Germany and the United States Are Missing the Bus on Infrastructure Investment
WASHINGTON—“Germany is collapsing.” This was the headline of a recent provocative article in German news magazine Der Spiegel that criticized the sorry state of Germany’s infrastructure. And indeed, even as the U.S. economy appears to be growing strongly for the first time in seven years, and as Germany’s economy limps along, political leaders in both countries have resigned themselves to reducing infrastructure investment and delaying mounting maintenance costs.
This trend has continued despite a growing consensus in both countries on the need for increased infrastructure investment. In Germany, both states and the business community pressed Chancellor Angel Merkel to increase infrastructure spending as that country’s economy began to slow in 2014. Her government has hinted that additional investment might be on the horizon. Nonetheless, the Merkel government still gives priority to balancing the national budget over increasing infrastructure investment.
In the United States, the U.S. Chamber of Commerce and state governors have frequently called on the federal government to pass a new infrastructure spending bill. U.S. President Barack Obama even commented to a group of businesses leaders that the country’s infrastructure was “embarrassing,” although he carefully noted the difficulty of securing additional funding. He echoed this message again during last month’s State of the Union address, proclaiming the need for “modern ports, stronger bridges, faster trains, and the fastest internet,” and proposing a bipartisan infrastructure plan that “could make [the United States] stronger for decades to come.” Yet Obama has also remained cautious about increasing income from sources such as the federal gas tax and has failed to secure other financial resources from an equally hesitant Congress.
As Obama correctly pointed out in his State of the Union speech, infrastructure investment can boost productivity and lower costs for businesses and their economic outputs. Poor roads, overburdened rail systems, and aging bridges dampen future growth prospects and add significant costs to businesses and residents. In both Germany and the United States, 30 years of underinvestment is slowly eating away at once-formidable infrastructure networks. A recent International Monetary Fund report singled out the United States and Germany as laggards in their infrastructure investment, despite the long-term economic gains from public investment and today’s historically low borrowing costs.
Federal infrastructure spending in both countries has sunk to record lows, from well over 3 percent of GDP in the early 1970s to under 2 percent in the United States and Germany. The American Society of Civil Engineers frequently releases figures of the annual infrastructure funding gap, which stands at well over $100 billion a year in the United States for the maintenance of existing major roads alone. As a consequence, 32 percent of roads in the United States are in either poor or mediocre condition. In Germany, 40 percent of all bridges are said to be in a “critical” state.
But it will take more than money to fix this problem. The crisis instead demands more flexible solutions and visionary leadership. It requires creative thinking about where and how we choose to make our investments for public benefit, and how we could potentially retrofit existing infrastructure to meet multiple societal goals. Examples could include small-scale neighborhood-level projects that involve citizens, rather than the large-scale projects that might impress initially, but are vulnerable to cost overruns and long delays (aboutwhich Germany knows plenty).
In addition to the brick and mortar investments that the United States and Germany need to make, both countries should also look to infrastructure investment as a tool for meeting long-term social or economic goals. This will require looking forward and building the systems that will be resilient and relevant in 10 or 50 years, meeting the environmental or demographic challenges that we know are quickly approaching. In this more expansive view, infrastructure investment means investing in energy efficiency, renewable energy systems, less-crowded schools, transportation systems that meet the needs of an aging population, world-class parks, and high-speed Internet access.
Infrastructure investment is an imperative for both the United States and Europe. Just as importantly, this investment must be tied to a larger consciousness and vision of the kind of societies that both Germany and the United States want to become. Only then will the infrastructure being created now deliver tangible prosperity in the future. And perhaps, this vision will motivate reluctant politicians to make the serious financial commitments that are sorely needed.
The views expressed in GMF publications and commentary are the views of the author alone.