sell us goods/services at subsidized prices it’s generally good to let them do it. I’m not sure any caveats apply here
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Timothy J. Besley |
LSE | Did Not Answer | Bio/Vote History | |
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Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
I can see the case for it in some limited circumstances (major disruptions, economies of scale). I also can see the clear room for abuse.
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Nicholas Bloom |
Stanford | Bio/Vote History | ||
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Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
Probably not in the short term. More uncertain in the longer term due to scale/lock-in effectssecurity issues. Depends on the sector.
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Elena Carletti |
Bocconi | Bio/Vote History | ||
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Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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Paul De Grauwe |
LSE | Did Not Answer | Bio/Vote History | |
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Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
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Xavier Freixas |
Barcelona GSE | Did Not Answer | Bio/Vote History | |
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Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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Luis Garicano |
LSE | Did Not Answer | Bio/Vote History | |
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Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
Security concerns could justify protectionism but only if they are serious
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Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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Veronica Guerrieri |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
Geopolitical politics of firm's home government not per se the most relevant factor in awarding contracts.
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Beata Javorcik |
University of Oxford | Bio/Vote History | ||
This answer holds only for projects related to critical infrastructure (eg, electricity generation, ports, etc.) but not for roads, etc.
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Henrik Kleven |
Princeton | Did Not Answer | Bio/Vote History | |
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Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
The response to geopolitical interests is a wise strong set of conditionalities if awarded, rather than exclusion from the bidding process.
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Per Krusell |
Stockholm University | Bio/Vote History | ||
I take it that the comparison includes all components (quality, on-time delivery, etc). Helping inefficient companies doesn’t improve them.
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Botond Kőszegi |
Central European University | Bio/Vote History | ||
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Eliana La Ferrara |
Harvard Kennedy | Bio/Vote History | ||
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Christian Leuz |
Chicago Booth | Bio/Vote History | ||
Depends on reason. Protectionism clearly bad for consumers. But if a bid is skewed due to other motives, then costs not only consideration.
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Thierry Mayer |
Sciences-Po | Did Not Answer | Bio/Vote History | |
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Costas Meghir |
Yale | Did Not Answer | Bio/Vote History | |
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Peter Neary |
Oxford | Bio/Vote History | ||
It depends. The trade-off is between security and buying from the best supplier. Excluding all foreign bidders is just protectionism.
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Kevin O'Rourke |
Oxford | Bio/Vote History | ||
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Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
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Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
Money isn't everything.
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Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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Richard Portes |
London Business School | Bio/Vote History | ||
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Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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Rafael Repullo |
CEMFI | Bio/Vote History | ||
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Hélène Rey |
London Business School | Did Not Answer | Bio/Vote History | |
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Antoinette Schoar |
MIT | Bio/Vote History | ||
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Daniel Sturm |
London School of Economics | Bio/Vote History | ||
This is really a question about geopolitics rather than economics, but it seems unwise to become too dependent on a non-democratic regime.
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John Van Reenen |
LSE | Bio/Vote History | ||
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John Vickers |
Oxford | Bio/Vote History | ||
It depends on whether there are serious security issues in play. If not, don't restrict bidders.
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Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Did Not Answer | Bio/Vote History | |
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Karl Whelan |
University College Dublin | Did Not Answer | Bio/Vote History | |
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Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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Fabrizio Zilibotti |
Yale University | Bio/Vote History | ||
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