While seemingly patent today, the Interstate Highway System was a novel system upon its inception and played an important role in the US economy’s primacy throughout the latter half of the 20th Century. The reason is simple: a well-developed infrastructure system has long-term economic benefits. However, the US infrastructure system may now be stagnant both in terms of innovation and funding. To revitalize America’s infrastructure system, the US should consider new creative methods, such as lowering barriers to entry into the infrastructure market; opening the market will entice cost-effective and experienced innovators, from home or abroad.
According to the US Department of Transportation’s 2013 report on the status of America’s highway system, total government spending for highway improvements in 2010, the latest year for which data is available, was just over $100 billion. While seemingly large, that $100 billion was spent on numerous activities, such as new highway construction, reconstruction, resurfacing, rehabilitation, restoration, for all of America’s 4 million miles of road. Furthermore, in comparison to past spending, this amount is shrinking. According to data from the Bureau of Economic Analysis, since 1960 government spending on highways has dropped by nearly 50 percent in proportion to total government expenditures.
Prolonged under-investment in the US infrastructure system could have serious domestic economic consequences, and may lead to more spending down the line. A crumbling road network will result in decreased productivity for businesses and individuals alike – the more time spent on congested roads, the less time at work and the more money spent on car maintenance and related expenses. The American Society of Civil Engineers, a group that examines the conditions of infrastructure in the US, estimates that American households and businesses lost an estimated $130 billion in 2010 due to infrastructure deficiencies, and projects that America’s deteriorating infrastructure will cost the economy nearly $1 trillion by 2020. Even if the cost is much lower, there will be a negative impact on most Americans.
Decreased infrastructure quality also has consequences for America’s global competitiveness. In a speech delivered this month, Christine Lagarde, the managing director of the International Monetary Fund, argued that 2015 must be the “year of action” when policymakers show leadership on infrastructure investment for all nations. Lagarde reasoned that well-developed and maintained infrastructure systems allow for increased global trade, and that the United States must refurbish its languished infrastructure system in order to avoid reduced trade and decreased competitiveness in the international market.
Will the United States heed the admonitions of economic advisers and business leaders? Seeing that increased government funding is still under debate, other solutions to America’s infrastructure woes may be necessary. One method is to reduce barriers to entry in the infrastructure market. Opening up the market would bolster American infrastructure by creating more opportunity for experienced and cost-efficient foreign investors and contractors, thereby increasing competition for projects and reducing project costs.
China invests in and builds the most infrastructure globally. Over the past ten years, the American Enterprise Institute and Heritage Foundation’s China Global Investment Tracker (CGIT) has recorded almost 1,400 investment and engineering transactions of $100 million or more. Chinese companies have increased spending around the world at a steady pace over this time period with total business, both investment and contracts, nearing $1 trillion.
For investment, the US is a prime target. Beginning with Lenovo’s acquisition of IBM’s ThinkPad business, initial Chinese investment in the US was slow as both nations waited to see how Lenovo performed in the US market. The CGIT currently estimates a total of 24 transactions amounting to almost $17 billion of Chinese investment in the US in 2014, the third annual increase in a row. In total, the US has received nearly $78 billion of Chinese investment since 2005, making America the largest recipient country in the world.
In sharp contrast, Chinese engineering and construction in the US is barely visible. Despite demands for infrastructure maintenance and improvement, the US has only outsourced five road and bridge projects worth more than $100 million to Chinese firms, and the total cost for these five projects is less than $1 billion. In comparison to the rest of the world, by CGIT estimates, the United States does not rank in the top 30 countries for transportation contracts and has received less than 1 percent of China’s total outbound engineering contracts.
Awarding construction contracts to Chinese firms may sound outlandish, but it certainly is not seen that way elsewhere. In 2005, China’s global infrastructure construction of all types – road, rail, ports, and aviation – was over $4 billion. In 2014, the amount exceeded $30 billion. Chinese global infrastructure construction has occurred, or is currently in development, in over 70 countries and totals over $125 billion.
The increase in Chinese construction globally demonstrates China’s growing expertise and capacity to develop safe, reliable and cost-effective transportation systems. A few US states have already found this appealing. China Construction America, Inc., a subsidiary of China’s State Construction Engineering, rehabilitated the Alexander Hamilton Bridge in New York City and the Pulaski Skyway in New Jersey. These projects should be viewed by other states as an experiment – how well did the companies do their jobs? If the projects are completed in a safe, timely, and cost-effective manner, other states should follow suit and seek out Chinese construction companies such as Sinomach for bids.
The CGIT data show that, in terms of Chinese firms, a disconnect exists between the access to American investment and construction markets. The American infrastructure market affords an untapped opportunity, which Chinese companies are more than capable, and likely willing, to fill. How much infrastructure work the US needs is a matter of debate. That it is worthwhile to reduce barriers to entry into the US infrastructure market, an area where Chinese firms are able to contribute, should not be.
