North American Infrastructure: A less than optimistic outlook

This piece is part of a series in the lead up to the North American Competitiveness and Innovation Conference — NACIC 2014 — held this week, Oct. 30-31 in Toronto. Earlier this month, Duncan Wood explored the opening of Mexico’s energy sector, Raul Pacheco-Vega called for regional leadership on environmental policy and Brian Bow wrote on infrastructure security since 9/11.

In the 1980 and ’90s, flows of goods across North America’s internal borders grew dramatically.

The largest share was intermediate goods – parts and components rather than finished products –and much of the movement of goods was within companies (“We don’t sell stuff to each other. We make it together”). Large segments of North America’s economies could best be visualized in the early 21st century as deeply integrated continental systems structured by complex cross-border supply chains linking production, distribution and marketing resources across the NAFTA nations.

These increasingly elaborated supply chains depended on efficient transportation systems.

Transportation providers met the demands of users because excess capacity existed in many systems, because of available new technology (unit trains, double stacking of containers, larger trucks) and because consolidation in the trucking and rail industries enabled suppliers to work more efficiently. Government involvement focused primarily on privatization and, in the case of railroads, benign views on mergers, although by the mid-1990s, U.S. highway legislation provided funds for many local projects. Within this new environment, companies worked out their own strategies for building new continental systems and solved problems themselves as they arose.

By the turn of the century, however, this situation had begun to change. The end of excess capacity, the impact of post-9/11 measures on borders and ports, the emergence of global manufacturing value chains with vastly increasing demand for freight transportation capacity because of rising imports from Asia, the continued failure to harmonize regulations and the accumulated weight of delayed maintenance all stressed the capacity of North America’s freight transport systems to service North America’s production and distribution systems.

The impact of aging assets, deferred maintenance and minimal new investment was not limited to transportation infrastructure. The American Society of Civil Engineer’s “report card” on infrastructure included low marks on drinking water, schools, public parks and hazardous and solid waste. The report card hit the front pages and national leaders leapt to create several infrastructure focused organizations to inform publics and push for new government action.

Elderly pipelines and our electricity grid (largely dating to the mid-20th century) are key infrastructure issues – and much of our infrastructure, experts say, will be severely tested by climate change over the next decades.

The national governments were not unresponsive. In 2007, Ottawa, Mexico City and Washington all announced new transportation infrastructure development programs. Note that none of these programs was seen as a direct response to an emerging crisis in North American transportation infrastructure – indeed the three governments did not acknowledge the existence of a systemic North American crisis. But all were viewed as efforts to remedy the infrastructure gaps that had emerged over the past decade of intensified use and delayed maintenance.

Early in 2008, two colleagues and I wrote a brief paper examining freight transportation infrastructure policies in Canada, Mexico & the U.S. We felt these efforts were an impressive response to the transportation infrastructure crisis, but that the amounts of funding discussed were far smaller than the investment needed just to bring systems up to acceptable levels – not to mention to develop infrastructures that would support global competitiveness.

None of the national programs revealed any sign of a vision of a North American freight transportation system and there was little focus on cross border connectivity. We felt that the U.S. experience showed that lacking a broader vision, local interests and private companies would play dominant roles in shaping policy outcomes, and that this would produce fragmented, limited outcomes. U.S. highway legislation since the 1990s had become a source of funds gifted by earmarks rather than a strategy for strengthening the North American economy – or the national economy for that matter. The same, we said, was likely to hold true for Canada and Mexico.

Where are we now?

Since 2008, money has become much tighter, and deep disagreements have appeared in the U.S. and Canada over government spending in general and over the federal government’s role in areas such as transportation infrastructure. (Some U.S. state leaders have tried to make a virtue out of cutting highway funding.) Though infrastructures continue to deteriorate, slow growth, debt and financial uncertainty have diminished a widespread sense of urgency.

Infrastructure spending has been directed toward immediate problems – like pot holes and broken sidewalks – and immediate opportunities – “shovel ready” job-heavy projects. Few people spend time thinking about what a world competitive North American freight transportation system might look like, while estimates of the cost of simply repairing infrastructure systems soar. Meanwhile, the ludicrous struggle over finding money for the U.S. Highway Trust Fund perfectly spotlights how far discussions on infrastructure have fallen.

The bar has also risen. The primary consideration for infrastructure has traditionally been efficiency. After 9/11, infrastructure had also to be secure and, more recently, sustainable. And infrastructure has become more politically contentious. NIMBY in many places has morphed into BANANA (“Build Absolutely Nothing Anywhere Near Anything”), and new highways, pipelines, electric lines and railroads are now for many communities points of resistance rather than exciting symbols of modern life.

What needs to be done?

We need to construct a more accurate map of continental production systems and supply chains that support them. A clearer understanding of how North America actually works is the critical link between national responses to infrastructure decay and a continental strategy for infrastructure development for the 21st century. When smarty-pants New York Times asks why Americans can’t buy a “made in the U.S.A.” car or when Michigan state legislators can’t get their minds around the need for a second bridge between Windsor and Detroit, then we know that there are huge holes in our information base.

Beyond understanding what we are doing today, we need to mobilize the best wisdom on North America’s emerging economic geography and on how economic development trends might be re-routed by structural factors like climate change and changing demographics. No one can suggest this is an exact science, but developing informed images of where production is likely to grow is a vital element of foreseeing evolving infrastructure requirements. Bear in mind the “infrastructure trap”. Infrastructure is expensive, takes a long time to put in place, is usually worth little until completed, and once finished, you are stuck with it for a long time.

A key issue is the balance among freight transport modes. Some 60 percent of North American goods are moved by truck – more on North-South routes – and much of what moves by train is bulk commodities. Freight trucks can be made much more efficient and greener even without changing propulsion systems.

Are we destined to build a new continental highway system – perhaps with access limited to trucks?

North American railways are more efficient, greener and cheaper alternatives for moving freight. But there are two major problems. One is current capacity limits and rising competition for rail space. In 2013, more than 400,000 rail cars filled with crude oil moved through the U.S., compared with 9,500 in 2008, Traditional cargoes of grain and oil seed had to fight for space or wait. The second is where our railroads go. U.S. and Canadian railways run on what is fundamentally the economic geography of late 19th century North America. Is this where they will be needed in the next decades, particularly if we want to limit highway expansion? Must our railroads flow forever into Chicago congestion?

Could we do more with maritime freight? Our river infrastructure has been much neglected and we have done little to expand short-sea shipping along our east and west coasts.

This suggests, I hope, the danger of muddling through. In 1991, the U.S. Intermodal Surface Transportation Efficiency Act envisaged the creation of a network of high-priority north-south highway corridors to accommodate the expanding movement of goods – the first new system of highways since the Interstate. This plan came unglued and grand designs fell out of subsequent highway legislation. Instead, our transport infrastructure strategy has been “make do and mend”.

No doubt, we are too clever to allow things to fall apart, and we will patch enough to keep systems working.

That’s the danger: Is repairing the old systems good enough to meet the demands of the 21st century?

Finally, if we are able to look beyond immediate problems and able to think more strategically about infrastructure, how do we do this together? All three North American governments have highlighted infrastructure as a critical national issue. Several leaders have called for massive infrastructure investment programs, for a national infrastructure bank. This is where the old story about NAFTA being “institution lite” bites. Our collaborative history since 1994 is littered with failures – from NAFTA Working Groups to SPP and Leaders’ meetings with little follow on. The RCC has been more useful, but has focused on old business, matters on the table since NAFTA was signed. We are not without successes – the Acid Rain agreement, post 9/11 security and co-operation on pandemic illnesses – but none of these suggest a model for collaboration on projects as large as developing new infrastructure systems for the 21st century.

North America will never become anything like the European Union. But we still might learn from Europe’s experience. EU transport policy was designed to promote economically and environmentally efficient, safe and secure transport services within the internal market and beyond. These EU plans have not been entirely successful, but we should look more carefully at what they have attempted and at what they have accomplished and how they have organized and managed this continuing collaboration.

Last, the bottom line: How would we pay for this? Different expert groups say that the cost just to bring infrastructure back to a modest, maintainable level would be enormous. (The Society of Civil Engineers says $3.6 trillion in investment would be required by 2050 just to maintain “a state of good repair”.) The cost of building a more efficient, more sustainable transportation infrastructure would be stunning. (Note – in the U.S. and Canada, we are actually spending less on infrastructure as a percentage of GDP than we did a decade ago.)

Americans, at least, agree that the cost of transportation infrastructure is justified by the value, but are totally at sea on how to pay for this: Almost 60 percent oppose raising federal gasoline taxes to fund the repair, replacement or expansion of roads and bridges. By 2-to-1, they oppose permitting private companies to build new roads and bridges and then charge tolls. Twice as many oppose a usage tax based on how many miles a vehicle drives as those that support it.

To conclude on a less-than-happy note: What this seems to suggest is, given deep disagreements over the role and powers of governments, sensitivities about constructing new infrastructure, the difficulty of creating new cross border collaboration and the gut punching costs of repairing and extending existing infrastructure and building new where required, we are likely to see further decades of patching, shoring up and working around, in national – and possibly even local – contexts. Things won’t collapse, but efficiency will deteriorate or at least not increase as rapidly as it could, which will constitute a significant drag on efforts to maintain top levels of global competitiveness.