Infrastructure Remains a Missed Opportunity

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In the movie "Field of Dreams," a mysterious voice urges Kevin Costner to unearth part of his cornfield and replace it with a baseball diamond. "If you build it, he will come," the voice says. It takes Costner immense perseverance to fulfill his mission, but in the end, the field is completed and serves its purpose.

Today, it seems as if there is a mysterious voice speaking to politicians all over the world, urging them to build. Infrastructure is a siren's song that governments are tempted to follow as they search for strategies to sustain economic growth. But the mission of designing an effective infrastructure program has proven frustrating for many who have attempted it. What seems like a panacea can be problematic.

Physical infrastructure encompasses systems and facilities essential to economic functioning. Projects follow a hierarchy of needs: at the bottom are public works that support basic subsistence (water treatment, electricity) and at the top are endeavors that expand horizons (broadband). A 2016 report from the McKinsey Global Institute estimates that global spending on physical infrastructure amounts to $2.5 trillion annually.

Investing in infrastructure generates several types of benefits:

  • Maintaining existing infrastructure reduces the risk of unfortunate occurrences. Aging architecture near geological faults, decaying power grids and poorly maintained levees in flood plains can introduce terrible human costs when they fail.
  • Spending on infrastructure accrues directly to economic growth. Sales of essential materials increase, and those involved in construction and maintenance see their incomes enhanced. When these earnings are spent, economic activity is boosted.
  • Investing in progressive infrastructure can boost productivity. When people, products and ideas move more fluidly, the potential for creating output is higher. At a time of tepid advances in productivity growth, infrastructure is a potential avenue to better outcomes.

The post-election period in the U.S. generated considerable excitement in the infrastructure arena. President Trump proposed a $1 trillion program that would be the largest in the nation's history. Given the critical needs in this area, the proposed program was among the few things that could attract bipartisan support.

Unfortunately, no progress has been made. Other priorities took precedence, and tax reform steepened the prospective trajectory of U.S. government debt. Little room was designated in the budget for building, even though infrastructure is an investment and not a cost. If the investments aren't made, the returns will not be realized.

Globally, even when money is available for appropriation, most countries' allocation systems do not distribute the funds effectively. State and local governments bear much of the responsibility for public works, and their efforts are often poorly coordinated. Infrastructure involves networks (transportation, electric, communications) where failure to optimize plans across broad geographies invites inefficiency. As each district thinks only of its own needs, project designs fail to consider important interconnections. McKinsey estimates that a more efficient approach could save $1 trillion annually across the globe.

Furthermore, state and local budgets are often more stressed than national ledgers. This situation has led to deferred maintenance and a substantial infrastructure gap. In its annual report card on infrastructure, the American Society of Civil Engineers gave the U.S. a D+. Simply catching up on maintenance would cost an estimated $2 trillion.