Strong And Lasting Infrastructure Innovation – How We Must Invest

“A defender must always seek to change over to the attack as soon as he has gained the benefit of the defense.” Clausewitz

Our country – and every country in the world – needs to attack the recovery through robust infrastructure strategies, and we need to do it quickly. There is no other way for us to emerge from this crisis. At the same time, we are all in danger and we must focus on the right investments. This week’s IMF report suggesting that the U.S. economy will contract by 8% this year is probably right, and may be optimistic; the resurgence of Covid-19 in the U.S., and around the world, creates a fog that can confuse us, and paralyze us, and we cannot let that happen. We have delayed necessary action long enough – the moment of decision is now, and any further delay into the fall, or into early next year, will cost us dearly. We know that.

The investments we make must be immediate, substantial and strategic — a commitment on the order of 3% of GDP for each of the next three years ($1.5 trillion is about the right figure, although with private sector investment it could, and should, be larger). As we emerge from economic lockdown, and continue to experience increasingly predictable Covid-19 eruptions, we face a moment of decision that truly matters – moving beyond the question of how much to spend, we need to make a decision on where we put this investment to drive maximum advantage?

These are country strategy issues, not state by state decisions.  Investing in an abstract “infrastructure” is not a good enough answer to bring everyone together to get this done. The stimulus needs to be focused so that enough people around the country will support the effort, believing in it strongly. We have to see that it will immediately address our problems (health, jobs, mobility for us, our families and neighbors), and we must believe that over the longer-term it will help our country increase productivity and opportunity, creating a sustainable future for our children.  

Let’s stop indulging ourselves in the fantasy that we can invest in everything – it gets us nowhere, literally. Send that message to our politicians — we need to choose, we need to choose wisely, and we need to choose for the long term. Here are four candidates that would help us achieve our objectives:

1. Seize the Supply Chain Moment. This objective is broad and deep, anchoring an infrastructure strategy on the idea of quickly bringing the supply chain home through a focus on logistics and manufacturing. We can no longer have 80% of our PPE produced in China, we can no longer allow one country to have a chokehold on our industrial and technological production. Investments would start by getting our house in order, attacking projects like the Army Corp’s Soo Locks and Ohio River Revitalization, along with long overdue projects like the Brent Spence Bridge (3% of interstate traffic) between Ohio and Kentucky. On-shoring and local manufacturing at scale – reorienting infrastructure investment from international trade to Americas manufacturing – would characterize this strategy, and would also require supporting initiatives like tax incentives, and financing for mid-sized businesses and technology innovators. The Army Corps alone has more than $100 billion in projects that are ‘authorized but not budgeted.’

2. Invest in The Neglected Infrastructure. Now we know that really bad things will happen. We also know that we have not invested in at least three types of critical infrastructure that would protect us from nature’s fury. The most horrifying of these, as The Economist noted last week, would be an EMP event from a sun flare (or even North Korea) that would fry our electricity transmission, along with our telecommunications and satellite capabilities. This would be truly devastating for our civilization. Sea-level rise is another issue that we perceive only dimly. Then there is the domestic ‘grenade with the pin pulled,’ and sitting on our doorsteps — $200 billion in pent-up demand for clean water (including reservoirs) and wastewater treatment. Getting this part of our house in order, including 5G and broadband for all, is at least a $500 billion requirement.

3. Go Big on Technology. The riskiest bet is often the most rewarding — for those with the grit to see it through. We are raised on success stories, and these energize us – failure disappears, but the heroic risk takers inherit the earth. Younger people (25-35) are most motivated, and confident, in a future driven by technology – if they believe in anything it is this. That means focusing investment on renewable energy, and including batteries and electricity transmission; driverless vehicles, including 5G-enabled autonomous truck lanes for our interstate highway system; and smart cities that focus on using data and AI to create opportunity, mobility and health. Getting a start on this investment is in the $1 trillion range, but as luck would have it (for us) a large percentage of this investment will come from the private sector.  

4. Walk in the Footsteps of the Greatest Generation. This is strategic ground occupied by the current generation of politicians. We will always need upgraded roads and bridges, and all of the other big projects designed in the 1950’s, but it’s not clear that this will galvanize an infrastructure Renaissance. There is something about fighting the last war here. No matter the reason, we must continue to make legacy investments, but these – estimated at well over $1 trillion – will have to be triaged if we want to reach the promised land.

What are our objectives, what is the narrative that we can believe in, get behind and make real? The answer impacts everything, from job training, to successful companies, to utilizable institutions – if you look at the strategic options above only the last one fits comfortably with our current Cabinet and Congressional Committee structure.  We are looking at big changes.

In this emergency – and it is an emergency – we have to act now, not because we are ready, but because this is the moment of maximum danger, and maximum opportunity. 

We need a clear-eyed view of our strengths, and we need to build on those fearlessly and relentlessly. After the election a national strategy will emerge – but we need to start now. Funding is already available, in four pots — from Treasury, the Federal Reserve, U.S. agencies such as DOT, and through private investment. It is this last that is our greatest strength, and most critical for the long-term. To the extent that we can more effectively mobilize private investment – either investing directly in projects or through a national infrastructure bank, or through state infrastructure financing – the faster we will move. We’ve been playing defense for five months (about the time it took to go from Bastogne to Berlin), now we need to unleash our firepower.

When I think of our country’s strengths, overall and in the context of infrastructure there are four critical pillars. First, we have the deepest capital markets in the world – we need to put those to work on both innovation, and on specific ‘big bang for the buck’ projects, and we need to motivate rapid innovation around those investments through tax incentives. Second, we have the most creative technology ecosystem in the world – capable of creating new sources of national productivity, profoundly sustainable, extraordinarily productive, and so we have to unleash that creativity into the infrastructure market (no more three years for a procurement process to run its course, or ten years for the highway or high speed train approval process to exhaust itself).  

Third, we have an ownership culture that is – incomprehensibly – not addressed in any of our current infrastructure models — why don’t we build an infrastructure model that is ours, including retail investment, crowd-funding for projects, and the kind of ‘crack open the current model’ opportunities that I highlighted in last week’s piece?  This is an extraordinary strength, a superpower, that we are not using.

Finally, we are a democracy, the power of which is historically mighty, but about which — to put it mildly — we seem deeply uncertain. This is our greatest strength, bringing everyone together to get big things done, our own way. This moment right now is an Arsenal of Democracy moment – everyone doesn’t get what they want, we bring everyone together to create, all together now, what we all need.  

So, we have an incredible opportunity to bring our country back quickly, and set a long-term direction that is going to drive a Renaissance in this country – a simple question: at this moment of decision, do we dare make the risky decisions required to shape our destiny?