2 minutes
Michael S. Burke

As the coronavirus outbreak deepens and inflicts a tragic toll, economies around the world are being flattened with unprecedented force and speed. Governments are advancing emergency aid and stimulus packages to respond to the immediate health crisis and prevent economies from stuttering to a halt.

The global community has been badly shaken, but already, there is a determination to emerge from this stronger: to rethink how we do things and reboot. For the infrastructure industry that means asking questions such as: can we approach what we build better? How can we make populations more resilient to global shocks ahead?

Of course, the scale of what’s required is immense. The U.S. administration has responded with a $2.2 trillion package, the largest federal relief effort in U.S. history.'President Donald J. Trump is providing economic relief to American workers, families, and businesses impacted by the coronavirus' Underscoring the magnitude of the challenge a further stimulus package – possibly even larger – is already in the works,'After Three Coronavirus Stimulus Packages, Congress Is Already Prepping Phase Four' including major infrastructure investment plans. 'Democrats eye major infrastructure component in next coronavirus package'

 

In Asia, where the outbreak began, record stimulus packages have been announced in Japan,'Japan’s Recession Fears Deepen With Half Economy in Emergency' Singapore and South Korea, while Australia’s efforts to date amount to one tenth of its economy including major infrastructure investment plans.'How Asia has fought the economic fallout of coronavirus' China has signalled a bigger stimulus could be on the way.'China Signals Ramped-Up Stimulus as Coronavirus Impact Widens' Meanwhile, European Union leaders are working on a collective response.'Statement from Commission President von der Leyen on proposals to fight the economic effects of the coronavirus crisis' Italy,'How major economies are trying to mitigate the coronavirus shock' France 'France injects billions into stimulus plan amid coronavirus chaos' and Germany 'How major economies are trying to mitigate the coronavirus shock' have laid out their own relief efforts ranging from €25-50 billion, and Spain is planning the biggest financial mobilisation in its democratic history.'How major economies are trying to mitigate the coronavirus shock'

$1

 

Every dollar invested in Transportation returns $3.54 in economic impact.

 

The UK has already promised to pumped more into its economy than during the decade-old financial crisis. 'U.K. Virus Aid Package Beats Financial Crisis Stimulus'

Despite these Herculean efforts, financial markets remain skittish, fearful of how much this will cost. It is impossible to predict the full economic impact of the coronavirus because we still don’t know how long we will have to fight it, and how much resources the effort will consume.

The IMF expects the GDP growth for 2020 to be negative, with “a recession at least as bad as during the global financial crisis or worse. 'IMF Managing Director Kristalina Georgieva’s Statement Following a G20 Ministerial Call on the Coronavirus Emergency'

It is likely that additional stimulus packages will be required, beyond those already announced. Underneath the headline figures will come important choices about how to spend that money. Those decisions will impact the speed and depth of recovery, influence the longer-term health of our economies, and begin to define what our new normal is likely to be once the coronavirus is abated – hopefully for good.

Immediate relief and long term gains

A time-honored way of providing an immediate lift to economies is to fund infrastructure. The injection of income leads to more spending, which creates more income and so on – the so-called ‘multiplier’ effect. A study for Business Roundtable, an association of chief executive officers of America’s leading companies, found modernizing our highways, bridges, airports, and waterways will produce big returns. Every $1 invested in infrastructure returns roughly $3.70 in additional economic growth over 20 years, the modelling study by University of Maryland 'Delivering for America' showed. That’s nearly a 4:1 ratio of return on investment. During a recession, infrastructure investment is often deficit financed meaning it can have an even greater effect.

At the same time, spending on infrastructure boosts economic prospects in the medium and long-term through much-needed improvements to facilities and connectivity. In the U.S. current infrastructure spending at federal, state and local level is at an all-time low and is already insufficient to meet both maintenance and expansion needs. The $4.6 trillion backlog of deferred projects is estimated to be limiting economic growth by $3.9 trillion over the next five years.

After the 2008 financial crisis, the U.S. economy bounced back faster than Europe, in part because its financial stimulus was larger 'The economic impact if the American recovery and reinvestment act five years later' - with 14 percent of funds earmarked for infrastructure. However, despite its relative success, the American Recovery and Reinvestment Act (ARRA) had its weaknesses, the most cited being its failure to limit unemployment'The Unemployment Rate Is Probably Around 13 Percent'.

With the U.S. unemployment rate forecast to exceed the 10% level experienced in the 2007-2009 great recession, policy makers should consider increasing spending on infrastructure projects, particularly those that will add the most jobs.

On average, $100 billion of infrastructure investment adds one million jobs'The potential macroeconomic benefits from increasing infrastructure investment' - more if the projects are transport-related because of the knock-on effects of a more efficient economy.'Infrastructure investment creates jobs'

Another criticism of ARRA was that the infrastructure it funded was supposed to be “shovel ready.” The New York Times in 2010, noted that it wasn’t possible to get started immediately due to the pipeline process of approvals, the design to ensure environmental requirements, and the need to ensure that fair contracting practices took place. Most took at least six months to get off the ground.

 

Policy makers have an opportunity to learn from ARRA. To ensure the money is well spent, we have three recommendations:

  1. Act now: to avoid delays in awarding construction projects, agencies should start preparing now. Much of the planning work, from accelerating permitting to tender documentation, can be done virtually.
  2. Remove hurdles: administrations should begin fast track planning and environmental approvals now and engage the industry to help clients prepare projects for procurement.
  3. Flexible procurement: projects can be delivered faster thanks to design-build, which allows projects to start sooner, and digital delivery, which improves efficiency. These methods should be embraced, as should the encouragement of unsolicited proposals and the engagement of the private sector in financing of projects.

Getting the most from stimulus spending

When stimulus funding becomes available, it will be most impactful if spending bodies have a comprehensive infrastructure stimulus program to guide priorities – a program that channels the same ingenuity driving today’s healthcare response into new thinking to address our nation’s disrepair and build infrastructure for the future.

While immediate payouts are needed to keep households and businesses afloat, infrastructure spending provides one of the greatest returns on investments. Incorporating a full asset lifecycle approach that balances shovel ready projects with more strategic priorities, we can help make our urban centers more resilient to global shocks such as climate change and urbanization. With the right choices we can create a more sustainable future for a global population that has been burdened by weeks of keeping physically distant, to help us come together to rise above this tragic period.

After the devastation of World War II, the world enjoyed an economic boom financed, in part, by the massive need to rebuild large swathes of Europe and to support suffering economies elsewhere. Despite unprecedented hardships, some of the greatest public works projects in history began in this period – from the UK’s New Towns program, that saw the construction of over 20 entirely new settlements, to President Eisenhower’s new Interstate Highway System. The legacy of such projects should serve as an inspiration to today’s policy makers of what they can achieve.

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