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Challenges and Opportunities
Ben Secrist August 2013
• For decades the American infrastructure has been allowed to decay. Poor quality of wireless broadband access, deteriorating roads, unsafe bridges, and power interruptions are all indicators of a lack of investment in infrastructure. • The World Economic Forum has ranked the U.S. 20th globally in overall infrastructure rating. The American Society of Civil Engineers has consistently given the U.S. low rankings, including a “D+” in 2013. This has serious effects on our economies efficiency as it takes longer and costs more to transport people, goods, information, and energy across the country. • Climate change poses a daunting challenge for policymakers and business leaders as powerful storms cause billions of dollars in both damage and lost business. Taking proactive steps for preparing our country’s infrastructure is far less expensive than acting once the damage has been done. Every $1 spent in preparedness spending is worth $15 in relief payments after a disaster has struck. • A possible solution is to create an infrastructure bank with bonds to leverage private capital that would allow for public and private sector cooperation on upgrading and building projects of “regional or national significance”. With current low interest rates, latent private capital is looking for a place to invest with guaranteed and longterm returns.
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AMERICAN SECURITY PROJECT
What is a Country’s Infrastructure?
A country’s infrastructure is the interconnected network that allows for the movement of people, goods, information, and energy- it is generally, but not exclusively, publicly owned and financed. Roads, bridges, railways, and the electrical grid are just part of the system that allows for a country’s economy to function. In the years to come our leaders will face many challenges in relation to how we deal with our infrastructure; from climate change, to technological advancements, and paying for upgrading an infrastructure in great need of it during times of budget cuts. Acting proactively in preparing for what climate change may bring is far cheaper than reacting to the damage once a weather-related disaster has struck. While storms will cause certain amounts of unavoidable damage, steps can be taken to mitigate the impact. Business leaders and lawmakers can work together to authorize and fund an infrastructure bank that would leverage special bonds to attract private capital. Not only would this provide long-term, guaranteed returns for investors but upgrading a deteriorating infrastructure would make business more effective for the country as a whole. Creating an infrastructure bank has bipartisan support, and the extra funding from a bank would go a long way in retaking our place on top with the most effective and efficient infrastructures in the world.
Challenges and Opportunities
The quality of a country’s infrastructure is a strong contributor towards its global competitiveness. America’s Interstate Highway System is one critical component our infrastructure. Passed into law in 1956 under the “National Interstate and Defense Highways Act” the idea was to provide more efficient transportation for men and materials during times of war and open roads for commerce in times of peace. For years America’s highways were the envy of the world, helping to facilitate America’s rise as the singular global superpower. However America’s infrastructure has largely been allowed to decay over the decades. For its 2012-2013 competitiveness ranking, the World Economic Forum ranked the U.S. 20th in overall infrastructure rating.1 The future brings both opportunities and challenges for policymakers and business leaders on how to address our country’s infrastructure.
Climate change, for example, poses an unprecedented and unique test for how we prepare and react to natural disasters and the impact they will continue to have on some of our country’s most populous and commercially vital areas. Opportunities for cooperation exist as well; both the private and public sector have enormous interests at stake in keeping America’s roads and bridges reliable as possible. With interest rates relatively low one option for bringing private investment would be an infrastructure bank that could provide a model for private business who are looking to invest their considerable amounts of latent capital with long-term, guaranteed returns.2 A deteriorating infrastructure is not an abstract problem for the American people. Spotty cell phone coverage, crumbling roads, unsafe bridges, and power interruptions are all symptoms of an infrastructure that deserves a refocus of our resources.
Why Is Updating Our Infrastructure So Important?
• Our nation’s infrastructure consists of approximately 4 million miles of roads, 600,000 bridges, 79,000 dams, 300 ports, 19,000 airports, and many more interconnected systems.3 • For every $1.25 billion invested in transportation infrastructure, it is claimed that 35,000 jobs are created and supported.4 • By 2020, 90% of urban Interstate Highways will be at or exceeding capacity.5 • One-third of traffic fatalities can be directly attributed to substandard road conditions. That is about 15,000 people every year over the last decade.6 • Aging infrastructure costs business and families up to $130 billion ever year.7 • By 2020, America’s transportation infrastructure deficiencies are expected to cost the national economy almost $900 million in GDP.18 • Rolling blackouts and inefficiencies in the electrical grid cost the U.S. economy approximately $80 billion per year.9 • The U.S. spends approximately two percent of its GDP on infrastructure investment, Europe spends five percent, and China spends nine percent.10 • Freight and intercity rail system will need $200 billion by 2035 to accommodate anticipated growth.11 • Demand for freight rail is expected to increase by 84% by 2035.12 • Approximately 12% of the nation’s bridges are structurally deficient.13
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Climate Change and Preparing Our Country’s Infrastructure
On July 18th, the president of the Reinsurance Association of America gave testimony to the Senate Committee on Environment and Public Works regarding climate change and how it affects the national insurance companies.14 This past year was especially tough as Superstorm Sandy slammed into the East Coast and caused nearly $50 billion in damage, knocking out power for millions of people and destroying vast amounts of private property.15 The RAA’s president, Franklin Nutter, noted that North America has seen a fivefold increase in “natural catastrophes” since 1980, a fact his association cannot ignore, and neither should our policymakers. The costs of recovering from a natural disaster on the scale of Sandy is huge, being proactive beforehand would reduce the costs. Research shows that “$1 in preparedness spending is worth $15 in relief payments in preventing future disasters.”16 While the sheer power of these storms makes a certain amount of damage unavoidable there are steps that can be taken to mitigate the losses. Business leaders and politicians can work together on assessing the most vulnerable parts of the country’s infrastructure. Private businesses, both large and small, should have a say in what the priorities need to be so that disruption to their businesses is minimized.
Creating an Infrastructure Bank Through Public-Private Cooperation
One of the most effective ways to counteract our crumbling infrastructure across the country would be to establish a National Infrastructure Bank. This bank would have federal lending power with the ability to finance and coordinate urgent and high-value investments across the country. Up-front costs for the federal government would be high but because all the funds distributed by the bank would be paid back with interest following the completion of the projects, over the long term costs to the federal government would be quite low. Originally proposed in 2007 by then-Senators Dodd and Hagel, the National Infrastructure Bank would use special bonds to leverage private sector funds to fund projects of “regional or national significance.” Former Senator John Kerry (D-MA) along with Sen. Kay Bailey Hutchinson (R-TX), Sen. Mark Warner (DVA), and Sen. Lindsey Graham (R-SC) took up the proposal after Hagel and Dodd retired from the Senate in 2009. Their bill proposed an infrastructure bank
with initial seed money of $10 billion that could provide up to $160 billion in financial assistance over the next decade.17 They estimate this investment could pull in between $320 billion and $640 billion in additional nonfederal spending. Levels of investment of this magnitude could make a huge difference in our country’s economy because it helps several major sectors. Benefits for the Private Sector An Infrastructure Bank: • Supports the construction industry as well as heavy manufacturing, both of which were hit hard from the recession. • Single institution rather than a diverse group of smaller banks, therefore making the process more efficient and less likely to encounter overlaps. • Low interest loans and guarantees could be made for state, local, and importantly private investors. • Provides long-term, guaranteed returns for sidelined private capital. Federal oversight could also help find the models that protect wages and collective bargaining rights. Because of the great potential for quality jobs and solid returns on their investments both the U.S. Chamber of Commerce and the AFL-CIO support the bill.18 This rare agreement between big business and big labor is a telling sign for how important creating an infrastructure bank is. The American Society of Civil Engineers gave the U.S. infrastructure a “D+” rating in 2013, rising slightly from a 2009 low of “D”. Calculating an underinvestment of $1.76 trillion. From 2009-2014 the ASCE estimated a $2.2 trillion investment was necessary, whereas only $974 billion was actually spent.19,20,21 While these investment requirements are high, the numbers will not get any better over time. Spending on upgrading America’s infrastructure has a high return on investment and therefore deserves a coordinated and concerted effort to fix.
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The backbone of a country’s economy is its infrastructure. For decades the United States has let its roads, bridges, and electrical grid decay into mediocrity. Inefficiencies and delays caused by decaying infrastructure cost us billions in lost opportunities. If the United States is to remain internationally competitive then we must upgrade and modernize our infrastructure. Climate change poses a daunting challenge for our future, but preventative action is far cheaper than retroactive repairs. Finally an Infrastructure Bank is a common sense solution that enables cooperation between the public and private sectors. With low interest rates and sidelined capital, private industry is looking for places to invest for long-term and guaranteed returns. Creating an infrastructure bank with substantial federal seed money could be used to leverage enormous amounts of capital that would go a long way in making a serious impact on our country’s infrastructure, creating jobs and reviving industries hit hard from the recession. Ben Secrist is an Adjunct Junior Fellow at the American Security Project in American Competitiveness. He graduated from the University of Massachusetts Amherst with a degree in Business Management and a second major in Political Science. Ben hopes to continue to work on matters of national security.
1. Schwab, Klaus. (2012). The Global Competitiveness Report 2012-2013. World Economic Forum. Avaliable at: http:// www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf 2. Cole, August. (November 2012). American Competitiveness: A Matter of National Security. Washington D.C. American Security Project. Available at: http://americansecurityproject.org/featured-items/2012/american-competitiveness-report-anissue-of-national-security-2/ 3. Springer,D. & Dierkers, G. (2008.) An Infrastructure Vision for the 21st Century. National Governors Association. Washington D.C. Available at: http://www.nga.org/files/live/sites/NGA/files/pdf/0902INFRASTRUCTUREVISION.PDF 4. ibid., p.3. 5. ibid. 6. U.S. Department of Transportation. (2011.) Highways for LIFE. Available at: http://www.fhwa.dot.gov/hfl/about.cfm 7. Economic Development Research Group. (2013). Failure to Act: The Impact of Current Infrastructure Investment on America’s Future. American Society of Civil Engineers. Reston, Virginia. Available at: http://www.asce.org/uploadedFiles/ Infrastructure/Failure_to_Act/Failure_to_Act_Report.pdf 8. ibid., p.17. 9. U.S. Department of Energy. (2005). Berkley Lab Estimates $80 billion Annual Cost of Power Interruptions. Available at: http://www.lbl.gov/Science-Articles/Archive/EETD-power-interruptions.html 10. Kurtenbach, Elaine. (2010, Dec. 20). U.S. Infrastructure Spending Falling Far Behind China, Emerging Economies. Huffington Post. Available at: http://www.huffingtonpost.com/2010/12/20/us-infrastructure-spendin_n_798979.html 11. Springer,D. & Dierkers, G. (2008.) An Infrastructure Vision for the 21st Century. National Governors Association. Washington D.C. Available at: http://www.nga.org/files/live/sites/NGA/files/pdf/0902INFRASTRUCTUREVISION.PDF 12. ibid., p.7. 13. ibid., p.8. 14. Nutter, Franklin, President Reinsurance Association of America. (2013, July 18). Testimony Before the Senate Committee on Environment and Public Works. Retrieved July 23, 2013, from http://www.epw.senate.gov/public/index. cfm?FuseAction=Files.View&FileStore_id=f86b767e-7a71-48b4-8eef-7bd9ad1d3884 15. AP. (2012, November 2). Damage From Sandy Could Cost as Much as $50B, Says Forecasting Firm. CBS News. Available at: http://www.cbsnews.com/8301-201_162-57543923/damage-from-sandy-could-cost-as-much-as-$50b-says-forecastingfirm/ 16. Healy, A., & Malhotra, N. (August 2009). Myopic Voters and Natural Disaster Policy. American Political Science Review. Vol.103, No.3. Available at: http://myweb.lmu.edu/ahealy/papers/healy_malhotra_2009.pdf 17. Miller, K., Costa, K., & Cooper, D. (September 2012). Creating a National Infrastructure Bank and Infrastructure Planning Council. Washington D.C. Center for American Progress. Available at: http://www.americanprogress.org/wp-content/ uploads/2012/09/InfrastructureBankReport.pdf 18. U.S. Chamber of Commerce. (2011, Mach 16). U.S. Chamber of Commerce, AFL-CIO Urge Infrastructure Bank. Washington D.C. Available at: http://www.uschamber.com/press/releases/2011/march/us-chamber-afl-cio-urgeinfrastructure-bank 19. Cole, August. (November 2012). American Competitiveness: A Matter of National Security. Washington D.C. American Security Project. Available at: http://americansecurityproject.org/featured-items/2012/american-competitiveness-report-anissue-of-national-security-2/ 20. American Society of Civil Engineers. (2013). 2013 Report Card for America’s Infrastructure. Available at: http://www. infrastructurereportcard.org/a/#p/overview/executive-summary 21. Weisenthal, Joe. 2013, May 24). The Collapse of Public Infrastructure Spending in One Chart. Available at: http://www. businessinsider.com/skagit-bridge-collapse-infrastructure-spending-2013-5
AMERICAN SECURITY PROJECT
BOARD OF DIRECTORS
Raj Fernando Senator Hart served the State of Colorado in the U.S. Senate and was a member of the Committee on Armed Services during his tenure. Raj Fernando is CEO and founder of Chopper Trading, a technology based trading
Vice Admiral Lee Gunn, USN (Ret.) Brigadier General Stephen A. Cheney, USMC (Ret.) Brigadier General Cheney is the Chief Executive Vice Admiral Gunn is the President of the Institute of Public Research at the CNA
Norman R. Augustine Mr. Augustine was Chairman and Principal years and Chairman of the Council of the National Academy of Engineering.
Lieutenant General Claudia Kennedy, USA (Ret.) to achieve the rank of three-star general in the United States Army.
General Lester L. Lyles, USAF (Ret.) Lieutenant General Daniel Christman, USA (Ret.) Lieutenant General Christman is Senior Vice States Chamber of Commerce. General Lyles retired from the United States Air Force after a distinguished 35 year career. He is presently Chairman of USAA, a member of the Defense Science Board, and a member of the President’s Intelligence Advisory Board.
Nelson W. Cunningham Nelson Cunningham is President of McLarty Associates.
Dennis Mehiel Dennis Mehiel is the Principal Shareholder and Chairman of U.S. Corrugated, Inc.
Lieutenant General John Castellaw, USMC (Ret.) John Castellaw is President of the Crockett Policy Institute (CPI), a non-partisan policy and research organization headquartered in Tennessee.
Ed Reilly Edward Reilly is CEO of Americas of FD International Limited, a leading global communications consultancy that is part of FTI Consulting, Inc.
Lee Cullum Lee Cullum, at one time a commentator on the on NPR, currently contributes to the Dallas Morning News and hosts “CEO.”
Governor Christine Todd Whitman Christine Todd Whitman is the President of the specializes in energy and environmental issues.
Admiral William Fallon, USN (Ret.) Admiral Fallon has led U.S. and Allied forces and played a leadership role in military and diplomatic matters at the highest levels of the U.S. government.
Building a New American Arsenal The American Security Project (ASP) is a nonpartisan initiative to educate the American public about the changing nature of national security in the 21st century. Gone are the days when a nation’s strength could be measured by bombers and battleships. Security in this new era requires a New American Arsenal harnessing all of America’s strengths: the force of our diplomacy; the might of our military; the vigor of our economy; and the power of our ideals. We believe that America must lead other nations in the pursuit of our common goals and shared security. We must confront international challenges with all the tools at our disposal. We must address emerging problems before they become security crises. And to do this, we must forge a new bipartisan consensus at home. ASP brings together prominent American leaders, current and former members of Congress, retired military officers, and former government officials. Staff direct research on a broad range of issues and engages and empowers the American public by taking its findings directly to them. We live in a time when the threats to our security are as complex and diverse as terrorism, the spread of weapons of mass destruction, climate change, failed and failing states, disease, and pandemics. The same-old solutions and partisan bickering won’t do. America needs an honest dialogue about security that is as robust as it is realistic. ASP exists to promote that dialogue, to forge consensus, and to spur constructive action so that America meets the challenges to its security while seizing the opportunities the new century offers.
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