Is more infrastructure reliably the answer to economic growth?

Since the current mess of 2007-2018 became broadly visible, economic stimulus of vast new public infrastructure has been endlessly agreed on as a key to getting out of the hole.

Whenever there’s immediate broad agreement, especially in the media commentators, it’s usually ill-considered and just plain wrong (history shows the consensus opinion is manipulated and shallow more than the “wisdom of crowds.”)

Generally the assumptions draw on little understood examples like 1930’s U.S. New Deal programs or a vaguer “golden era” when big schemes got done (

  • The remaking of Paris and it’s sewer systems/roads etc. under Napoleon III,
  • New York City under Robert Moses as Robert Caro’s biography delineated,
  • The Panama and Suez Canals, the Erie Canal connecting New York with the Great Lakes,
  • Roman road systems across Europe, Asia Minor, and North Africa  and it’s water distribution aqueducts and port facilities  (or the Inca and Mayan paved road systems and water management systems involving vast canals, reservoirs, and complex irrigation systems.)
  • Major bridges across bays/harbors or great rivers, probably the most photographed infrastructure despite it’s relative rarity.
  • Oil and gas pipelines (crude oil, gasoline, natural gas, liquified natural gas, carbon dioxide, water, coal slurry, effluent, sewage, stormwater, etc.)  are extremely critical but generally overlooked given how often they’re underground or in remote places.
  • Electrical transmission grids and their central power plant networks are where the term “strategic planning” comes from (General Electric in the 1920’s directly gave Lenin the idea for 5 year industrialization plans during their work in electrifying Russia.)   You have to make 50-100 year bets on where and how much power will be needed and if you’re right and demand grows around it, upgrading or changing it now that it’s hemmed in by other buildings and absolutely essentail (so can’t be turned off for years to build a new one somewhere better) calcifies those old choices in unexpected ways.   Hydropower dams are the most classic stranded power as where you’ve got lots of water falling at least 50′ (the drop is very important turning old power turbines’ spinning magnets to make the power) and while only a third of the feasible hydropower sites in the world are actually developed, you’d think we’d exhausted this potential from the way new hydropower is talked about.
  • Satellite networks for GPS and international media real-time, television and radio networks.  It’s odd they’re assumed to all be put up by defense and national governments/space agencies when the first private communications satellite, “Telstar”, went into orbit nearly 50 years ago.  Putting that infrastructure in place, satellite launches, and then maintaining them has been the primary mission of most space programs (U.S., Russian, Chinese, French, British, Brazilian, Japanese, etc.)  and while hugely costly in infrastructure investment, it’s also pays the programs’ bills to a greater extent than taxpayers realize.    The end of the U.S. Space Shuttle Program for now and the budget crunch of Russia’s program since 1989  has apparently left a very aging satellite inventory up there that will drive either smaller programs like Japan’s and Brazil’s to fill it or be the next big commercial infrastructure driver like the space port being built in New Mexico right now by that state government.
  • The Internet and broadband distribution gets enormous attention because it’s perceived as new, just 50 years after it’s invention in 1962-3, and heavily used by journalists.   It follows a lot of the patterns of railroad development and booms/busts from overbuilding or guessing wrong with figuring out how to extend cellular telephone, voice over internet protocol telephony, and broadband internet connection to extremely dispersed and poorer rural areas as well as how to upgrade it in the densest markets as the South Koreans have to become world leaders.
  • interstate highway systems to facilitate trucking in the U.S. 1950’s design , Fritz Todt’s German Autobahn system in the 1930’s, the past 10 years build out of China’s,  and the huge gaps that India, Africa, Brazil, etc. still have in their truck movement capacity.   For that matter 75% of Canada’s roads are unpaved.
  • Railroads from the Trans-Siberian Railroad or U.S.’s Union Pacific or the Ottoman Turks’ “Orient Express” opened up whole continents and radically changed the possibilities for the land between the two connected major cities/ports.   Projects that scale remain to be done in Africa and South America while in the older systems, replacing the trackbeds, rails, switching, etc. to accomodate ever higher speed trains or very different needs like magnetic levitation trains (now a 40-50 year old technology)  remain the maddening hurdle that so far just throwing vast but still inadequate sums of money (and ignoring actual utilization rates) seems to be the popular approach.

Clearly sometimes infrastructure makes world-changing differences but not always as proponents like to pretend.

1. Low usage roads. Much of the existing road system was built to connect small farms to local markets, in other words a 1920’s-1950’s truck could get a load of hogs, calves, hay, vegetables, grain, fruit, etc. either to the processing plant/storage in a nearby community or get inputs like seed, fertilizer, equipment, animal feed etc. back to the farm. Consolidation of working farms into far vaster holdings, 10-30 of these family farms becoming a single operation with a small crew clearly affects road use but maintaining millions of miles of such roads becomes a trap sucking up disproportionate infrastructure dollars with little actual return that only gets worse.

2. Overbuilding infrastructure when public financing and support is relatively easy is an extremely common trap, if the first project works out well let’s build a dozen more in less economically compelling sites. Happens with ports, roads, railroads, canals, schools, higher education, parks, community recreation facilities, etc.. Weirdly airports are the only infrastructure sites I keep seeing where demand and use always seem to fill it up, suggesting considerably unmet, pent-up demand in these highly subsidized facilities tenanted by companies with more often rickety finances than rich. Envy over what another community has and the often unwarranted assumption that a community’s success is built upon it’s developed infrastructure (the infrastructure is more often a lagging indicator of the community’s relative success-where it put it’s surplus investment capital rather than economic drivers as almost always assumed.) The U.S. and before that Europe used to lead in this overinvestment in infrastructure, now it would be China building infrastructure far in advance of actual demand for hundreds of millions of people while playing catch-up for 200 years of low investment in a country that led the world in public infrastructure for many centuries.

3. Public infrastructure projects are enormously political except to a lesser extent in wartime or other major visible crisis like an earthquake, tsunami, etc. that focuses people on what’s needed rather than what pork-barrel projects they can visibly reward their supporters with. Hidden agendas by many parties to make a profit from the project, typically concealed under civic virtue and vague statements like “it’s economic stimulus, it’s building our future, we must have this for our community.” Where infrastructure goes usually drives up not only the adjacent land’s prices and development possibilities, it means the other locations that aren’t getting the infrastructure investment will deteriorate or stagnate-costing those landowners, businesses, residents a great deal in the many years until they might get another chance at such investment. Big infrastructure is weirdly erratic, often generations pass between waves of infrastructure investment, so losing out on it for your place for 10-100 years feels more like a death sentence than a “better luck next time” moment…and of course greatly increases the resistance to making any infrastructure decisions with so many more vocal losers than winners in every project prioritizing.

4. Politicians responding to pressures from key constituents determining priorities and relative funding amounts makes for weird decisions.   Narrowly listening to a handful or just one real estate developer, construction firm, transportation firms, utilities, growth industries, entertainment venues (building entertainment and cultural venues has drifted back into being major public infrastructure spending with over $11 billion spent on U.S. professional sports stadiums in the past 15 years, let alone the vast investment cities hosting a few months of Olympics Games activities go through with little heralded bankruptcies afterwards on many venues.)   Contractors looking for projects to build that happen to fit their available capacities and current political clout have defined our infrastructure to a surprising extent (see Laton McCarthy’s “Friends in High Places” history of Bechtel,  Robert Caro’s look at Kellogg, Brown, & Root in his biographic series on Lyndon Johnson, John Perkins’ “Confessions of an Economic Hit Man” on electrical infrastructure building, or the U.S. Army Corps of Engineers.)

5. Far more infrastructure gets planned, designed, and built by private firms for business purposes than is generally recognized as it bores the media and politicians while drawing public attention to the projects is almost always an expensive and sometimes fatal input, whether it’s the assumption what’s proposed will destroy the environment locally or globally or be an eyesore, inconvenience, drive down property values, etc. the resistance to change takes on many often bizarre cloaks. Examples of private infrastructure are railroad lines, power plants, oil refineries, food processing and storage plants, oil and gas pipelines, industrial and business parks, apartment complexes/workforce housing, private campuses, toll roads, theaters, private schools, churches, hospitals, mines, and research labs.

In the old days in the U.S., building all of the infrastructure to make a business site work, i.e. a remote mine or factory, was common but now forgotten despite it’s survival in most of the rest of the world as it’s simpler and faster than trying to get the host government and adjacent communities to provide it.

As with all things, more infrastructure investment depends quite specifically on exactly where and exactly why, with guessing future demand almost always wrong by huge degrees and overestimating follow-on capital availability and interest to complete the project, develop the adjacent demand drivers around it. In other words, it’ll break you more often than it’ll make you.

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