How the USA Infrastructure Gaps are Hurting Economic Development

Amidst the euphoria of his election, President Barack Obama promised to boost the failing economy through a series of investments. One of the priority areas was the dilapidated infrastructure. The first two years of his first time offered an opportunity but the unsure Democrats failed to capitalize. They were replaced by an intransigent GOP-dominated Congress in 2010.

Now that we are in the official campaign for the Presidency, Mitt Romney is broadly supportive of spending cuts on the GOP side. Barack Obama takes the classic Liberal approach of advocating for government investment. Meanwhile the country’s infrastructure continues to struggle after years of under-investment and a growing population in the USA.

The investment disincentive associated with poor infrastructure

It is estimated that inland waterways transport about $180 billion worth of steel, coal, chemicals and other goods on an annual basis. [1] This represents 1/6^th of the US freight load. 38 states are benefitting from the presence of these waterways but unfortunately the system is largely antiquated. Locks and dams have not been updated and this means that delivery timescales are compromised.

The high incidence of breakdowns is frustrating to entrepreneurs but also costs the economy quite a lot of money. The main chamber at a lock in the Ohio River near Warsaw recently broke down and is being prepared. At one point the delay timescales were increased from 40 minutes to 20 hours! No economy can sustain such inefficiencies especially if it is competing against manufacturing giants like China.

Marty Hettel is the AEP Senior Manager and he estimates that about $5.5 million is being lost to the organization and its customers due to outages. The American Electric Power company needs to ferry coal and other supplies to its customers. Business costs are one of the main reasons why some companies are choosing to outsource rather than staying in America. Poor infrastructure is only going to make matters worse.

Is there any hope for better infrastructure in the future?

Dan Murray of the American Transportation Research Institute believes that things are getting better economical but investment in infrastructure is required: "The good news is, the economy is turning…The bad news is, we expect congestion to skyrocket." [1]Therefore government policies that advocate for the wholesale reducing in infrastructure investment are going to be necessarily counterproductive.

According to the Building America's Future Educational Fund, freight bottlenecks are costing the economy $200 billion a year. This is about 1.6% of the total output from the US economy. Even as a divided congress attempts to deal with a $1.3 trillion federal deficit, the issue of infrastructural development will have to be dealt with. It is not a matter of cutting everything in sight and hoping for the best.

The chamber of commerce puts the costs even higher at 7% of the economy or $1 trillion annually. In this climate government investment in infrastructure has fallen each year from 2008. This year the drop is 4.4% and next year it is going to be about 3%. Only half of the $2.2 trillion needed over a five year period to repair the infrastructure is being spent. In 2010 80,000 hours of lock outages were lost as a direct result of low investment.

The dangers of unfettered austerity politics

Greece is a prime example of how a nation can collapse even as free capitalists attempt to help it out of its problems. America is different but the lack of investment in infrastructure is likely to cost it in the future. Nobody wants to invest in a nation where delays are the routine and efficiency is the exception. The lack of competitiveness will mean that other global players come in and snap up the market.

Ideological battles over spending are good for the pundits but they do not offer practical solutions to the problem of a nation that is attempting to get out of a recession. Money that is ostensibly saved through spending cuts may end up stopping further growth. America’s infrastructure is too important to play games with. The politicians need to smarten up.

Resources:

1. P. Davidson,”USA's creaking infrastructure holds back economy”, 20^th May 2012, USA Today,http://www.usatoday.com/money/economy/story/2012-05-20/creaking-infrastructure/55096396/1

The author recommends alternative topics including Presidential Politics and the global economy.