Comparing the infrastructure investment of the US with the Australian Federal Budget

Investment in public infrastructure creates a variety of economic considerations, but does Australia share the same infrastructure concerns as the US? I spoke to Glen Weisbrod, President of the Economic Development Research Group (EDRG) to discuss some of the similarities and differences of Australian infrastructure investment.

 Continuing discussion on ways to reduce congestion focuses heavily on the economic cost of new projects. The recent release of the federal budget has committed $24 billion to new infrastructure, with a priority given to motorway projects. However, many questions have arisen as to which transport projects will have the best impact on congestion, while also being economically feasible. Mr Weisbrod has spent the last 30 decades working on the relationship between economic development and transportation. He will be a speaker at the NSW Transport Infrastructure Summit, held on the 7th and 8th August 2013 in Sydney.

 Q: The EDRG has found that there is an increasing funding gap for rail and bus transit in the US, but similar trends are also surfacing in Australia. What are some of the implications of reducing funding for public transport infrastructure, and how can this gap be mended?

Glen Weisbrod: The US national study showed how the different modes of transport have interrelated effects on passenger and freight movement, and their performance shortfalls can lead to cumulative negative effects on productivity and economic competitiveness at a national level.  There is growing understanding that the most cost-effective transport investment strategies are multi-modal.  For example, in several North American cities, businesses that rely on truck freight have supported urban public transport investments as the most cost-effective way to reduce car traffic congestion that impedes economically-critical truck movement.  This illustrates why it can make sense to consider all modal options in planning for the future.

Q: The EDRG also found that highway projects may or may not lead to observable economic impact. What are the implications of a policy that funds only roads? If it doesn’t reveal to be economically viable, what improvements need to be made to make it so?

Glen Weisbrod: Some projects do not lead to observable economic impacts because their intent was to address safety, environmental or functional deficiencies rather than improve the movement of people and freight.  The projects that do have economic impacts are generally those that affect system capacity, connectivity and functionality for worker access to jobs and/or freight movements.  Funding should ideally correspond to benefit levels and beneficiaries, which may not be restricted to any single mode or any single level of government.

Q: Sydney and Los Angeles have been described as having the worst traffic in the Western world, how do you view the future of congestion in 20 years. And do you think we need to start encouraging the use of public transport?

Glen Weisbrod: If you think that traffic congestion is bad now, consider how much passenger and freight traffic has grown over the past 30 years.  Then consider how much more is expected 30 years from now, and how limited are the plans and funding to expand the capacity of either urban roads or urban rail lines.  This gap exists in many cities around the world, along with physical land use considerations that constrain road capacity expansion. There are many ways to move forward, including greater reliance on public transport. But one thing we do know from the world of economic development is that solutions must be attractive for workers and businesses.   This is critical, for in a world with increasingly global economic networks, some businesses will just move away rather than endure worker and freight access limitations.

Q: It has been found in the US that deteriorating conditions of infrastructure place a financial burden on households and businesses. In what ways does this occur and how can it be remedied?

Glen Weisbrod: Deteriorating transport infrastructure puts a burden on households and businesses in three ways.  First, it can add time and cost for commuting, and ultimately constrain or reduce worker access to jobs, and business access to workers.  This also reduces the “agglomeration benefits” that some businesses gain from access to large labour markets that provide better matching of specialised worker skills to business needs.  Second, it can raise freight costs and reduce the range of truck deliveries that can be reliably made in a given day, thus requiring more trucks, more drivers and more “safety stock” inventories to allow for congestion delays and reduced schedule reliability.  And third, it can diminish intermodal connectivity for both passenger and freight travel that goes to and from regional and international gateways, including airports, seaports and rail systems.  This can also affect international commerce.  The remedy is to carefully consider the consequence of inaction that allows conditions to deteriorate over time, and consider avoidance of degrading conditions as one of the benefits of investment in infrastructure.

Q: Developing new infrastructure, such as High Speed Rail, is a costly and timely process, with much of the discussion on infrastructure focusing on its cost. Do you think there should be more emphasis on the long-term potential economic development of infrastructure projects?

Glen Weisbrod: There are two reasons to think about long-term potential benefits.  First, it is the right thing to do.  And second, in most countries the cost of borrowing money today is very low today relative to the historical average.  This makes it a particularly opportune time to examine the relative benefits and costs of public investment in infrastructure. And economic development – increasing productivity to generate more future jobs and income – is clearly an important aspect of benefit to be considered.