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Monday, April 11, 2011

The Infrastructure Fetish and China’s Superiority

Infrastructure is the new rallying cry of those who want a bigger state. The argument appears compelling. We have suddenly had our “Sputnik moment” – the realization that our infrastructure is second rate. How can we continue as the world’s leading economy without high speed rail and with crumbling bridges? (Last I looked only one of our 594470 highway bridges collapsed in the last five years for a failure rate of one in a half million).

Even worse, we now learn that we have an “infrastructure gap” with China from sources as diverse as President Obama and Francis Fukuyama:

Barack Obama (Speech):

“Countries like China are moving even faster…I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine of the future.”

Francis Fukuyama (Financial Times):

“The most important strength of the Chinese political system is its ability to make large, complex decisions quickly, and to make them relatively well, at least in economic policy. This is most evident in the area of infrastructure, where China has put into place airports, dams, high-speed rail, water and electricity systems to feed its growing industrial base.”

We also learn from Thomas Friedman that “one party states can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century,” and from George Soros that “Western democracies provide less successful leadership than China.” Friedman’s and Soros’ proof of Chinese superiority, it turns out, is China’s high-speed rail and other spectacular infrastructure achievements… a rather limited measuring stick, I’d like to point out.

It is a mistake to judge economic performance by glittery infrastructure projects. One-party “mobilization states” (like China and the USSR) can concentrate on one thing and do it well. Stalin’s Russia grew throughout the Great Depression by building canals and hydroelectric dams. The Soviet Union put a sputnik in space and matched U.S. military might. The USSR and China built impressive Olympic villages virtually over night. I imagine that Putin’s Russia will “mobilize” to complete the Sochi Winter Olympics facility on time.

We have been propagandized that all infrastructure investment is “good” irrespective of the price. This is wrong headed: We should ask instead whether infrastructure resources have higher and better uses elsewhere (such as reducing fiscal deficits).

Admittedly, social rates of return are difficult to measure. We might not know whether a new highway or high-speed rail is worth the resources, but we do know when money is being wasted, and it happens regularly with infrastructure.

Stalin’s Baltic-White Sea Canal, built by slave labor at the loss of thousands of lives, was too shallow for commercial traffic. China today builds “ghost towns” according to central directives with hundreds of thousands of apartments standing empty. China’s vaunted high-speed trains travel between cities nearly empty. Only the wealthy can afford the ticket prices, and the official in charge of high-speed rail has to be fired for corruption (including keeping a remarkable eighteen mistresses).

Why are there so many infrastructure projects -- be it China, Russia, or the United States—that are a pure waste of money? Infrastructure is not an economic decision. Lobbyists, in China, Russia, or the United States, push the project to political authorities. Municipalities that stand to gain (at the expense of everyone else) band together and log roll. Politicians accept campaign contributions or outright bribes. The project moves ahead under the banner of economic progress.

I was a high school student in the mid 1950s. Russia had recently launched Sputnik and Nikita Khrushchev was threatening to “bury the United States.” Jack Paar, then the host of the Tonight Show, had just visited Moscow. His camera crew duly filmed the Bolshoi Theater and the Moscow subway, but they also ventured into apartment buildings with loose bricks falling on passers-by, stores empty of goods, and rotting back alleys. Paar’s huge audience was both shocked and puzzled. Which was the real Russia – the heroic infrastructure or the hardships of every day life? We now know the answer. Are we making a similar mistake for China?.

2 comments:

  1. Thank you Dr. Gregory for this important op-ed. I absolutely concur with your main thesis on Chinese and US infrastructure spending. Your readers should also know that despite all the hype surrounding infrastructure investment decisions coming out of Beijing, they recently canned Liu Zhijun, the former head of the Chinese Railway Ministry. He is now being investigated for alleged corruption. This also points to severe disagreements within the Chinese government on these 'wildly popular and important' infrastructure investments. Maybe the NYT should send Friedman to see what happened.

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  2. One person's infrastructure investment is another's bridge to nowhere.

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