This blog article draws from the OECD paper “Inclusive infrastructure: Scaling-up local investment in the United States“.
The US has innovated, invested in, and inspired the world with its infrastructure. From the canals that paved the way for early expansion to engineering marvels such as the Hoover Dam and Golden Gate Bridge, US infrastructure has been a powerful symbol of the nation as well as a solid foundation for growth. New investment through the Inflation Reduction Act and the Bipartisan Infrastructure Bill provides a unique opportunity to breathe new life into the US’s now ageing infrastructure.
Paying the price
In the US, public investment as a percentage of GDP has been in decline for nearly 50 years. In the 1970s and 1980s, total public investment in the US averaged around 4.5% of GDP. It then decreased to around 3.9% in the ten years to 2010. In 2021, total public investment represented around 3.3% and is below the OECD average of 3.7%. The quality of US infrastructure now ranks below that of France, Germany, Japan, the UK and the Netherlands.
Falling investment has created a backlog of repair work, with – for example – more than a third of US bridges now in need of repair. In 2021, the American Society of Civil Engineers, the infrastructure investment gap to be USD 2.6 trillion, without the cost of climate commitments. The country risked paying a heavy price: before recent funding packages were announced (such as the Inflation Reduction Act), it was estimated that underinvestment could cost USD 10 trillion in GDP and three million jobs by 2039.
A historic opportunity
The recent Inflation Reduction Act and the Bipartisan Infrastructure Bill together committed over $1.57 trillion of federal funding over ten years. That’s equivalent to approximately two years of total public investment in the United States, providing a historic opportunity to start to close the gap. But writing the check is often the easy part, for two reasons.
First, because inclusive infrastructure investment requires good planning. This means plans that are ambitious, providing for strategic, catalytic investments that can open new opportunities for economic development, as well as upgrades to basic infrastructure essential for well-being. Plans that are inclusive, devised with the communities they intend to benefit and in partnership with neighboring governments, and the private sector. And plans that are sustainable and resilient given net zero commitments and the pressures of an already changing climate. New opportunities are emerging to accelerate and enhance planning through tools, such as digital twins, which allow infrastructure plans and impacts to be modelled and visualized in detail. But they still take time and skill to develop at a time when both are in short supply.
Second, because the construction sector is already stretched. The unemployment rate in the US construction sector reached a 20 year low in 2022. While broader supply chain constraints appear to be easing, a lack of skilled personnel could bite particularly hard in some states, threatening to delay and derail projects. Lower construction sector capacity means that it is even more important focus on increasing productivity.
Learning from experience
To kick its infrastructure back into shape, the US is actively working to tackle these challenges – and fast. Happily, there is much that can be learned from other countries who have done so in recent years.
To strengthen planning, for example, the US can look to the example of Seoul (Korea), where the 2030 Seoul Plan was developed in partnership with a citizens’ group. Or to Japan, where the digital twin PLATEAU models the look, feel and impacts of infrastructure to optimize plans and make public engagement more inclusive and interactive, leading to greater community buy-in.
To tackle skills gaps, US states could look to London (United Kingdom), where the Mayor’s Construction Academy is making headway in addressing a growing construction skills shortage. Or to Victoria (Australia) where action is being taken to support the supply of construction materials through a new agency Resources Victoria as part of its “big build” program. At the same time, investment in new labor-saving technologies is sorely needed in the US construction sector, given that its productivity fell by 1.3% in the decade to 2021, even during a period where more efficient digital technologies and prefabrication methods became available.
A bridge to the future?
Recent US investment packages represent a historic opportunity to reverse decades of declining investment in a more inclusive way. Yet the hard work is just beginning as the country’s states, cities and communities set to work in making the vision a reality – through more inclusive planning and investment programs. As they do so, they would do well to learn the lessons from each other, as well as from abroad about how to do it well.
Courtenay WHEELER is the Coordinator of the Subnational Infrastructure Programme at the OECD's Centre for Entrepreneurship, SMEs, Regions and Cities. At the OECD, he leads research on infrastructure funding and financing, effective public investment, adapting infrastructure to megatrends, subnational government finance, regional development policy and inclusive infrastructure. This has included two reports endorsed by G20 Leaders: Financing Cities of Tomorrow and the G20-OECD Policy Toolkit to Mobilise Funding and Financing for Inclusive and Quality Infrastructure Investment in Regions and Cities.
Prior to joining the OECD, Courtenay worked in the infrastructure sector in Australia as a senior adviser in a state government, an infrastructure consultant and engineer. His experience covers key parts of the sector, including policy, governance, project appraisal, procurement, major projects, planning, engineering, finance, construction management and project management. He has a Bachelor of Environmental Engineering from the University of Melbourne, a Masters of Business Administration from HEC Paris and a Master of Public Affairs from SciencesPo.
Yugo KIMURAis a Junior Policy Analyst in the Regional Development and Multi-level Governance Division in the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. His work at the OECD has focused on regional attractiveness and subnational public investment. Before Joining the OECD, he worked at the Bank of Japan where he conducted regional economic analysis and evaluations of international banking regulation. He holds a MPhil in Economics from the University of Cambridge.
Justin CHENis a Young Associate at the Regional Development and Multi-level Governance Division of the Centre for Entrepreneurship, SMEs, Regions and Cities. He contributes to work on infrastructure, subnational finance and multi-level governance. Prior to joining the OECD, Justin worked at an economics consultancy in New Zealand, working on infrastructure financing, regulatory economics and international development in the Asia Pacific region. He has a Bachelor of Engineering (Honours) degree from the University of Auckland, New Zealand.