Infrastructure spending must look forward

Many economists and politicians are once again peddling the conceit that billions of dollars in infrastructure spending (aka investment) will create new jobs, raise incomes, boost productivity and promote economic growth. After all, a report card from the American Society of Civil Engineers gave America’s infrastructure a D+ grade and claimed that an investment of $3.6 trillion is needed by 2020.

But before we accept this idea as gospel, we should remember that the future isn’t likely to look like the past.

Americans are reminded that a large part of President Roosevelt’s New Deal to “Save Capitalism in America” was massive federal investments in economic growth projects like rural electrification, the Tennessee Valley Authority, the Boulder and Grand Coulee Dams, and other monumental hydroelectric generating facilities. Not to mention hundreds of commercial airports like La-Guardia and JFK in New York City, thousands of modern post offices, schools and courthouses.

The investments culminated in the 41,000-mile Interstate Highway and Defense System, begun in the 1950s under President Eisenhower (the Republican New Dealer”) because of what he had learned from his military experiences leading the allied armies in Europe during World War II.

It is further claimed that Americans have been living off these federal investments ever since. Their contribution to decades of job growth and increasing national prosperity has been so enormous that Americans have come to take them for granted as cost-free gifts from a beneficent God, like the unimaginably bountiful resources of crude oil discovered under that legendary East Texas hill called Spindletop, which came exploding out of the Lucas Number 1 well in 1901 with a roar that shook the world.

The $828 billion stimulus plan President Obama signed in 2009 focused on “shovel-ready” projects like repaving potholed highways and making overdue bridge repairs that could put people to work right away. Still as Gary Johnson noted in 2011, “My neighbor’s two dogs have created more shovel-ready jobs than the Obama stimulus plan”.

Let’s not kid ourselves, spending for these projects scarcely represented “investment in the future.” Had we been managing infrastructure assets sensibly, they would have been little more than ongoing maintenance activities that should have been funded out of current revenues, like replacing burned-out light bulbs in a factory.

One problem with initiating a massive new capital investment program is figuring out where the dollars to fund it will be found. Projections for escalating federal deficits and skyrocketing debt are bound to raise questions about the federal government’s ability to come up with the necessary cash.

For starters, it’s time to recognize that the future will be quite different from the past, particularly when it comes to transportation infrastructure. Large projects may be rendered obsolete and the burden of stranded fixed costs left to the next generation.

Disruptive technologies such as electric or hybrid, semi-autonomous or self-driving vehicles, and changing consumer preferences, especially among urban millennials who are more interested in the on-demand riding experience than driving, is a cause for optimism about the future of America’s infrastructure condition.

These new patterns of vehicle ownership and use and the emergence of privately funded technologies are changing the way people and goods move, and transforming the transportation industry in both the public and private sectors. They offer the potential for dramatic improvements in traffic congestion (due to improved safety and reduced spacing between vehicles) and reducing motor vehicle accidents and fatalities.

They can also generate environmental gains from smoother traffic flow, promote productivity growth as reduced congestion improves access to labor markets, and improved utilization of transportation assets such as existing highway capacity with higher through put without additional capital investments.

These changes create an opportunity for a new generation of political leaders to present the public with a modern vision for transportation, the economy, and the environment, not one that harks back to an earlier time.

Originally Published: Nov 12, 2016

Healthy pork: Earmarks may help solve transportation problems

The American Society of Civil Engineers recently estimated that traffic bottlenecks will cause a $1 trillion loss in sales over the next eight years. The report makes the point that America can no longer put off dealing with the growing backlog of transportation projects whose costs have long outstripped the dollars the existing transportation funding mechanism generates.

It should be noted that these are the same people who published the 2013 report card that gave America’s infrastructure a grade of D+. They obviously have never heard of grade inflation.

With the current highway bill set to run out of money by May 31, the current report comes as federal lawmakers are debating a new transportation funding bill. Congress has struggled to come up with a transportation funding bill that funds needs beyond those that can be addressed with revenue from the 18.4-cent-per-gallon federal fuel tax, which has not been increased since 1993.

While the infrastructure community is holding its collective breath for Congress to agree on a bipartisan solution, perhaps it is time to revisit the use of limited earmarks to lubricate the legislative process.

Earmarks are congressional directives that money be spent on specific projects, which are often derided as “pork barrel” projects. They basically ended in 2011 after the public outcry about a $223 million earmark to fund the construction of a “bridge to nowhere” in Alaska.

Critics argue that earmarks are basically used to buy votes, curry favor with special interests and help politicians get re-elected by showing constituents they are bringing home the bacon even when America is broke. For sure, there are plenty of people who say that earmarks are pork and the money is being wasted.

To further add to the demonization, they claim it’s ad hoc policymaking at best and illegal graft at worst. For them, earmarks are like a four-letter word and are reflective of congressional corruption, even if they help legislators overcome ideological differences and pass major legislation by earmarking money to buy key votes from recalcitrant colleagues.

Like it or not, earmarks and horse trading are part of the human condition and for ages were part of the legislative process at every level of government. Trading for votes in Congress, not to mention lubricating the process with funding for special projects that the legislators in question consider important, has always been an essential element of American democracy. Since when has the average politician made a virtue out of surrendering his or her career for putting the country’s interest first?

Let’s not get hung up on appealing to the better angels of human nature. Legislators put pragmatism over principle. As that prolific writer Anonymous said: They understand that when you have to choose between voting for the people or the special interests, stick with the special interests. They remember; the people forget.

Stained-glass, Pollyanna-ish types may cringe and complain that this is little more than bribery, the distribution of taxpayer dollars based on political considerations rather than merit. If the use of such a pejorative term makes them feel nobler, so be it. You get merit in the afterlife; here in the present you get politics. As former House Speaker Tip O’Neil once quipped, “I’m against any deal I’m not in on.”

Far from being ashamed of earmarks, proponents argue that lawmakers are a better judge of what benefits their districts than unelected bureaucrats. They ask if we really believe that the bureaucrats responsible for fiascos like the Veterans Affairs scandal and the screwed-up Obamacare rollout should control allocating taxpayer dollars.

Would it really be a mortal sin to reintroduce some limited bribery to grease the legislative process and smooth over differences that preclude in this case the transportation funding shortfall? In the current environment of gridlock, it may be exactly what the country needs. 

originally published: March 14, 2015

Balancing technology with need

Back in 1954, when Elia Kazan celebrated the tradition-bound world of intercontinental goods movement in his Oscar-winning film “On the Waterfront,” few could have imagined that the world he depicted was on the verge of becoming as obsolete as the Marlon Brando character’s career. Today, surface transportation is in a similar place, thanks to an explosion of new technologies.

Two years after “On the Waterfront,” an entrepreneurial trucking magnate named Malcom McLean first arranged to pack hundreds of individual crates of goods into a few large steel containers that could quickly and efficiently be transferred by mechanical cranes between ocean-going ships and land-based trailer trucks without disturbing their contents. It was quite a change from the age-old tradition of having large crews of dockworkers slowly move each crate by hand from shops to trucks and vice versa.

This marked the birth of what we now call “containerization.” By slashing the costs of moving goods, it made possible the huge growth in global trade. Today, a person in Kansas City can buy consumer goods mass-produced in China for a fraction of what his or her grandparents paid. In the process, containerization totally transformed the infrastructure and operations of the shipping and port industries. It also accelerated global competition and technological change.

The same forces that allow American families to buy cheap goods make them fearful that their jobs will be eliminated by technology or performed more cheaply by armies of high-skilled, low-cost foreign workers. Consumers benefit from the low-cost products and services global competition provides, but that same competition may reduce both wages and buying power.

Containerization was conceived and developed by a visionary outsider who imposed it on reluctant ocean-shipping and port-operating firms that would have much preferred to keep doing the same old things in the same old ways. In other words, it became part of the external environment within which those tradition-bound industries had to function. They were forced to understand its implications for their businesses. We must do the same when it comes to the external environment within which transportation functions.

Surface transportation is awash with new technology that is transforming it just as containerization transformed ocean shipping and port operations. We already have technologies for collecting tolls without requiring motorists to slow down, for measuring the average speeds and densities of traffic flows on roadway lanes at any given moment, and for pinpointing the location of buses and other public transportation vehicles.

Just over the horizon are technologies that have the potential to make transportation much safer, more efficient and friendlier to the environment by providing instant communication between roadway operators and motor vehicles about bottlenecks; alternate routes; preventing accidents; minimizing deaths, injuries and collateral damage in accidents that can’t be avoided; and monitoring the contents of containers moving by road, rail and air without disrupting traffic flows.

But these new technologies will be as much a curse as a blessing unless we learn how to properly manage their transfer from the laboratory to the marketplace.

For example, we face the prospect of having to evaluate the pros and cons of implementing tolls on limited-access highways, and of entering into agreements with private firms to operate such highways. But how can we realistically do this if we don’t understand what the long-term impact of new technologies will be on these highways?

And let’s not forget that the design of any technological innovations must be customer-driven, not provider-driven- a fact that is so obvious, but so often overlooked.

Technology is as much a part of our lives today as eating and breathing. But in transportation as well as other areas, we need as much information as possible about what new technologies are, how they work, what they can do and what problems they pose so we can use it in devising policies that spur job creation, increase competitiveness and cushion the economic pain to workers by minimizing dislocation.

originally published: January 11, 2014



The charms of group purchasing

One thing almost all industries share today is pressure to cut costs in an economic environment where demand is stagnant. Many companies have responded by substituting capital for labor and outsourcing jobs offshore. But collaborative purchasing has also emerged as an effective cost-saving strategy, and not only for the private sector.

Over the past two decades, procurement and supply chain management have risen to the top of the management agenda for private-sector managers seeking to rationalize their cost structures. Among the advantages the private sector has over government are much more flexible procurement regulations. Aggregating purchases is relatively simple in the private sector and presents such an obvious savings that few operating managers resent its imposition.

By contrast, government procurement regulations reflect the American cultural bias that it is better to spend $100 on gold-plated oversight procedures than to risk letting a single dollar slip away to a supplier who may not truly deserve it. This commitment to a squeaky-clean procurement environment tends to relegate public agencies to the end of the line when it comes to implementing new tools and technology.

The inevitable result is that operating costs are higher and service is poorer than it could be. Also, government procurement is often a powerful tool for advancing political interests like supporting the local economy, often at the cost of capturing major savings.

Experienced managers know that flexibility is necessary in negotiating and administering contracts with suppliers if the results are to pay meaningful dividends. This can often mean a heavy emphasis on interpersonal relationships and the use of negotiated contracts rather than arms-length competitive bidding.

Traditional critics of the public sector like to call this “honest graft,” which just plain smells bad to much of the American public regardless of its real-world benefits. They fail to realize that what really counts are results, not civics class myths about what constitutes “good government.”

Sure, chicanery has a long tradition in the rough-and-tumble world of American capitalism and appears to be unavoidable. After all, you don’t survive long in business by acting like a Sunday school teacher.

No area of government is more interested in reducing costs than the transportation sector, where demand for new assets is high, federal funding has stagnated and revenue from sources like the fuel tax has been eaten by inflation. As a result, states’ Departments of Transportation (DOTs) have had to scale back on capital replacement and focus a larger portion of their funding on preserving existing assets.

Many state DOTs need to be grabbed by the lapels and given a good shake by a new generation of leaders who understand that working in an era of constrained resources requires them to create customer value without relying on the federal government.

Fortunately, a number of DOTs realize that joining their counterparts to do collaborative procurement represents an opportunity to reduce costs without jeopardizing service delivery. Under collaborative procurement, several entities combine their purchasing efforts to secure a selected group of products and services with commonly accepted specifications. The goal is to leverage the aggregated purchasing  power to save money and obtain favorable terms and conditions from suppliers. The initial focus is on demonstrating success in a few discrete spending categories that illustrate the practice’s larger potential.

Collaborative procurement certainly faces potential impediments, such as antiquated state laws and regulations. The time has come to rethink existing rules that constrain a tool that can result in better quality at a lower cost. If allowed to be judged on its merits, collaborative procurement will become the new status quo in the public sector.

originally published: August 24, 2013