Industry Market Trends

The High Cost of Ignoring America's Infrastructure

Feb 12, 2013

The transportation and energy networks are the lifelines of the U.S. economy, powering factories, enabling the delivery of goods and materials, and sustaining quality of life. But investment in our nation's infrastructure has fallen perilously low, and the economic repercussions could be disastrous.

Infrastructure investment is vital. The American Society of Civil Engineers (ASCE) recently warned that unless the U.S. devotes an additional $1.57 billion per year on infrastructure through 2020, the country will lose $3.1 trillion in gross national product (GNP) and $1.1 trillion in trade. On an individual level, the average American will lose $3,100 each year in personal disposable income, resulting in $2.4 trillion in lost consumer spending in the next seven years and the subsequent elimination of 3.1 million jobs.

Infrastructure constitutes "the physical framework upon which the U.S. economy operates and the nation's standard of living depends ... including transporting goods, powering factories, heating and cooling office buildings, and enjoying a glass of clean water," the ASCE explains.

Discussions of public infrastructure often focus on safety issues, such as the danger of deteriorating bridges. However, allowing infrastructure to decline also has a cascading impact on business productivity, gross domestic product (GDP), employment, household incomes, and the country's competitiveness on the world stage.

Neglect in one area can affect performance in another. For example, "regardless of how quickly goods can be offloaded at the nation's ports, if highway and rail infrastructure needed to transport these goods to market is congested, traffic will slow and costs to business will rise," the ASCE notes. To calculate the true economic losses of deteriorating infrastructure, it's necessary to consider these kinds of chain effects.

The cumulative need for infrastructure investment will come to $2.7 trillion by 2020 and rise to $10 trillion by 2040. However, current funding plans only cover 60 percent of the 2020 requirement and 53 percent of the 2040 requirement. Thus, the investment gap comes to $1.1 trillion by 2020 and $4.7 trillion by 2040.

"Travel times will lengthen with inefficient roadways and congested air service, and out-of-pocket expenditures to households and business costs will rise if the electricity grid or water delivery systems fail to keep up with demand," the ASCE warns.

Goods will be more expensive to produce and more expensive to transport, and the costs will be passed along to consumers and business customers. Business-related travel, as well as personal travel, will also become more expensive. As a consequence, U.S. companies will become less efficient and suffer in global competitiveness.

The overall effects of degrading infrastructure will cost $611 billion for households and $1.22 trillion for businesses, for a total of $1.83 trillion by 2020. Unless addressed, these figures will rise by 2040 to $2.85 trillion for households and $5.81 trillion for businesses, totaling $8.66 trillion in costs.

These findings are supported by other key research. The McKinsey Global Institute estimates that keeping pace with projected growth in global GDP will require approximately $57 trillion in infrastructure investment worldwide between now and 2030. Taking practical steps to improve infrastructure performance today could provide a major payout, yielding annual savings of $1 trillion - the equivalent of paying $30 trillion for $48 trillion worth of infrastructure - over the next 18 years.

McKinsey points out that additional funding is not the only requirement for improving and repairing infrastructure. Equally important is finding ways to add more and better-quality infrastructure for less money. Its report outlines how governments and the private sector can work together to greatly bolster infrastructure productivity by:

  • Improving the selection of projects and optimizing infrastructure portfolios;
  • Streamlining project delivery through better processes for land acquisition, project approvals, early-stage planning and design, and structuring of contracts; and
  • Getting the best use out of existing infrastructure assets instead of always investing in costly new projects.

ASCE's report is the last in a five-part Failure to Act series and paints a grim picture of America's future without an aggressive program of infrastructure improvement. The authors emphasize that their findings "are analytical and do not offer policy or funding prescriptions." But the implication seems clear.

As Janet F. Kavinoky, a U.S. Chamber of Commerce executive, asserts: "The ASCE report cites large needs and the numbers can seem daunting, but they can be met if our elected and appointed officials are willing to show leadership and address revenue needs as soon as possible instead of waiting for the next infrastructure crisis."