Infrastructure and the transition to environmental sustainability
While it took the Civil War and Abraham Lincoln’s dream of an American middle class to convince the federal government to build infrastructure, our government has been investing in infrastructure and stimulating the economy for 19 years.y a century. The idea of a free market that is not supported by the government has long been a myth. States like New York started earlier than the federal government when they built the Erie Canal. The canal opened in 1825 and was so successful that its tolls paid off the debt to build it in about a year. By connecting New York Harbor with the Great Lakes, it made New York City the commercial capital of the United States. In 1862, Lincoln signed an act establishing land-grant colleges: it granted federal government land to states for sale in exchange for establishing universities focused on agriculture and engineering and committed to outreach or “extension” to farmers. Penn State and Cornell were two of these “original land-grant colleges.” American agriculture became increasingly productive as new farming techniques were developed and taught to farmers. The government built ports and roads, subsidized railways, airports, water systems, sewage systems, and facilitated the development of urban power grids. During Franklin D. Roosevelt’s tenure, the federal government paid for rural electrification, a development that would not have happened without government intervention.
For more than a century as the private American economy developed, the government played to invest in collective goods that otherwise would not have attracted private investment on terms that served the public interest. Imagine how long it would take to develop a transportation system if all roads were toll roads. There is a deep tradition in America – and in all developed countries – of public investment in infrastructure. In the 1950s, American investment in infrastructure skyrocketed with the construction of the Interstate Highway System. However, starting in the 80s. The anti-tax era brought about by Ronald Reagan caused a sharp decline in investment in infrastructure. Before the Biden administration, we invested less than 2.5% of our GDP in infrastructure, compared to about 5% in Europe and 8% in China. Since China is a rapidly developing country with huge infrastructure needs, it can’t really serve as a useful comparison to the mature economies of Europe and the United States. Compared to Europe much better. Here in America, much of our infrastructure is deteriorating and in need of repair and rebuilding. Potholes, collapsed bridges, and ruptured water pipes are common in anti-tax, anti-public investment America.
Today, one of America’s greatest infrastructure investment needs is our energy infrastructure. Our energy system is wildly inefficient, vulnerable to disruptions from weather and terror, and deteriorating daily. As we decarbonise our energy system, the electric grid is becoming more and more important. Over the next several decades, we will see more households generate and store their energy in home and car batteries. The pattern of development in America – suburban private residences, large stores, shopping malls with large flat roofs and huge parking lots – provides an ideal environment for increasing the installation of solar power plants and electric vehicle charging. As technology improves and prices fall, we can expect greater generation of distributed power sources. Many homes will generate more energy than they can use, and the modern electrical grid will need to collect and transmit the energy. Most current estimates of electricity demand assume that we will have a large windmill and solar farms and that we will need an expanded grid to handle the load. We will need a modern grid, but the ratio of centrally generated electricity to distributed generation depends entirely on the pace of technological developments that may make home energy generation and storage less expensive and more reliable. At this point, if homeowners cannot sell their excess capacity to the grid, they may cut their wires. We’ve already seen that with landlines, cable TV, and in some cases, wired internet services.
If you think I’m living in a tech dream world, let’s take a look at the technology that supports watching movies at home. At one point all that was available was a weekly TV show called “Saturday Night at The Movies”. Then there were videocassettes – and then DVDs – along with cable stations like the Home Box Office. Then wired Internet broadcasting services were delivered. Today those streaming movies can be downloaded from a Wireless Internet and displayed on your phone in the subway. Technological development has been steady and amazing. Energy is at least as important as the movies, and assumptions about our energy future must be carefully hedged.
But in any energy scenario, we will need a modern computer-controlled smart grid. It is probably built on thousands of local micro-networks, woven together into state, regional and national systems. Our current network is built and maintained by private companies regulated by state governments due to the need for public space dedicated to transmission lines. The grid’s debt load is funded by our electric bills, and there are limits to utilities’ ability to invest in modern infrastructure. One limitation of investment is that utility shareholders expect a return on their investment, and modern electrical infrastructure may or may not increase utility profits. The second reason is that as energy use has increased, it has taken up a larger share of household income. This places a heavy burden on low-income families and limits their ability to pay higher electricity bills. The federal government needs to support energy grid investments with grants, tax rebates, tax credits, and low-interest loans. The Inflation Reduction Act includes these tools, but they must continue over the next several decades as the energy system modernizes.
In addition to our energy infrastructure, our water infrastructure is in worse shape. Lead pipes, inadequate filtration, and outdated water mains required repair and rebuilding. Sewage treatment and waste management also require public investment. Rail transit in America has been declining for more than half a century and in many places may be irretrievable, but some places like the Northeast Corridor and cities like New York, Washington, D.C., and Boston need to continue to maintain and build mass transit. The transition to an environmentally sustainable economy requires reliable and growing public investment. Public investment has been an essential component of American economic development. It does not require unwise and even absurd symbolic investments in large, high-visibility private companies that can increase their capital. Amazon and Tesla don’t need taxpayers’ money. But the transition to sustainability requires investment in energy, water, waste, communications and transportation infrastructure.
As I note in my new book, Environmentally sustainable growth: a practical approach, the transition to environmental sustainability is well under way. Economic shifts are often not visible until they are fully worked out. In some cases, nostalgia interferes with understanding these changes. In New York City, people still lament the loss of industrialization and try hard to recreate it. That’s right: We lost 500,000 garment manufacturing jobs. But we added 150,000 higher-paying jobs in apparel design and marketing. New York City evolved from a commercial city built by the Erie Canal into an industrial city in the late 19th centuryy and early to mid 20’sy Centuries of service-based and exciting city that attracts international companies, students and more than 60 million tourists annually. About 80% of America’s GDP is in the service economy. We will bring manufacturing back to America, but it will be largely automated, and it will not be in cities like New York because land here is too expensive for modern manufacturing and too crowded to accommodate container shipping.
Meanwhile, American companies are moving toward environmental sustainability. They are reducing their energy and water use, installing solar panels, paying more attention to waste and environmental impacts, and getting their suppliers to do the same. The clear leader in this effort is Wal-Mart. They have discovered that environmental sustainability saves money and is simply part of best management practices. Governments also get into the act. New York City is decarbonising, modernizing its energy system and with congestion pricing, developing a way to reduce traffic and funding mass transit. Like the transition away from industrialization, these changes are slow and steady and generally go unnoticed by the media and public.
The private sector is driving this shift, but it needs public investment in infrastructure to get the job done. This is not “woke up” capitalism but an effort to ensure that economic growth can occur while preserving our planet’s ability to sustain human life. The role of government is nothing new, but it is necessary and should be removed in some way from partisan politics and ideology.