The Global Infrastructure Boom
New York City -- Amidst all the turmoil in financial markets and diminished prospects for the real economy, it may seem that growth is over for a while. No asset class looks strong. However, one sector is continuing to boom around the world, if not the United States, namely the construction of infrastructure. In China, Spain, Switzerland and Latin America, countries are building the foundation for their future growth and prosperity. A fascinating article in the current New Yorker by my friend Burkhard Bilger on worms, the futuristic tunneling machines used to build subways and tunnels, provides a fascinating, under-the-surface tour of rail tunnels through the Alps, subway systems in Spain and China, power lines, roadways and other infrastructure remaking the global econnomy. There is only one sad note in this engaging article. The boom in infrastructure is largely passing the United States by.
As Martin Herrenknecht, the founder of Herrenknecht AG, the largest tunneler in the world, likes to point out, for every skscraper that goes up in Malaysia or Dongtan, a subway must go down to bring the people in and out. Other tunnels must carry broadband connections, electricity, water and the sinews of a growing city. Herrenknecht makes worms from as little as four inches in diameter to bore holes for conduit to hundreds of feet long and dozens of feet wide to bore through the Alps. And his company has hundreds of huge projects underway. Currently, he is helping Spain build three new subway systems and dramatically expand four others. In Switzerland, his worms are tunneling literally through the Alps to make that country--from a freight moving point of view--as flat as Holland. China is building seven entirely new subway systems. The massive urbanization underway in Asia and the developing world is leaving as a by product a giant, state of the art physical plant that will enable those regions to compete ever more effectively in years ahead. With infrastructure development largely stalled in the United States amidst a disingenous obsession with lowering taxes on the rich, our physical plant has been left to age. The decline of our plant will be an increasing competitive disadvantage in years ahead.
The poor state of US infrastructure is all the more remarkable given that we have just emerged from a huge real estate bubble. But the recently ended boom proved to be more about financially re-engineering the debt placed on buildings than engineering buildings themselves. Indeed, the recent cycle saw far less commercial construction than typical cycles. And on the residential side, the absence of clean building or energy efficient standards means that the latest round of new units are hardly state of the art. Most tragically, an absence of effective local government and any federal leadership whatsoever means that the housing that did get built in the last eight years was put up ad hoc with little thought of the infrastructure needed to sustain it. It was founded on the quicksand of low energy price expectations and cozy relations among developers and local planners. The result is the costly sprawl we see every day in America that higher energy prices have made increasingly unsustainable.
It is not too late for America to get back into the infrastructure game. House Democrats are pushing against Republican opposition to a $50 billion second stimulus with a large infrastructure component. The Dodd-Hagel bill to create a national infrastructure bank is awaiting action in Congress. Legislation to promote green bulding standards--to build an efficient instead of inefficient physical plant is part of current energy proposals.
With economic activity now soft across the board, a new federal commitment to clean infrastructure could not be more timely. An important task of the 21st century will be to retrofit or retire this energy inefficient, high carbon infrastructure and replace it with state-of -the-art, low carbon, energy efficient infrastructure. And with capital on the sidelines looking for safe and secure investments, the capital is there notwithstanding financial turmoil. Our current approach to infrastructure, however, is hindering our ability to make these critical investments in our future.
In the coming weeks and months, we at NDN are going to be talking about building clean infrastructure to jump start the slowing economy and pave the way for growth in the coming century, lest the United States fall further behind.
