Infrastructure: Time to Compete to Win

Lael Brainard
Lael Brainard National Economic Advisor - National Economic Council

July 22, 2008

Next month, American athletes will return from the historic Olympic Games in China with medals and a tangible idea of what it means to take infrastructure and the long-term prosperity of a country seriously. When our athletes land in Beijing, they’ll find that the new terminal at Beijing Airport is larger than all of Heathrow Airport, the world’s third busiest. China’s investment in rail infrastructure – almost $200 billion from 2006 to 2010 – is the beginning of the largest expansion of railway capacity undertaken anywhere since the 19th century. And in just the last 15 years, China has built a highway network that rivals what it took America 40 years to build.

These investments reflect an unprecedented shift in the balance of global economic power that is fundamentally altering the contours of how we compete in a global economy. For two generations, the world economy was defined by only seven countries — Canada, France, Germany, Italy, Japan, the UK and the United States — which produced two-thirds of world output.

But the last five years have seen the beginning of a dramatic change as major emerging economies, from China to Brazil and India, grow rapidly, aided by governments that make investments for the long-run, like in infrastructure. From 2002 to 2007, the G-7 share of world output fell from 65% to 57% and, according to Brookings scholar Homi Kharas, will likely decline to 37% of world output by 2030. Meanwhile, the major emerging economies’ share of global output jumped from 7% to 11% and is set to hit 32% by 2030, almost catching-up to the G-7.

To remain globally competitive, the U.S. needs to invest for the long-term in infrastructure, among other efforts, as we did under President Roosevelt with rural electrification and under President Eisenhower with the creation of the Interstate Highway System.

Roads, bridges, railroads, airports and ports form the connective tissue of our economy. They allow goods to move rapidly from one part of the country to another — and from the U.S. to the rest of the world. By reducing the costs of transportation, they make our economy more efficient and our exports more competitive.

For too long, we have been badly neglecting investments in infrastructure. The American Society of Civil Engineers has given our rail systems a C-, our air traffic infrastructure the grade of D+, our roads a D and our navigable waterways a D-. The Congressional Budget Office estimates that infrastructure spending is twenty percent below what would be required to simply stay in place, let alone to begin to repair the damage of years of neglect and move forward.

When time is money, delays associated with weak infrastructure reduce our export competitiveness. Take ports, which process ships that carry over a quarter of U.S. exports by value, and almost three-quarters by weight. Rail infrastructure within port terminals is often antiquated, leading to breakdowns and backups. A shortage of staging area leads to congestion as shippers struggle to maneuver their goods. Inadequate IT systems cause shippers to send cargo to ports that are already at capacity, exacerbating congestion at peak times. And that’s only the delays within the ports. The Government Accountability Office warns that the increasing congestion around ports represents a threat to our ability to move goods for export.

Other countries are leapfrogging past us by investing in world-class ports. China is investing $6.9 billion; the port of Shanghai now has almost as much container capacity as all U.S. ports combined. Singapore, too, with a population of less than five million people, is spending well over $7 billion to increase its container capacity, and as a result, its port will have 30 percent more container capacity than all U.S. ports combined.

The costs of neglecting infrastructure like ports are staggering. Simply by improving our port system to be as efficient as those in China or Singapore — so that goods spend one day waiting in ports rather than two days – we could increase our exports by over $10 billion a year and support almost 60,000 jobs. Improving transportation infrastructure elsewhere could have similarly large impacts on our export performance.

When our gold medalists return from the Olympics next month, it will be after years of long, patient training and preparation for the global competition that was waiting for them in Beijing. They deserve to come home to a country willing to make the right long-term investments to compete in the global economy as well.