Stephen Koch of Credit-Suisse (left) and Kevin Klowden of the Milken Institute argue that the United States must abandon its piecemeal approach to infrastructure planning.
The United States is struggling to finance and modernize its transportation infrastructure at a moment when globalization and technological innovation have led to massive increases in trade, shipping and transport, and as concerns about climate change intensify. Many metropolitan areas lack transit options, while freight and port hubs remain congested.
Thus, it should come as no surprise that what reverberated throughout this session was "integrate, integrate, integrate" when it comes to national transportation policy. "The biggest need is a holistic approach," said Douglas Duncan of FedEx Freight Corp. Addressing roads, railways, ports and airports independently is no longer affordable, he warned, nor will it produce the national transportation system Americans need.
Moderator Amy Liu of the Brookings Institution burst that bubble quickly. A holistic approach would be difficult to achieve when national legislation is absent a meaningful purpose or mission statement, as is the case at present. She outlined the major challenges facing the nation through six issues that foster imperatives for reform: (1) infrastructure age (2) traffic congestion (3) growing freight traffic (4) energy consumption/emissions/climate change (5) rising fuel costs and (6) a lack of financing. Studies calling for support of the "Rebuild America" initiative of California Gov. Arnold Schwarzenegger, Pennsylvania Gov. Edward Rendell and New York Mayor Michael Bloomberg are positive, but much more is needed and the danger of waiting is real.
"Over the past two decades," said Liu, "transportation has pulled inventory out of the supply system and into the supply chain, creating significant cost savings. Those savings have flattened out the past few years and are in danger of reversing themselves through increased congestion and higher costs if we continue with 'business as usual.' If we allow that to happen, it will make America less competitive and doom us to smaller markets because we simply won't be able to move domestic product to major markets as competitively as foreign suppliers will."
"In the last 20 years we consumed the infrastructure windfall that Eisenhower created in the 1950s and '60s," said Steven Koch of Credit Suisse. "Not only do we need new infrastructure, but we need to recapitalize the existing infrastructure" if this nation is to remain competitive.
Funding new infrastructure and recapitalization is difficult, said Koch. For the past 30 to 40 years, infrastructure hasn't been a significant political issue. Today, incidents like the recent Minneapolis bridge collapse may temporarily draw the public's attention to our aging or inadequate infrastructure, but other political issues overshadow them. In addition, the public has a solid mistrust of politicians who come asking for infrastructure funding but who then divert the funds for other purposes.
In addition, the public has great difficulty visualizing the interrelated nature of facilities, said Kevin Klowden of the Milken Institute, especially the relation of infrastructure to their personal life. "They understand rush-hour traffic congestion, but not the impact Katrina had on the New Orleans area ports and movement of goods throughout the region and up and down the Mississippi that have a tangible impact on their personal economic well-being."
Better use of local public-private partnerships (PPPs) as delivery mechanisms can help, said Steve Allen of Macquarie Capital Group. "There are plenty of private investment funds available, and pension funds love infrastructure because it provides a stable return that meets or exceeds their target rates on contracts running 25 to 99 years." There are thousands of miles of roads that private capital does not care to invest in, he said, because the economic returns are lacking, but an economic return exists when PPPs can free up municipal funds for the construction and maintenance of those roads. PPPs can also be more efficient managers of roads for private equity worries. Roads are very expensive to build or rebuild, but maintenance is inexpensive. Private equity ensures appropriate construction and maintenance to minimize life cycle costs; municipalities that suffer from competing priorities and erratic funding over time would find these projects more difficult to complete.
"Look north to Canada and the Asia-Pacific Gateway and Corridor Initiative as an example of a successful PPP that emphasized local and national collaboration," said John Higginbotham of Transport Canada and an adviser to the initiative. By establishing a purpose-specific fund and signaling its commitment with $1 billion upfront funding, the Canadian government combined private and public resources to create the integrated system that now serves Canada and Midwest United States down to New Orleans. The initiative enabled selecting projects based on merit and innovation, with particular focus on security and environmental issues that sometimes proved challenging.
The panelists agreed that the United States must change its approach to planning, legislating and funding infrastructure projects if it is to achieve anything that approaches Canada's success and meet its pressing and readily observable future needs.
Global Conference 2013
Former Prime Minister Tony Blair, philanthropist Bill Gates and Strive Masiyiwa of Econet Wireless discuss advancing prosperity in Africa.
