EconSouth - Second Quarter 2008

Infrastructure: The Foundation for Prosperity

Photograph of Minneapolis bridge collapse
Photo courtesy of the Federal Emergency Management Administration
The collapse of a bridge in Minneapolis killed 13 people and led to a renewed focus on the nation's infrastructure.

On Aug. 1, 2007, an eight-lane, steel truss bridge packed with rush hour traffic collapsed into the Mississippi River in Minneapolis. This catastrophic failure of an interstate highway in the heart of a major U.S. city killed 13 people, injured 145, and prompted renewed focus on the condition of the nation's infrastructure.

While media coverage of the Minneapolis bridge failure has receded, the need to rebuild and repair bridges, roads, and other facilities essential to the nation's economy and way of life becomes more pressing with the passage of time. This issue of EconSouth examines physical infrastructure in the Southeast, in the United States, and around the world. To effectively explore the topic, we focus chiefly on physical infrastructure such as roads, bridges, water systems, and sewers.

Why a special focus on infrastructure? A sound infrastructure supports economic growth and productivity; increases in productivity are in turn linked to higher living standards, rising levels of employment and incomes, and lower prices for goods and services. Infrastructure also supports business investment and innovation and allows consumers and products to reach each other more easily; better roads foster faster and more efficient delivery of goods.

Related Links
Work Zone Ahead? Repairing the Southeast's Infrastructure
Building a Better World: Infrastructure's Role in Economic Growth
Interview With Atlanta Mayor Shirley Franklin
Audio icon Metro Atlanta's Infrastructure (MP3 6:27)

Saving money at what cost?
So if infrastructure is so important, why doesn't more money go to pay for it? For starters, building new infrastructure and rehabilitating existing works are expensive. Projects must compete with other needs in the budgets of revenue-strapped federal, state, and local governments. Also, the benefits of infrastructure maintenance, such as shoring up a sewer system, are not something most constituents will notice. And the return on investment in infrastructure can take many years—beyond the planning horizon of many elected officials—so the temptation is strong to delay infrastructure maintenance.

Also, infrastructure issues don't make front page news—until a tragedy like the Minneapolis bridge collapse occurs. A less dramatic story is the $3.8 billion Clean Water Atlanta Program, launched after pressure from environmental groups upset about pollution caused by Atlanta's outdated water infrastructure. EconSouth asked Atlanta Mayor Shirley Franklin for her thoughts on this and other infrastructure programs the city has undertaken (see interview).

Historically, government—with the tax base and the borrowing capacity to fund improvements—has taken the lead in paying for infrastructure. But with ongoing economic and population growth, rising land and commodity prices, and increasing regulations, infrastructure costs are likely to continue to increase. In recent years, in the United States and elsewhere, governments and businesses have begun to work more closely together to invest in infrastructure. These increasingly creative public-private partnerships offer hope of overcoming the challenges of funding growing physical infrastructure needs.

One infrastructure does not fit all
All nations must build and maintain infrastructure, but their requirements—and the level of investment—vary widely. For instance, in India officials have made upgrading their nation's inadequate infrastructure a national priority, increasing their annual investment in infrastructure from about 3.6 percent of gross domestic product (GDP) in 2005 to 8 percent in 2008. China spends even more—about 9 percent of GDP in 2005—on infrastructure, an investment level that is no doubt a factor in its continuing rapid economic growth. By contrast, Latin American countries on average spend only about 1.5 percent of GDP on infrastructure. In recognition of the importance of infrastructure investment, however, some Latin American countries have recently boosted spending on physical projects.

Back in the U.S.A.
Compared with much of the rest of the world, the United States has a vast and well-developed physical infrastructure. For instance, the 47,000-mile U.S. interstate system is the world's most extensive highway network and one of the largest public works project in history. To this point, U.S. investment in roads and other public facilities has coincided with decades of solid economic growth, strong productivity gains, and wealth creation. But infrastructure maintenance is only 2 percent of U.S. GDP—a number that lags many nations' investments—and is a potential competitive disadvantage for the future, according to the U.S. Chamber of Commerce.

This inadequate investment has over time caused a deterioration in U.S. infrastructure. The United States spends about $113 billion each year on infrastructure maintenance, but that amount doesn't come close to paying for the $1.6 trillion in maintenance projects needed through 2010, according to the American Society of Civil Engineers (ASCE).

Those projects include upgrading about one-third of the nation's major roads, which are in poor or mediocre condition, according to the ASCE. In recent years, the United States has also deferred maintenance on bridges; about a quarter of U.S. bridges are structurally deficient or functionally obsolete, according to the U.S. Chamber of Commerce.

The deterioration of the nation's transportation network is evident in residents' quality of life. Worsening physical infrastructure forces millions of U.S. motorists to endure worsening congestion (with the resulting increased air pollution) and wastes $78 billion per year in time and fuel costs, according to the Texas Transportation Institute.

"Decades ago we built the best infrastructure system the world has ever known and then proceeded to take it for granted," said U.S. Chamber of Commerce President and Chief Executive Officer Thomas Donohue. "It shouldn't take a disaster like the bridge collapse to focus the nation's attention on our vast infrastructure challenges. But now that we have that focus, we must not lose it."

This introduction was written by William Smith, a staff writer for EconSouth.