By Nancy Spannaus
March 1, 2019—The latest report on the U.S. infrastructure disaster by the National Association of Manufacturers (NAM) is a straightforward call for Congress and the President to act now. The “Build to Win” document begins by stating that “in an alarming state of disrepair and in urgent need of new funding, America’s infrastructure can no longer wait.” It proceeds with what it calls a blueprint for action to create a “21st century” infrastructure in transportation, water, energy, and digital. Yet the document falls dangerously short of what is needed to not only rescue the U.S. economy from looming disaster, but to jump-start urgently needed productivity for future prosperity.
The 44-page report points to the declining Federal role in infrastructure investment, which is now at one-third of the level it was in 1960. It asserts unequivocally that the Federal government must increase its commitment. It then concentrates on the nation’s needs for repairing the transportation network, setting a price tag of $1.09 trillion over 10 years just to fix problems within the current technology. But while some urgently needed measures, such as the Gateway project for the New York-New Jersey Hudson River crossings, are stressed, the report lacks both the tone of urgency and the scope of the investment needed.
The Emergency is Now
Clearly NAM is aware of the danger of what it calls “economic havoc” if transportation systems such as the Hudson River tunnels were to fail. But, as Governor Cuomo has dramatized in the video he sent to President Trump last October, the emergency is now. Chunks are falling off the ceiling of the tunnel, putting passengers at the risk of life and limb. The railroad bridge periodically gets stuck, stranding trains for hours. As Congressmen Pete King (R-NY) and Josh Gottheimer (D-NJ) put it in legislation they introduced yesterday, “Doomsday” is facing the New York-New Jersey region in the face.
The same goes for other areas upon which the report touches, such as the water crisis. NAM appropriately emphasizes the age of the nation’s drinking water system, which ranges above an average of 70 years in major cities such as Philadelphia, Washington, D.C., and New York City. But the report says not a word about the mortal threat to children (and others) who have been exposed to lead poisoning in their drinking water. The Flint water crisis is by no means a unique event.
The reality is that the United States is not just lagging in “competitiveness.” We face a full-blown emergency, which even the American Society of Civil Engineers estimates will cost $4.5 trillion just to bring up to a minimal safety standard.
The Question of Funding
The major sticking point for NAM, of course, as well as for the Congress, is funding. The Building to Win report makes a series of proposals, running from an increase in the gas tax, to user-based fees, PPPs, and government-subsidized bonds. Most usefully, however, at the end of its list, NAM also proposes the option of a National Infrastructure Bank, which, it points out, would solve the problem of the lack of long-term funding, to which current major infrastructure projects, like Gateway and California’s high-speed rail, are falling victim.
The NAM bank proposal reads as follows: “The bank would offer long-term loans on favorable terms based on Treasury rates. Some proposals have called for financing projects larger than $100 million with a focus on regional or national importance, a clear public benefit and backed by an identified revenue stream that repays the loan. Rural projects could receive a set-aside for projects valued at least $25 million.” As to funding, it says: “Proposals have ranged from $10 billion to $25 billion. A $25 billion appropriation would be expected to support $250 billion worth of activity in loans, loan guarantees and other sources of credit for public infrastructure.”
This is a drop in the bucket!
Fortunately, there is tried and tested way that an infrastructure bank of adequate size could be funded, and without calling for more than a small increased Federal government revenue stream dedicated to cover interest charges.
The National Infrastructure Bank proposal featured on this blog calls for capitalization in the range of $4 trillion dollars, which could be supplied by offering bank stock in exchange for Federal government securities. The dividend on the bank stock would be fixed and guaranteed by the Federal government, but there would be no need for a new major flotation of government debt, nor putting the major projects required in hock to private investors who would demand large profit margins for their participation. The Federal bondholders would not only make a guaranteed reasonable profit, but contribute to building the nation.
Such Federal support for credit for infrastructure has a long-standing record in the American System of economics pioneered by Alexander Hamilton. Similar methods were used in the periods of America’s greatest growth in productivity, especially in the FDR era.
What will build productivity?
The key to the success of FDR’s Federal investment policies, undertaken heavily through the Reconstruction Finance Corporation, was, in the words of the National Bureau of Economic Research, “very strong growth in electric power generation and distribution, transportation, communications, civil and structural engineering for bridges, tunnels, dams, highways, railroads, and transmission system: and private research and development.” That is, basic economic infrastructure.
Such infrastructure projects were chosen not to provide a guaranteed profit in the short term, but to build up the productive potential of the economy in the long-term. The credit issued was for the most part paid back, because the investments fed an increase in productivity.
Such increases are best created by investing in new, more advanced technologies, which improve the productivity of labor, increase mechanization, and provide more output for the investment put in, all within a modernized infrastructural environment.
This forward-looking approach is the other missing aspect of the NAM report. In discussing transportation, there is not a word about high-speed, electrified rail, which is the gold standard for improving passenger and freight transportation in this age. Seventy-percent of the trillion-dollar program it proposes for transportation is recommended for highways! Of course, a modern transport program would require massive investment in new, reliable, more efficient electricity generation–i.e., rapid expansion of nuclear fission, and a crash program (at last) to develop fusion. Yet, under current conditions, where efficient nuclear plants are being shut down in favor of unreliable, environment-damaging solar and wind farms, NAM fails to mention the need to save, much less expand, our vital nuclear energy fleet.
Preparing the Future
NAM members, along with manufacturing workers, have a vital role to play in shaping a workable perspective for rebuilding American infrastructure and the productive economy as a whole. To the extent they remain attached to physical production, manufacturers have a greater understanding of the realities of economic development than those whose lives have been dominated by law and finance. Their voice must be heard.
So, let NAM’s Build to Win document on infrastructure be the starting point for a serious discussion on industrial policy—as the authors say it should be. As the report concludes: “This blueprint from the NAM is intended to amplify an important conversation about infrastructure that has been underway for decades. Even more, it should serve as an urgent call from manufacturers for elected officials to not only act, but act with purpose.”
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Tags: Build to Win, Congress, Gateway Project, infrastructure, Nancy Spannaus, National Association of Manufacturers, National Infrastructure Bank, water