Ideological aversion to public sector investment, together with the endemic short-term thinking of those who write budgets, has kept spending on roads, airports, railways, telecommunication networks and power generation at levels far below what is needed. And yet the problem can no longer be ignored. If the US does not act quickly to provide its fragile economic recovery with a solid foundation of modern infrastructure, it could find itself sinking slowly back into stagnation.
A 2013 report by the American Society of Civil Engineers gave the US a pathetic overall grade of D+ for its infrastructure. The report cited numerous state-specific shortcomings, including Michigan’s “88 high-hazard dams and 1,298 structurally deficient bridges” and the “$44.5bn (£28.5bn) needed to upgrade drinking-water systems” in California. It concludes that a $3.6trn investment (one-fifth of the country’s annual GDP) will be needed by 2020 to boost the quality of US infrastructure.
A publicly-funded infrastructure programme could transform the prospects of US workers
FRAGILE ECONOMIC RECOVERY
At a time when the economic recovery remains fragile, a publicly-financed infrastructure programme could meaningfully transform the prospects of US workers, providing new employment opportunities for low and unskilled labour. Meanwhile, scaling up infrastructure spending could provide an often-overlooked opportunity for long-term institutional investors. Pension funds, insurance companies, and mutual funds in the US manage combined assets totalling roughly $30trn, and they have been struggling to find investments that match their long-term obligations. Persistently low interest rates have been particularly challenging for pension funds, which face rising liabilities (calculated on a discounted basis).
A large-scale programme to reboot America’s crumbling infrastructure would go a long way toward addressing this gap between assets and liabilities, providing pension funds with investments with long time horizons (and thus guaranteeing the incomes of tomorrow’s retirees) while leveraging private capital for the public good. In fact, US pension funds are already investing in infrastructure, but they are doing so in Canada, Australia, the UK, and the Netherlands.
Sadly, ideological objections and partisan politics are likely to strew obstacles in the path of any effort to modernise America’s infrastructure and create such opportunities at home. Public-sector investment invariably rekindles the age-old struggle between those who insist that government should stay out of efforts to create jobs and those who believe that part of government’s role is to put underutilised human resources to work.
One way to avoid this bottleneck would be for Barack Obama to establish a bipartisan Infrastructure Commission tasked with finding solutions to the problem. This would operate much like the bipartisan National Commission on Fiscal Responsibility and Reform, established in 2010 to address America’s fiscal challenges, or the military base closing commissions of the 1980s and 1990s.
By splitting the responsibility between the country’s two main parties, the commission would free its members from the pressures of day-to-day politics and allow them to concentrate on the health of the economy. Congress would then hold an up-or-down vote on the commission’s recommendations.
The US has put itself on a precarious path. Low interest rates, the dollar’s continuing role as the world’s main reserve currency, and the capacity of the public sector to increase spending make the case for higher infrastructure spending compelling. In the 20th century, the US government spent billions of dollars to rebuild the European economy. Its project for the first half of this century should be to do the same at home.
Dambisa Moyo is the author of Dead Aid, Winner Take All, and How the West was Lost
Copyright: Project Syndicate 2015