America needs infrastructure investment, and to target stimulus money to infrastructure is a great idea. However, the devil is in the details.
Infrastructure Renewal and Development Requires a Specific Plan. Okay, we need power plants, light rail, highway system repair and many other things. In the mid 70s I was part of the senior management team who was tasked to set up, manage and execute the largest infrastructure complex in history. This complex would have been worth more than a trillion dollars if built in the USA today. Just to develop the plan to effectively spend the money (master plan) took a year. Even three years after we began, we could only burn $20 billion per year (today’s dollars) – and this was with an unlimited budget and a client who wanted the project completed yesterday. It is easy to throw money away, but to effectively use money it takes time to plan.
Infrastructure requires time for designing the project. Hoover Dam is thought to be one of make work projects of the depression. The design of the dam began in 1928, but the construction did not begin until 1931. Detailed design of a project takes time.
Infrastructure requires manpower resources. There have been few major infrastructure projects in America in the last 10 years. The last major infrastructure project was the interstate highway system legislated by the Federal-Aid Highway Act of 1956 and was completed 35 years later at a cost of just under $500 billion in today’s dollars. The engineers, construction hands, and management have long retired. The equipment used to build this system was scrapped years ago. In 1987, I tried to find these “hands” for a project – all had retired and refused to come back to work even for a very large salary. I understand we are not building highways, but infrastructure requires civil works and these kinds of people. I have witnessed the disasters of using a person experienced in small projects when using them for large projects. We do not have enough experienced people in America for large infrastructure projects.
It is important to understand that a major project requires trained personnel. You do not take a manager at Wal-Mart to manage building a light rail system unless you do not care that the project comes in at cost and on schedule. I will ignore the issue of quality. And let us not forget designing a project. You cannot snap your fingers to have 500 experienced transportation engineers at your service. Or would you prefer an unemployed electronics engineer design your light rail? America is short experienced tradesmen – fitters, welders, boilermakers, ironworkers, etc. For you union bashing economists, the construction trades had been our pool of experienced labor to build major projects around the USA. They were the only source of craft training and apprenticeship – and their numbers are down significantly in recent years due to lack of infrastructure projects and right-to-work laws.
People have pointed out to me the success of building Liberty Ships during WWII. We did it then, we can do it now. Yes, but this was done in a “factory” setting where time and motion can be carefully controlled and taught. Since you have repetitive tasks, you can train your workforce and management quickly. In infrastructure building, although there are repetitive tasks, there are also continuous transitions to new tasks. The learning module is different and takes significantly longer to train.
A large Infrastructure program will have too many projects competing for too few resources – and we will be getting our resources from around the world. A rough rule of thumb – approximately 1/3 of a project’s cost is purchased materials. Of course this varies by the type of project. A wind farm may be 80% materials. And do you think our free trade agreements allow us to source these materials only in the USA?? And many items we need are no longer manufactured in any great quantity in the USA. Maybe we cannot ramp up cement production quick enough and costs skyrocket. The faster we want to build infrastructure projects, the greater the share of the project’s materials will come from overseas.
Infrastructure Projects are Pork Barrels. With congress involved, the projects will have a bias towards the states with the most powerful congressmen, and the lobby groups with the most influence. Will the government create a non political commission to pick what projects should be done, and how it will be done?
Government Sponsored Projects are More Costly than Private Sector Projects. Somehow these projects must be shoved into the private sector for implementation in a competitive environment.
Creation of Transparency. We need an audit team. We need to audit more than numbers, we need to continuously audit the effectiveness of what we are doing. This team would be headed by someone like Ron Paul - and would use its own auditors and contract outside financial, quality, and systems auditors. Why someone like Ron Paul? Someone against this whole process would be trusted to expose every pebble out of place.
Summary
Infrastructure is a good use of public money during a recession if properly targeted towards projects which are needed and will be used in the ensuing recovery. But if economic recovery occurs before the end of 2009 as predicted, then I do not understand the push towards infrastructure projects to stimulate the economy.
Infrastructure spending ramps up slowly and I cannot see much if any economic benefit occurring during 2009 unless there are projects already designed waiting for funding,
I have personally witnessed the effects of governments trying to ramp up infrastructure investment quickly, and can guarantee the financial waste is significant.
Disclosure: no positions
