Along with approximately 30 other countries, the United States is considered a developed nation. Typically, this is viewed as a good thing because, on average, residents of developed nations enjoy higher living standards, longer life expectancy and better access to modern technologies than those who live in developing nations.
But, developed nations tend to expand more slowly economically than emerging nations, which are still striving to create first-time access to infrastructure ranging from electricity and water to roads and airports. As a prominent example, the long-term economic growth potential of the United States is typically estimated to be in the neighborhood of 3 percent. By contrast, the Chinese growth target is believed to be at least 8 percent per annum. Further, according to the International Monetary Fund, the developed nations of the world will collectively experience declines in output in the range of 3 percent to 4 percent. During this same period, output produced in developing Asia will expand roughly 6 percent.
Obviously, America’s economy has matured since the first national census in 1790 pegged the population at just four million. By 1900, it was 76 million, and by 2000 it stood at more than 280 million. That translates into an annualized growth rate of 1.3 percent, but today, U.S. population growth is estimated to be less than 0.9 percent.
A Matter of Depreciation
Many construction-related implications are associated with the national equivalent of middle age. Increasingly, the industry has focused on renovating existing structures rather than building from the ground up. The stimulus package is a stark example, with much of the money set aside for infrastructure projects that focus on resurfacing roads as opposed to building new ones.
The central issue is depreciation. A report released earlier this year by the American Society of Civil Engineers (ASCE) concluded that more than a quarter of the nation’s bridges are structurally deficient or functionally obsolete. The same report pointed out that leaky pipes release an estimated 7 billion gallons of clean drinking water each day, and that billions of gallons of untreated wastewater enter the nation’s waterways each year. ASCE also noted Americans spend roughly 4.2 billion hours per year stuck in traffic and 45 percent of major urban highways suffer congestion.
Generally speaking, the older and more urban the community, the greater the need for renovation. A June 2009 study by the American Association of State Highway Transportation Officials ranked road conditions by state and found drivers in New Jersey suffered the highest operating costs due to rough roads. Other states associated with high operating costs include Rhode Island, New York, Maryland, California and Missouri.
These and similar statistics generally reflect challenges, but for the construction industry, they represent opportunities. Opportunities also can be found amid the burdens for the financiers of infrastructure renovations, including local governments. As a prime example, the Environmental Protection Agency announced a number of Clean Water Act settlements in recent years, often requiring local entities to invest hundreds of millions of dollars in sewer system improvements. While one of the effects of these settlements is higher local sewer charges, another is the unlocking of opportunities for local contractors to participate in major infrastructure projects.
In Baltimore, for example, hundreds of millions of dollars will be spent on sewer upgrades during the next several years. Strategically, the community is working to translate the financial burden into economic opportunity by focusing intensely on water/sewer-related workforce development opportunities for unemployed or under-employed residents in search of new career paths. Similar opportunities exist across the nation.
Infrastructure and the Inner City
The need for renovation extends to hospitals, courthouses, office buildings, apartment buildings and retail centers. However, in the context of community redevelopment, infrastructure investment rises to the forefront as a principal public policy priority.
Harvard professor Michael Porter says certain competitive advantages must be in place for an inner city location to be improved: underserved local demand, strategic location, under-utilized human resources and proximity to regional clusters. However, each of these advantages relies on adequate physical infrastructure to promote redevelopment of existing sites and to link city residents and businesses to broader markets. According to the Initiative for a Competitive Inner City, “realizing the competitive advantages of the inner city requires strong physical infrastructure—the very outputs of the construction, housing and real estate cluster.”
While infrastructure spending associated with the February stimulus package represents an important start, experts agree these monies are far from adequate to deal with America’s massive infrastructure shortfalls. The nation has a shared interest in ensuring a clean, safe and efficient water supply, and in linking markets through functioning road networks and creating opportunities for a higher fraction of Americans. If the United States commits to combating depreciation, the nation’s middle age will be much more pleasant and productive.
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Wednesday, September 8, 2010