There is a bipartisan consensus that U.S. infrastructure needs fixing. Rather than spending money on another one-time stimulus package, Congress should instead embark on a series of microeconomic reforms that would set the stage for decades of growth while strengthening and invigorating U.S. infrastructure.
There is clear historical precedent. The rapid growth of the 1980s and 1990s is often attributed to the 1981 Reagan tax cuts. Less appreciated is a series of deregulatory reforms that freed huge swaths of the U.S. economy from smothering regulations. The foundations of that “deregulation wave” were laid in the mid- to late 1970s during the Carter administration and continued into the Reagan years. It included deregulation of airlines, trucking, railroads, telecommunications, cable television and natural gas, among other major industries. Those reforms still generate economic vast benefits today.
Reforms that would support commerce, expand markets and improve access to jobs in key industries have been carefully considered and are ready for implementation. Together they would boost long-term economic growth while bringing U.S. infrastructure into the 21st century. Here are four examples:
America’s intercity passenger rail service — provided by Amtrak under a government monopoly structure — lags by international standards. Amtrak is really two railroads in one. One is the Northeast Corridor between Washington and Boston. The Northeast Corridor is potentially profitable, with the distances between stops, population densities, and concentrated central business districts necessary for successful passenger rail. This contrasts with the rest of Amtrak’s service, called the National Network, which features longer-distance, lower-density, unprofitable service running on freight-train tracks.
Amtrak’s problems stem from poor policy. The two main elements of train service — tracks and trains — are economically quite different. Tracks and signals are inherently monopolistic, while train operation, ticketing and advertising are potentially highly competitive. Current policy treats both as monopolistic. Competition could be introduced by granting two (or more) companies operating rights on Northeast Corridor tracks, or via short-term, exclusive concession contracts. Many other countries have successfully adopted that approach.
The U.S. Postal Service is an underappreciated network infrastructure asset. As the only delivery service stopping at every address six days a week, its importance is rising in the internet shopping age. Sadly, U.S. postal policy is wildly outdated. Letter delivery is protected by a 19th-century monopoly, with the associated panoply of stifling regulations. Letter mail volume has, however, shrunk by more than one-third as new, cheap electronic communications have become widespread. The monopoly is thus protecting a smaller and smaller market while constraining postal management’s decisions when it desperately needs the flexibility to compete.
Two basic reforms are de-monopolization (and thus deregulation), and corporatization (not privatization). Deregulation would free the Postal Service to become more customer-focused, to develop innovative products, and to form new business partnerships. Corporatization would subject it to a standard corporate legal and organizational structure, with a true expert board of directors.
Other countries have long adopted similar reforms. For example, all 27 European Union countries repealed their postal monopolies decades ago. As a result, many European posts have become successful players in the global logistics marketplace. The time has come for serious U.S. postal reform.
AIR TRAFFIC CONTROL REFORM
While America’s postal services are antiquated, its air traffic control system is downright scary. Much of the system’s technology is ancient. Your personal electronic device contains more computing power than that used to track an in-flight 747.
U.S. air traffic control does not use GPS. Flights are instead tracked via a patchwork of ground-based radar stations, some dating from the Kennedy era. Most planes are guided to their destinations in a series of zig-zags, flying from one control point to the next, wasting time and fuel. A piece of paper called a “flight progress strip” helps track flights.
The system desperately needs modernizing. Step one is to remove air traffic control from Federal Aviation Administration control. As a safety regulator, the FAA’s bureaucratic, risk-averse culture conflicts with operating a commercial service, particularly one requiring cutting-edge technology. Air traffic control should instead be housed within a new, independent self-governing body dedicated to upgrading and improving operations. Nav Canada, a non-profit corporation created in 1996, offers a successful organizational model.
The next step is to end air traffic control’s dependence on congressional appropriations and instead pay for it via user fees. Aviation customers, including large commercial airlines, would then pay directly for the services they require. This is the commercialization of air traffic control (again, not privatization). Over the past few decades more than 50 countries, including Australia, Britain, Canada and New Zealand, have adopted this approach.
Rep. Bill Shuster, R-Pa., introduced a bill last February that would implement critical air traffic control reforms. Rather than delaying reform until there is a horrific crash, that bill should be passed now.
INFRASTRUCTURE FINANCE REFORM
There is bipartisan agreement that greater private participation in infrastructure through public-private partnerships, or PPPs, can improve infrastructure delivery. PPPs help ensure on-time and on-cost project delivery, innovation in project design and construction, incorporation of global expertise, and access to new sources of capital, among other advantages.
America is decades behind virtually every other developed country in PPP utilization. One factor is the lack of financial instruments that help reduce cost differentials between government-issued debt and the privately issued debt associated with a PPP. Government-issued debt is federally tax-exempt, which lowers the interest rate needed to make it competitive with other investments.
The Obama administration proposed various instruments that would help address the issue. One is Qualified Public Infrastructure Bonds, or QPIBs. Unlike private activity bonds — the main current tool for reducing the rate differential — QPIBs would not be subject to state borrowing caps, and would be exempt from the alternative minimum tax.
There are other innovative financial policies to facilitate the public-private cooperation in infrastructure delivery heavily utilized by other developed countries. These reforms could be incorporated in a bill focused exclusively on PPP facilitation. Greater private participation in infrastructure financing and delivery would go a long way in improving U.S. infrastructure.
Rather than simply spending money, the new Congress should show it has the political will to implement landmark improvements in U.S. infrastructure policy that will create economic benefits for decades to some. These and other such improvements are on the shelf, and ready to be dusted off.