- The COVID-19 crisis could lead to a recession in the US. Infrastructure projects create economic growth;
- The US infrastructure industry is 30 years behind its global counterparts but a new centralized and data-driven approach to infrastructure projects could help it catch up;
- Fourth Industrial Revolution technologies and innovation could help make the industry more resource and cost efficient.
In fighting the COVID-19 crisis, the Federal Reserve has used all of its monetary tools. A new recession is underway or, as some may say, it’s already here. When monetary policy isn’t enough, a country must turn towards fiscal policy. Right now, reviving the lagging US infrastructure sector may be the best approach: infrastructure creates economic growth, 5G cellular infrastructure will allow for faster data rates, a better electric grid allows us to drive electric cars and new roads reduce congestion and commute times.
Have you read?
However, despite its benefits, the US is still 30 years behind on its infrastructure. Its roads are under-maintained and its electricity lines cause fires in California owing to insufficient investment.
Just investing in infrastructure isn’t enough – the US infrastructure problem is deeper than one that money can easily solve. Some may blame the 30-year lack of investments, but expert policy-makers, financiers and entrepreneurs all believe that if an infrastructure project would make society a better place, there is almost always a way to finance it.
The main problem is that infrastructure is “resource inefficient” in the US. Projects are poorly managed with no centralized authority, which causes costs to increase. Despite being the world’s leader in innovation, the US has not been able to merge its technological capabilities with traditional infrastructure practices. The infrastructure world has yet to join the Fourth Industrial Revolution.
The best way to exemplify the huge infrastructure gap is to look at China’s construction of the Sanyuan Bridge, which took less than 43 hours to build. In the first 24 hours, the bridge was demolished; in the remaining 19 hours, the new-and-improved structure was built in its place. While the US takes years to build a road, China takes days. The difference is not just the cost, but the speed of execution. Needless to say, a full-blown fiscal plan that focuses on infrastructure can close some of the gaps with China.
Beyond a new spending budget similar to that just announced in the UK, the three causes of the infrastructure sector’s systemic problems must be addressed: inefficient decision-making processes at the municipality and state level, a lack of authority to execute projects due to over distributed authority and the high cost of construction resulting from old inefficient business practices.
There are three solutions to these problems that the US must enact:
1. Consolidate government authority to execute infrastructure projects. Today, project alternatives are chosen by politicians. Review-and-outreach processes are then run to support those preferences, even when they add cost and provoke community objections that must be expensively addressed. The root cause of these capital-construction failures is usually diagnosed as a lack of accountability: nobody knows who’s in charge, so nobody has the fear of taking the blame for obscene costs and endless delays.
There is a need to establish a federal infrastructure agency with a mandate to promote the industry to the next stage of its evolution. The first step of such an agency will be to strengthen the authority of municipalities to execute infrastructure projects. Although the US is mostly against over-centralized decision-making, in a hyper-localized industry, it is time to start acting according to national priorities, to create a long-term vision for infrastructure and to centralize some of the decision-making processes required to execute it.
2. To prioritize projects, the US should also start using data-driven decision-making processes. Most infrastructure projects are not a result of central planning, but, instead, reflect a governor or a mayor’s political aspirations. As an example, states build roads in rural areas that don’t make economic sense, while underinvesting in urban areas desperately in need of infrastructure. We know this because today there is more data available than one could ever imagine. Start-ups can create weather simulations to anticipate the wind speeds in a square mile by the hour or use traffic simulations to know the traffic levels by the minute, but, for some reason, cities are not using data to prioritize infrastructure projects on a national scale.
Municipalities fail to use data to create a top-to-bottom process. If the infrastructure industry can learn how to take advantage of data, to create objective KPIs for infrastructure and help decision-makers to prioritize infrastructure projects, projects will be able to move to the execution phase more quickly and with greater efficiency.
3. Finally, we need to harness innovation and the Fourth Industrial Revolution to improve construction technology. From software and hardware to data, robots, construction tech (Contech), there is underinvestment. The industry received a mere $6 billion of investments last year. Meanwhile, a recent Deloitte report suggests the US is missing $2.1 trillion in infrastructure investment.
If Contech can save 10% of the cost of infrastructure, it would save the taxpayer $210 billion worth of investments – and it can save so much more. It is estimated that the lack of construction efficiency in the industry increases a project’s costs by up to half. In infrastructure, as in other fields, the investment in tech pays for itself in the long run.
Globally, the Fourth Industrial Revolution has yet to reach the world’s biggest industry – the construction industry. Encouraging investments in Contech by removing regulatory constraints and inviting Silicon Valley VCs to join the effort is critical to the US infrastructure industry. Furthermore, we should create the right incentives for US companies to adopt the technological revolution of Contech.
There will be no way out of the coming recession without a fiscal plan that involves infrastructure. If the US is going to invest hundreds of billions of dollars in the infrastructure industry, it must use the crisis to reform the sector and make sure it emerges from this recession with a stronger, more durable economy than before.