Infrastructure in the United States: The Dangers of Living Below Our Means
July 25, 2014|Carter Templeton
BY LESLIE BLAKEY
President & Executive Director, Coalition for America’s Gateways & Trade Corridors
Infrastructure was at the heart of the founding of our republic. Our first Treasury Secretary Alexander Hamilton was a staunch supporter of federal investment in infrastructure, leading the establishment of an early American infrastructure bank. In The Federalist Papers, James Madison argued that roads, canals, bridges and ports would enable our democracy by allowing communication and political representation across the vast land of our emerging country.
Exact figures vary, but most economic analysis is in agreement that infrastructure spending has the highest “multiplier” of any use of government funds – every dollar of government spending on infrastructure boosts the economy by anywhere from $1.50 to $2.00.
This value-added relationship of infrastructure investment to general prosperity holds up over the long run as well. World Bank research shows that every 10 percent increase in infrastructure investment increases GDP by 1 percent over time. A University of Massachusetts, Amherst study found that for every $1 billion spent on new infrastructure investment, 18,000 jobs were created. And this does not account for the increased productivity by small and large businesses as a direct result of advancements in capabilities. According to researchers at the Thomas Jefferson Program in Public Policy of the College of William and Mary, “The biggest effects of infrastructure spending occur in the manufacturing and business services sectors.” One might think this nourishing relationship would inspire action in lawmakers in today’s “jobless recovery.”
Despite the obvious logic, U.S. federal infrastructure investment as a percentage of GDP has fallen to less than 2 percent, the lowest level of any point since World War II. Our trading partners are doing much more: Canada invests 4 percent, Mexico 4.5 percent, Europe 5 percent, India 8 percent, and China 9 percent. In other words, our largest trading partners and competitors are investing at twice to five times the rate we are. Perhaps they recognize something we don’t.
The six-year, bipartisan MAP-21 Reauthorization Act released by the Senate Environment and Public Works Committee maintains current funding levels and keeps in place much of the policy that appears in MAP-21. By keeping spending levels stagnant, albeit predictable, the legislation does nothing to address our growing infrastructure deficit. It is worth questioning whether a six-year bread-and-water diet is the best thing for the country when our trading partners are on steroids to build up their own infrastructure capacities.
Last year, the Canadian Government announced the largest long-term federal investment plan in their nation’s history. The 10-year, Economic Action Plan 2013 includes a new Building Canada Plan, which will create jobs and stimulate economic growth through three key funds. A $32.2 billion Community Improvement Fund, which supports municipalities, roads, public transit and recreational facilities, is funded through an indexed gas tax. A New Building Canada Fund will provide $14 billion to support major economic infrastructure projects that have national, regional, and local significance (sounds like our Projects of Regional and National Significance grant program, no?). Finally, a renewed P3 Canada Fund will provide $1.25 billion to encourage innovation in infrastructure projects through public-private partnerships. These substantial investments come on the heels of the 2007 Building Canada Plan, which provided $33 billion in staple, flexible and predictable funding to Canadian provinces, territories and municipalities.
The history of Canadian infrastructure is similar to our own. Most of it was built in the 1950’s and 1960’s and maintaining it fell by the wayside in the ensuing decades. By 2000, investment in infrastructure had fallen to about 2 percent of Canadian GDP. But as the global recession hit, the Canadian national government saw an opportunity to improve infrastructure capacity and, as a result, boost the economy. By 2011, total government infrastructure investment as a percentage of GDP had risen to about 4 percent. With the announcement of the Economic Action Plan 2013, that number will rise. With increased spending comes increased capacity on Canadian roads, in their ports and along their inland waterways. Instead of shrinking away from increased spending, Canada sees potential in modernizing its facilities and opening itself to world commerce as a way to stay competitive.
Mexico is also prioritizing infrastructure investment. Since winning election in 2012, President Enrique Peña Nieto has already doubled down on his campaign promise to increase investment in Mexican infrastructure capacity. In late April, he proposed investing 7.75 trillion pesos ($590 billion USD) to enhance Mexican transport-related infrastructure. A portion of this investment plan will include improvements to communications and transport, including highways, ports, and railways. Spending levels are expected to exceed 1.3 trillion pesos ($99 billion USD) over the next five years. The plan will utilize a combination of funds from federal and state budgets and from the private sector and includes 743 projects. Estimates show that the infrastructure plan will add between 1.8 and 2 percentage points to Mexico’s growth rates over the next four years.
In 2012, Mexico was ranked 58th out of 148 countries by the World Economic Forum (WEF) global competitive index, despite having the 14th largest economy in the world. Lately, Mexico has worked to address this discrepancy by investing in its commerce capacities and opening its state-run oil and energy sectors to private companies. In the latest WEF 2013 report, Mexico had moved into 55th place. From 2007 to 2012, Mexico’s first National Infrastructure Program was overseen by former President Felipe Calderon. During the lifespan of the program, $110.9 billion USD was invested in oil and gas infrastructure and $26.5 billion was invested in highway investment. The Nieto administration is committed to continuing President Calderon’s infrastructure policies, particularly with regard to increasing Mexico’s highways, ports and cargo railway capacities. These proactive measures will help transform the country into an industrial superpower and Mexico will be capable of attracting outside investment and contributing to the global economy in major ways.
Our nearest trading partners are increasing their commerce capabilities by leveraging public dollars and, as a result, furthering their respective economic recoveries. On June 16, the International Monetary Fund cut its growth forecast for the U.S. economy this year to 2 percent and cited proactive investments in infrastructure as a way to counter the economic drag. Unfortunately, if current Congressional policy thinking holds sway, the United States will not be making even the bottom line investments needed to maintain our infrastructure, much less fund expansions of capacity. At a time of when the federal government faces considerable pressure to tighten the spending belt, infrastructure spending should take high priority in terms of good use of our limited treasury.
To appreciate what this means from a private sector perspective, the following quotation comes from John Larkin of Stifel, the brokerage and investment banking firm that recently acquired its better known competitor Legg Mason. Larkin was addressing security analysts who advise clients on stock purchases:
“Both the traveling public and transportation operating companies should continue to plan for congestion, poor highway maintenance, and a gridlocked federal government. While some states will take bold unilateral action to ensure that their infrastructure is adequate, a state-by-state approach by definition is sub-optimal on a national basis. Therefore, transportation asset productivity will not be optimized, and the probability of tight, potentially debilitating supply/demand conditions in the freight sector should continue to increase.”
Sustained and strategic investment is needed to ensure that the United States remains competitive well into the 21st century. Failing to provide for our nation’s ports, waterways, roads, rails and aviation assets now is short-selling our workers and businesses in the present and short-changing future generations who will be forced to run behind competitors in other nations whose leaders knew to invest for the long-term. The United States is still the world’s number one economy and we have the means to invest in our own prosperity to ensure that same world-leader advantage for our children. Let us not allow political expediency to dictate a lesser choice.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.
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