A Practical Infrastructure Plan

| Daryl Wang | February 26, 2018 |

A major criticism on the Trump administration’s new infrastructure plan is that the government is not spending enough. The federal government itself is only spending 200 billion dollars on this 1.5 trillion dollar stimulus package, while the remaining trillion dollars is expected to come from private investors and local and state governments. Notably, the administration did not reveal how it came to these numbers. The federal contribution of 200 billion dollars is nowhere near enough to rebuild the highways, airports, and bridges that many people in this country have been requesting. However, infrastructure planning should not be just a conversation about how much; it should also be about the ‘how’ and the ‘why’. For example, are we focusing on urban areas since they have much higher population densities or do we want to target the rural-urban divide and reduce the economic gap between them?

In some ways, limited federal spending on an infrastructure project may be a good thing. There are reasons to doubt the validity of the benefits that can be generated from massive infrastructure programs. In a study published in the Oxford Review of Economic Policy, the researchers examine the costs & benefits of 95 Chinese infrastructure projects and find that only a third of projects are economically viable, while more than half of the projects generate more cost than benefit. The findings further suggest that the cost-overrun of building and maintaining these infrastructures would lead to debt accumulation for state-owned companies that have been involved with constructing or financing these projects. The level of debt will likely continue to rise and would eventually require a government bailout.

There is no reason to believe that the US government would do a better job than China in delivering an overhaul of infrastructure. The above study compares projects built in China and those built in the West and find that there are “no significant differences in cost overruns between China and rich democracies”. The only major difference between the two is that China takes a shorter time to complete such projects. What the US government could learn from China’s example is to avoid heavy investments that try to overhaul the traditional infrastructure. Such actions will likely waste valuable resources without making the economy more productive overall.

This is not to say that state has no role in infrastructure planning, rather the fast-paced changes in the 21st century require a new way to approach such issues. For example, the California High Speed Rail might be obsolete ten years down the road if Hyperloop or other alternative transportation become feasible. Therefore, the government should not commit itself to large-scale national projects that would require heavy investments. Instead, the government should establish clear infrastructure objective and act with precision as well as restraint.

One area the government should undertake is to connect the country together, specifically by delivering up-to-date internet to the countryside. Not only would it help to bridge the gap between rural areas and urban centers, it would also increase the productivity of the overall economy. Globalization changes the way economies function; competition is no longer over territory but over connectivity. An integrated economy and mobile workforce are now essential to a healthy economy. A 2013 study finds places that adopted broadband services correlates positively with economic gains. In today’s economy, communities without broadband systems are being left behind. Among the U.S. non-metro population, 39 percent lack access to broadband service; that represents 23 million people who can not quickly and reliably access what those in urban areas can get easily. Places without fast internet connections cannot attract new firms and local businesses that rely on high-speed data transmission lose their competitiveness.

The Obama administration had previously tried to incentivize major telecommunication companies to expand internet service to isolated counties, which companies were reluctant to do because of the high costs and low returns. Subsequently, some local communities have successfully set up their own internet system, but many others would require outside assistance. There have also been some firms that are experimenting with low-cost alternatives to deliver telecom services to rural markets. An example would be Altaeros, a company that has already deployed a telecom blimp in Maine that provides cell coverage equivalent to a network of 30 conventional cell towers.

Direct government subsidies to rural communities allow the locals to afford services provided by firms like Altaeros or allow these communities to develop their own broadband system. Once they have access to modern internet, rural America would be better able to keep up with the rest of the country. Coordinating and exchanging research, investments, and supplies would be much easier between different regions. The way economies function has changed due to globalization, so should our approach to infrastructure planning.