- Hubert Walas
2$ trillion infrastructure.
The bloodstream of the $20 trillion US economy is a vast physical infrastructure in the form of roads, bridges, railroads, power grids, and the Internet. But the lion's share of this infrastructure was built decades ago, even in the 1950s and 1960s, which hits Washington's competitiveness and holding back its economic development. Recently, Joe Biden has answered with big numbers in hand. Is it sufficient?
Infrastructural backwardness
It is true that the effort that the Americans, put into infrastructure investments, mainly in the 1950s and 1960s, was the foundation for the future hegemonic position of this country. The then-president Dwight Eisenhower understood the relationship between efficient infrastructure and the readiness of the army, which during the Cold War, just after the Korean War, had to be able to react quickly. But this vision went beyond the military sphere, which was close to Eisenhower, he said: “A modern, efficient highway system is essential to meet the needs of our growing population, our expanding economy, and our national security.”
Since the 1960s, when America experienced its last infrastructure boom, the US population has doubled. However, the National Highway System was designed to be used until the 1970s. Due to low financial outlays, now, colloquially speaking, everything is falling apart. Years of underfunding have resulted in the current backlog of the US road and bridge system at $ 830 billion. While, Henry Petroski, a historian, and engineer estimates that the losses from traffic jams and flight delays alone cost Americans $ 150 billion a year.
Every fourth bridge is defective, of which 10% is structurally defective and 14% is functionally obsolete. Although American airports handle the most passengers from all countries of the world, only 4 of them are in the top 50 airports in the world. While every 5th flight in the USA is delayed. American passenger trains, on average, reach half the speed of European high-speed railways. And Americans pay more for the internet than Europeans, and yet they get slower internet. Moreover, the latest reports indicate that more than 40 million Americans do not have access to broadband internet, so it is a population the size of Spain or Poland.
Furthermore, a recent report by the American Society of Civil Engineers rated the condition of the country's infrastructure as C-, with 43% of roads and bridges in "poor or average" condition. Paradoxically, however, the rating of the American engineers upgraded for the first time in 20 years from the rating of "D".
In one word, US infrastructure performance suffers from relatively low-quality infrastructure, with implications for businesses, workers, and travelers.
The bloodstream of the state
The stakes are high, while the omissions decades-long. Efficient, modern infrastructure is one of the most important factors that will determine whether the United States will continue to attract global talent, whether the level of innovation in the economy will be maintained and enhanced, or whether American companies will have a competitive advantage to export their products and services to foreign markets, finally will the American dream continue to incite human imagination, or will it remain only a relic of the past, incomprehensible to future generations.
Investments in infrastructure should also be viewed through the prism of strategic rivalry with China. This may last for years, and Beijing has placed broadly understood communication at the top of the list of priorities for over a decade by now - 5G, a network of highways and high-speed railways, smart cities, etc. Americans are starting this marathon with a dislocated knee.
The potential new infrastructural opening is an opportunity to create more efficient, "green" infrastructure, as well as more resistant to natural disasters, which cost the US budget billions of dollars each year. The necessity of increased spending on infrastructure is, therefore, an indisputable topic, regardless of the political camp in the USA. Barack Obama and Donald Trump have talked about it before, but not much has come of it. On the way to the White House, Joe Biden spoke loudly about it too. It was therefore a matter of time when he would present his plan more specifically.
So it happened on March 31, 2021, President Biden unveiled the American Jobs Plan - an infrastructure investment plan of $2.3 trillion over 8 years, calling it “ a once-in-a-generation investment in America”, which will create “the most resilient, innovative economy in the world.”
White House officials estimate that the expenses will contribute to 20,000 miles of roads reconstructed, the repair of major bridges in the country, the replacement of lead water pipes, and the creation of millions of jobs. In the long term, the goal is to improve American competitiveness and to reduce climate emissions.
However, here we have to be a bit more specific. When we think about a country’s infrastructure, we tend mainly to think about roads, bridges, or railways. However, Joe Biden adopted a much broader definition in his plan. For example, spending on roads and bridges is only 5% of the total plan, or $ 115 billion. The entire program can be divided into 4 main areas.
The first - transport. It includes the construction of roads, bridges, airports, railways, and investments in public transport. And also, investments in infrastructure for electric cars, for which the largest amount of funds is planned - $ 174 billion. Ona side note - if this plan had passed, the process of automotive manufacturers moving away from internal combustion engines to electric ones would accelerate even more. In total, $ 621 billion was allocated to transport, which is less than 30% of the funds.
Half of that - $ 311 billion - went to the second area - utility infrastructure, which includes broadband internet networks, high-voltage lines, and water supplies.
The biggest chunk, $ 768 billion, was allocated to public buildings, schools, and care for the elderly. It is elderly care that is by far the most expensive item on the list overall, it was estimated at $ 400 bn.
The remaining $ 593bn has been used for a wide range of other initiatives, from supporting the National Science Foundation, or research and development on climate or microprocessors, to combating race and gender inequality. In a word, it is easier to ask about what is not on the list than what is on it.
Is that enough?
It is not difficult to notice that only half of the Biden plan funds are allocated to improving the country's communication. Dividing $ 1 trillion over 8 years, we get $ 125 billion a year, which is about half a percent of the US GDP. Currently, the United States spends about 2.5% of GDP on infrastructure construction and maintenance, if the plan is implemented, this expenditure would increase to 3-3.5% of GDP. Is that a lot? In Europe, these expenditures currently oscillate around 5% of GDP on average. In China, the share of infrastructure expenditure even higher and matches as much as 8% of GDP, while this amount is expected to continue to grow.
Between the years 2011 and 2013, China used 50% more cement than the United States in the entire 20th century, and the high-speed rail network that was built in China in record time is longer than the high-speed rail network of the rest of the world put together. This shows the scale of the challenge that Washington is facing, as, from a geopolitical perspective, effective infrastructure is to help Americans face China's global ambitions. So is Biden's plan really revolutionary? Is this a plan that will allow the Americans to catch up with the much more infrastructurally developed East China? There are many doubts about this.
This is all the more puzzling as many economists point out that infrastructure spending has a multiplication effect. For one dollar spent on this sector, the return to GDP is as high as $ 3. The aforementioned American Society of Civil Engineers estimated the US infrastructure gap to be the $ 2 trillion needed by 2025. And if Washington does not live up to it, it will result in losses of $ 4 trillion. Taking into account that $ 1 trillion is allocated to the connectivity infrastructure over 8 years in the Biden Plan, this plan, therefore, meets the engineers' estimates of about 25%.
It would seem that US corporations, at least, would welcome the long-awaited infrastructure investment plan to bridge the gap between the US and many other developed nations. However, now they seem to be saying, "try again." As always, it's about money - Biden wants to finance his plan mainly by raising taxes, including corporate tax, from 21% to 28% over 15 years. And this, in the opinion of corporate America, will make the United States a less competitive market, will slow economic growth and job creation. Besides, despite Biden's exhortations, the infrastructure plan is not supported by the Republicans. Business likes peace, and political struggle will not make it easier for it to act.
Perhaps the biggest fear of corporate America, however, is the idea of a tax of 21% on US companies' foreign earnings. According to many experts, it would make companies want to flee and take foreign addresses. Admittedly, Washington is pushing developed countries to adopt the same tax threshold so that these economies work "in harmony". However, talks on this topic have been going on for years and are going nowhere, because being able to set your own tax levels is an important element of the independence of any country.
To sum up - Biden's plan raises a lot of controversies, both political and business. However, even aside from that. More importantly, it is in practice too "diluted" and consequently too modest to be a serious response to Chinese infrastructure spending. Even if the Democrats manage to bring Biden's initiative to completion and put it into practice, it will be more of a treatment for the failings of the past few decades than a real American great leap forward.
Sources:
https://www.nytimes.com/2021/03/31/business/economy/biden-infrastructure-plan.html
https://www.nytimes.com/interactive/2021/03/31/upshot/whats-in-bidens-infrastructure-plan.html
https://www.businessinsider.com/what-is-in-bidens-infrastructure-bill-package-american-jobs-plan-2021-3?IR=T
https://www.forbes.com/sites/sarahhansen/2021/04/05/bidens-infrastructure-plan-may-slow-economy-down-moodys-says-but-not-for-long/?sh=171908f82281
https://apnews.com/article/joe-biden-donald-trump-politics-climate-climate-change-c14bb6ce360a43e6239abfe087758e5c
https://www.politico.com/news/2021/04/06/corporate-america-biden-infrastructure-plan-479490
https://www.cfr.org/backgrounder/state-us-infrastructure
https://www.ft.com/content/d52d49b1-444d-4296-a4d1-6c0fbb830691
https://infrastructurereportcard.org/wp-content/uploads/2020/12/2021-IRC-Executive-Summary.pdf
https://www.csis.org/analysis/united-states-broken-infrastructure-national-security-threat
https://www.csis.org/analysis/american-jobs-plan-gets-serious-about-infrastructure-and-climate-change
