Infrastructure is the backbone of economic expansion, but its impact hinges not on size and quantity but relevance and quality. President Donald Trump proposes up to $1 trillion over a decade on building roads, bridges, ports, schools and hospitals to make America’s infrastructure “second to none.” Studies indicate how infrastructure spending in advanced economies like the U.S. can boost incomes, but it depends on getting three things right.
First, the additional spending must fill gaps that are holding up the expansion of local economies, rather than just get money out the door. The cracks in infrastructure — especially in Maryland, New Jersey or New York — are glaring. Nationwide, two-thirds of major roads are in poor condition, and a quarter of bridges require major repair. Fixing these problems could create jobs, adding to 14.5 million existing jobs in fields ranging from construction to plant operation.
Note, however, that growth depends not only on physical infrastructure but also education systems, health services and environmental care. The outgoing administration’s stimulus package of $830 billion during 2009–2019 rightly included transport, energy, social sectors and the environment. But it did not focus sharply on growth impediments. Rather, the rationale has been that, during economic downswings, the government can offset the decrease in private spending with more public spending. This approach helped stave off a depression, but it didn’t target growth obstacles like raising worker productivity.
Other countries have tried to raise economic growth through infrastructure spending with mixed results. China put in over 8.5 percent of GDP into infrastructure in the 1990s and 2000s. The country has had its share of bridges to nowhere, white elephants and ghost cities, signifying wasteful spending without much to show for it. But in the aggregate, the new investments addressed gaps in energy and transport, and growth averaged 10 percent a year.
Japan has benefited from investment in roads, bridges and other infrastructure over a century. In the 1990s and 2000s, it spent $6.3 trillion, or some 4.7 percent of GDP, annually in such investment. But growth remained sluggish at just 0.5 percent a year. Some have suggested that for a higher impact from its public works spending, Japan might have addressed its more critical challenges such as population aging, energy supply and food prices and not chiefly building more roads.
Second, infrastructure investment must be forward looking, fostering technological innovation rather than just doing more of the same. This is especially so in places like California and Maryland, with concentrations of technology and security-related jobs. In transport, investment is needed in connected and autonomous vehicles, alternative fuels, traffic analytics and transit-oriented development. U.S. port facilities from Los Angeles and Long Beach to New York and Baltimore will benefit from upgrade to cut travel time and congestion and raise handling capacity. Such modernization also covers their networked computers, control systems and cybersecurity.
Modernization applies especially to energy, transport and land use, which are primary sources of CO2 emissions. The solar industry, notably in California, Nevada and Arizona, symbolizes technological progress and employs some 210,000 people in the U.S. — more than the fuel industry or the cement industry or oil and gas or coal. Clean energy is the most reliable way to bring jobs to rural America, not a return to fossil fuels, as Mr. Trump proposes. Worldwide job growth in solar and renewable energy is already outpacing that in fossil fuels.
Third, even when well-conceived, it matters how an infrastructure splurge is going to be financed. If done mainly through public borrowing for power and transport, Mr. Trump’s administration will need to account for the effect of debt servicing on other investments such as health and education. Unconstrained expansion of spending without attention to the sources of financing would lead to inflationary pressures.
Shifting investments from the government’s books to the private sector can help. Public/private partnerships are increasingly tried worldwide, but user charges, enterprise regulations and, not least, political consensus need to favor them. Where effective, they cut implementation time; for example in I-595 in Florida, the expansion of Seagirt Maritime Terminal in Baltimore or the Long Beach Courthouse in California.
Just spending more on physical infrastructure is not a quick-fix to the problem of generating high growth. To be effective, the spending plans must build in ways and means to eliminate growth inhibitors, encourage innovation and ensure sustainable modes of financing.
This piece was published in The Baltimore Sun on 13 February 2017.