Cross posted at

It may surprise you to know that some policy makers and academics
believe that "nothing matters" when it comes to infrastructure — the
physical structures that make water, energy, broadband and
transportation work — and economic prosperity.

The thrust of the idea
that infrastructure doesn’t matter may have started with Larry Summers,
appointed by President Obama as Director of the National Economic
Council in 2009. The New York Times says he is "the only top economic
adviser with a West Wing office" – meaning he is very powerful in Washington terms.

His most vocal critic in the matter of infrastructure is
Representative Peter DeFazio (D-Oregon). DeFazio appeared on MSNBC’s
Rachel Maddow, criticizing Summers, saying that Obama is "ill-advised
by Larry Summers" in regards to using stimulus money to cut taxes for
businesses. "Larry Summers hates infrastructure,"
says DeFazio, who argues that more of the stimulus should have gone to
infrastructure. Summers backed away from any earlier comments when he
told the Financial Times last June that there may also be "a case for carefully designed support for infrastructure investment."

The question seems obvious. What good is it to stimulate business if they don’t have the tools they need to work with?

Summers’s attitude could make it difficult to generate major new
investments in things like roads, bridges, and the broadband
communication access that businesses – small and large – need to get
the job done. Companies choose to locate where infrastructure is
better. Businesses will leave areas where infrastructure is missing or deteriorated – taking jobs with them.

Certainly U.S. firms look for good infrastructure when they consider
placing offices overseas, and foreign firms must do the same when they
consider locating here. The idea that good infrastructure would enable
economic specialization and lower costs – making U.S. businesses more
efficient, more competitive, and therefore able to create more U.S.
jobs – is clearly reflected in the way that businesses behave. Emerging
market countries remain economically competitive, and are constantly building and rebuilding their infrastructure as their economies develop. Can the U.S. remain competitive if our infrastructure doesn’t keep up with them? It is becoming increasingly clear that deteriorating infrastructure in the United States may actually be contributing to increased costs (and decreased efficiency) of American businesses.

Recently, the U. S. Chamber of Commerce initiated a project under the Let’s Rebuild America
initiative to find a way to measure the performance of infrastructure
and the role it plays in economic prosperity. Over the next year, a
team of experts (of which I am a member) led by Michael Gallis & Associates will create an Infrastructure Index
that can be used to explore the contribution infrastructure makes in
keeping American businesses competitive in an increasingly global

What is innovative about the project team’s approach is that it measures the performance
of infrastructure, and not just the size. Thirty years ago researchers
on this subject limited their measurement of "infrastructure" to
"government spending on public projects" to analyze the impact on
economic growth and productivity. This approach is flawed for several

First, not all money designated for infrastructure is spent the same
way. Government inefficiencies and political corruption plus purchasing power in local economies
contribute to inconsistency in quantity and quality of infrastructure
based on money spent. Measuring infrastructure in terms of spending
alone doesn’t cover the impact of growth on infrastructure. In other
words, that a growing economy can afford more infrastructure is just as
likely a cause of positive statistical results as the possibility that
more infrastructure helps the economy grow. Further, where spending is
used to measure infrastructure, the studies usually consider only
public spending, ignoring the contribution of investments from private
companies (e.g., the contribution of private satellites to
communications infrastructure).

Less than half of the statistical studies using expenditure-based
infrastructure measures find that developing or maintaining
infrastructure has significant positive effects on the economy. In
contrast, over three-fourths of the studies using physical indicators –
the number of phone lines, the miles of high-quality road — find a
significant positive contribution from infrastructure to the economy.

There is no dispute that economic growth is necessary as long as
there is an increasing population, which will be the case over the next
four decades in America as well as Canada and Australia. We need to
address the question: is it possible for the economy to "hit a wall"
because it runs out of usable infrastructure? In other words, the
question is not if infrastructure helps the economy but rather can a
lack of infrastructure impede the economy? Can the economy outgrow its infrastructure?

As the economy changes, so will the demands for infrastructure. The
four components of infrastructure – transportation, energy, water and
broadband – need to be made relevant across decades, even as the role
of one industry may change within the economy. For example, while it is
obvious that information-workers, such as computer programmers and
software developers who increasingly work from remote locations,
require access to broadband infrastructure, they also alter the way
that transportation infrastructure is used. Some knowledge-based
activities relying on spatial agglomeration place greater importance on
rail/subway and less importance on roads. Yet, that does not mean that
a knowledge-based economy will need fewer roads – someone has to
service those computers and that technician will likely travel to its
customers on roads.

We need to move away from the "one-size-fits-all" approach to
infrastructure development toward better integration with the economic
activity that uses it. Each region needs to assess its own needs and
base their investment decisions on conditions that exist within their

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. She will be participating in an Infrastructure Index Project Workshop Series throughout 2010.