A transportation policy please

   The most disappointing aspect of the recent political debates leading up to the election was the explicit labeling of China as a trading partner with which the United States has to get tough. 
   Such an attitude assumes that China became the world’s factory floor merely by intervening in foreign exchange markets in order to keep its currency pegged to the dollar at a low value and by subsidizing some industries. To some extent that did fuel China’s trade boom. However, most of the credit goes to China’s substantial investment in infrastructure. 
   History shows that economies which make significant investments in infrastructure subsequently enjoy long periods of higher economic growth, much like the United States following the Eisenhower administration’s interstate highway program. If the United States wants to increase growth and employment via exports, it will need to invest more in infrastructure. Prosperity does not come from political banter; it comes from investment in hard assets.
   In order to promote investment in transportation infrastructure, a policy framework is needed. Without a proper framework scarce capital can end up squandered on things that do not yield a return, either in terms of economic growth or as an investment. There are seven elements to developing a transportation policy:

1. Understand why freight moves. The first step is to identify goods in which the United States has comparative advantage in production, and therefore could be exported, and those where other countries have comparative advantage in producing, and therefore could be imported. Any product where transportation costs make trade too expensive will either be domestically produced or, with some infrastructure investment, become candidates for export or import. 
2. Analyze the infrastructure that supports exports, domestic freight movements, as well as exports. The key questions are:
      (a.) How much freight flows over which routes and by which modes?
      (b.) What is the condition of this infrastructure, and what is its weight and throughput capacity?
      (c.) What does it cost to use this infrastructure?
      Costs encompass maintenance as well as other items such as congestion and accidents. It is important to look at the distribution of these costs over time and estimate the potential exports and imports that were impeded. However, one has to be careful to evaluate all costs, including regulations that impact production costs, so as not to over-attribute changes in export and import trends to rising transportation costs.
      The good news is that much of this type of analysis is already being undertaken. The bad news, however, is the results of the excellent work that has been done by analysts are rarely consolidated in a manner that supports development of a transportation policy framework.
3. Benchmark the existing infrastructure to its equivalent in other countries and regions that move these goods. It’s important to benchmark to the “best in class” only. The idea is to be competitive and not just to improve functionality.
4. Formulate phased plans to upgrade, improve and build innovative new infrastructure that will be best in class. Priorities should be given to improvements that have the highest potential to impact near-term employment and economic growth. Freight corridors are the best place to start.
5. Formulate a plan to attract private investment so that the infrastructure remains financially viable, helping avoid projects that have more costs than benefits. This requires reducing the time to being shovel-ready as well as the uncertainty about when that would happen. Enabling legislation can and should be introduced to achieve that. Lastly, a host of financial options must be made available from tolls to availability payments. Other regulations concerning grey boxes and freight derivatives have to be included to provide maximum flexibility and attract the most capital. However, this must be carefully considered to avoid negatively impacting industry incumbents without whom there would be a lot less trade and economic growth.
6. Form a caucus of shippers, transportation service providers, government agencies and politicians to build momentum needed for implementation. There is no shortage of organizations and conferences; however, these tend to be insular. If the leaders of these organizations had their own conference, the results could be very powerful.
7. Educate. All citizens have to develop a proper perspective on the importance of freight movement infrastructure. After all it is the reason that food, clothes, appliances and electronics appear on shelves in stores in locations convenient to all. Freight movement, handling and storage services provide more jobs than manufacturing and raw materials production. It is what allows people to live virtually anywhere they want to. Freight infrastructure, like electricity transmission, is the unseen miracle of modern, developed economies. People vote, freight doesn’t. It’s time for people to vote for freight.

   There is plenty of good news with respect to the ability of the United States to develop freight movement infrastructure to change the near- and long-term economic outlook. Credit Suisse recently estimated the United States has over $50 trillion of wealth. The American Society of Civil Engineers estimates it would cost $2.5 trillion to bring America’s aging infrastructure back to a state of good repair. Implementation of a proper transportation infrastructure policy, along the lines described above, would dramatically improve the short- and long-term outlook for the U.S. economy.
   Kemmsies is chief economist of Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454, or by e-mail.