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An Institutional and Spatial Consideration of Markets for Financialised Infrastructure An institutional and spatial consideration of markets for financialised infrastructure Graham Simon Thrower Doctor of Philosophy Centre for Urban and Regional Development Studies School of Geography, Politics and Sociology Newcastle University October 2018 A B S T R A C T This thesis examines the contemporary and ongoing financialisation of infrastructure from an institutional and spatial perspective. It brings together the diverse and disconnected literature on infrastructure, markets, institutional capital and the state. More broadly, this research addresses a gap disclosed in the literature on financialisation in general, the financialisation of infrastructure in particular, and the role of private investment capital which, to date, has been criticised for lacking an in-depth and detailed understanding of the institutional drivers that shape the manifestation of contemporary capital markets in an increasingly financialised public space. Its main contributions are to open up the black box of capital by taking a granular approach to the analysis of the institutional actors active in infrastructure investment; particularly highlighting the mediated actions of the state as an investment actor in infrastructure markets. It examines the ongoing engagement with investment markets by state, quasi- public and private institutional actors; and analyses the impact of the spatial derivations of capital on the markets in which that capital is ultimately deployed. This study draws on original empirical research based on qualitative interviews with major institutional investors of equity and debt capital into financialised infrastructure assets and services; including multilateral financial institutions (MFIs), Sovereign Wealth Funds (SWFs), pension and annuity providers, infrastructure funds and private equity firms. It is the proposition of this thesis that the financialisation of everyday utility services represents a locus wherein the state is taking on new and variegated forms to co-invest with and through private capital and to engage with institutional investment markets. It is a lens through which to examine ongoing processes of financialisation. It represents a clear institutional emphasis in the study of spatially variegated infrastructure markets, and charts the transformation of infrastructure from an essential social asset to an equally essential and politicised financial asset class. Keywords: infrastructure, financialisation, economic geography, neoliberalism, institutional capital ii iii Acknowledgements During the last three and half years in which I have formulated this study, undertaken the research and then written this thesis, I have had guidance, support, and engagement from more people than it is possible to mention here. I am grateful for all of this input and support, this piece of work would be all the poorer without your contributions. I would also like to thank those people and institutions that engaged with this research and enriched this study. Your insights and contributions have been invaluable and, I hope, are the start of some long lasting and mutually beneficial relationships. The thrust of this thesis has at its origin, the factors that impelled me to return to academia. Financing infrastructure in numerous countries, gave me a feel for the worlds of institutional investment and international capital markets. More recently time spent in regional economic development, and government supported regional funding, as well as living in the North East of England, gave me a strong sense of the importance of policy; and that if it is to be done well, then it must be robustly derived and based on empirical data. It has been my good fortune to spend the last four or so years within the Centre for Urban and Regional Development Studies (CURDS) at Newcastle University, a place where contributing to policy and the social impact of research, are guiding principles. In that context I would like to specifically thank my main supervisor, academic mentor and Director of CURDS, Andy Pike. He has been a constant source of advice, encouragement and wise counsel as well as, I hope, a friend. I owe him a great debt. I would also like to thank my two other supervisors Jane Gibbon and Oliver Heidrich for their support, guidance and enthusiasm over the years. I must thank those institutions and research programmes that have provided me with funding and a platform to undertake and disseminate my research during this thesis. First among these is the key funder of my doctoral research, the iBUILD (Infrastructure BUsiness models, valuation and Innovation for Local Delivery) research centre; a joint initiative of Newcastle, Birmingham and Leeds Universities. In this section I must also thank the Summer Institute in Economic Geography and Jamie Peck, The Newton-al Farabi iv and British Council funded Sustainable Cities programme, the American Association of Geographers, the RGS-IBG, and the Oxford Conference in Economic Geography. Lastly to my friends and family, I owe you everything. Particularly my partner Clare and our two boys, Josh and Zach. They have withstood my obsession with infrastructure and global capital, endured my research absences and, through it all, offered me their total support and love. This PhD is, in part, also yours. v vi Table of Contents List of Figures ..................................................................................................................... x List of Tables ................................................................................................................... xii Chapter 1: Introduction ................................................................................................ 1 1.1 Contextualising infrastructure financialisation; institutional and spatial approaches to market (re)construction .................................................................................... 5 1.2 Outlining the guiding principles of the research: a spatially and institutionally informed analysis of investment capital and markets ............................................................. 9 1.3 Key conceptual and theoretical contributions .......................................................... 16 1.4 Structure of the thesis ................................................................................................. 19 Chapter 2. The geographies of variegated institutional capital and the (re)construction of infrastructure markets ................................................................... 24 2.1. Understanding the landscape of twenty-first century capitalism; organising the literature .................................................................................................................................... 27 2.2. Financialised infrastructure markets; a lens on to contemporary relations between variegated forms of state and private capital .......................................................... 29 2.2.1 Infrastructure’s blurred entry into institutional investment markets ......................... 32 2.2.2. Infrastructure and questions of value extraction ................................................... 34 2.2.3. Infrastructure’s transformation into a contested asset class ................................. 37 2.3. Blackboard economics and the negation of geography ............................................ 38 2.3.1 Blackboard economics and the true nature of markets ............................................. 39 2.3.2. The Public Goods State ........................................................................................ 41 2.3.3. Circuits of capital and notions of balance ............................................................. 41 2.4. Neoliberal markets and institutional geographies of financialisation .................... 44 2.4.1. Markets: Enmeshed with capital, financialising society ....................................... 45 2.4.2. The coupon pool and the financialisation of daily life ......................................... 48 2.4.3. Social behaviours, economic consequences ......................................................... 50 2.5. Financialisation and contested market outcomes ..................................................... 50 2.5.1. Market dynamics and the financialisation of everything ...................................... 51 2.5.2. The qualitative state: shield, market maker and co-investor ................................ 54 2.5.3. Financing development or developing finance? ................................................... 58 2.6 Proposing the value of institutional political economy and economic geography to the understanding of financialised infrastructure markets .................................................. 62 2.7. Financialised infrastructure: Evolving beyond conventional notions of state and capital……. ................................................................................................................................ 66 2.8. Towards an institutionally and spatially contextualised understanding of financialised infrastructure markets: the Research Questions ............................................ 68 Chapter 3. A methodology for studying the intersection and inter-relationships of public and private capital through the lens of infrastructure markets ...................... 73 vii 3.1. Introduction: Translating the theory and literature into a methodology .............. 73 3.2 Research aims and questions: the needs of the methodology .................................
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