Economic Development Research Group Blog

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Is Infrastructure all it is Cracked up to be?

The idea of infrastructure as a necessary ingredient for U.S. economic growth is as old as the republic. Recently, EDR Group completed a series of studies for the American Society of Civil Engineers where we looked at different types of infrastructure and addressed the question of what would happen in the national economy if the infrastructure we have in place decays. The real stories in all four studies are in dollars that will be lost to the nation. The country’s infrastructure is aging, and not keeping pace with population and employment growth. This jeopardizes clean water delivery, sewer and wastewater services, and access to reliable electricity and transportation. These impacts in turn affect locations of businesses and households, and will cost them money as they compensate for poor services.

Our studies indicate that across the board, business productivity will fall, and costs of goods will be higher to firms and households. Wages of people employed will fall in real terms. Decaying infrastructure will draw money out of the economy as we cope with more auto repairs, or compensate for inefficient water and electricity delivery. Decaying highways and port systems will increase the costs paid by businesses and households for imports, as well as increase the costs of exporting goods, and as a consequence will weaken the competitiveness of U.S. exports in world markets. Why is this? Here are few anecdotal observations. Road disrepair means truck trips will take longer. For illustration, a one hour trip might take 65 - 70 minutes on average, and one-day delivery markets will become two-day markets. As construction and repair fall further behind needs, roadways will become less reliable as congestion increases due to slowed traffic. In losing time businesses that produce goods that require transport will also lose profit. Out-of-pocket costs will increase because truck and personnel vehicles will need more repairs (our study shows auto repair to be a growth industry). Moreover, deteriorating highways will lengthen trips to and from ports, affecting prices of imports and the costs of exports. As a further result, it will cost more to transport goods to retail stores and supermarkets, causing price increases to all households. Overall business sales will decline. As wages fall and employment is curtailed so that businesses stay in operation, households will put off purchasing higher priced consumer goods, which are increasingly electronic, and other discretionary expenditures, which include medical care and other professional services. Similarly, businesses and people may be forced to move if their water and sanitation services are unreliable or if they can’t get adequate electrical service. These water, sanitation and electric services will cost more out of pocket as they compete for scarcer resources. As a result, these poor declining water, sanitation and electrical services will affect manufacturing capacity across the country. So, here is the brutal circle. The higher cost to export (due to declining roadways and/or declining port conditions, or higher production costs. ) will mean U.S. technology products are less competitive in global markets and sales will suffer. Higher cost of imports means that intermediate inputs to our nation’s technology manufactures will cost more, and lower income will leave households less able to afford discretionary purchases, which in turn translates to further decreasing sales for technology industries and less money to invest in R&D and for wages. And around it goes. Effects will vary if there is a failure to sufficiently support surface transportation, water delivery and wastewater disposal, the electric grid, our air and marine gateways, or our network of inland waterways, but the big picture tells a relatively consistent story about our economic future in the face of outdated and inadequate infrastructure systems. Our findings indicate that business costs will increase; exports will become more costly and less competitive; and household income will be lost, but households also pay more to adjust to higher costs – in effect the privatization of public infrastructure and as a result of all these buffets, discretionary consumer expenditures will decline. While the loss of income from the business sector and household sector will reinforce each other in a downward spiral, to a large extent the employment side of the economy is expected to adjust. Jobs for auto repair, well digging and other sectors will be in demand to absorb expenditures of businesses and households that require transportation, water, sanitation and electricity. It may take more drivers to make pick up and deliveries because driving times will be longer. But our nation’s knowledge base and innovation industries, and our future economic development, will wither as costs for technology products increase, and as expenditures for those products and expensive services decline in the face of declining business and household income. Politicians are fond of saying that solutions need to include “all of the above” or that “all options are on the table.” The studies we conducted were not prescriptive. We do not advocate for a single solution or package of solutions to address a set of complicated problems. Funding for infrastructure comes from all government jurisdictions - national, regional and local, from rate payers and from investors. Most systems are publicly regulated or operated by the public sector. The so-called “table”, where everyone meets to solve problems, is a big one. It is important to dust off that table, make sure its chairs are in good repair and solve our infrastructure issues while our transportation system will still allow everyone to reach the table, while the table can be supplied with clean water for participants, while the room where the table is located can be lit by electricity, and while the technology and power remain available for state-of-the-art telecommunications.

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