America is ripe for major investment in
infrastructure. But making it pay off will require not just addressing the
funding gaps but also fundamentally redesigning the country’s approach.
McKinsey’s research suggests that every well-spent dollar of infrastructure
investment would raise GDP by 20¢ in the long run–if deployed correctly. These
four steps could help:
1. FOCUS ON THE OUTCOMES
U.S. infrastructure strategy almost
exclusively emphasizes inputs, such as planning, procurement and construction
requirements, rather than the desired outcomes. It should focus on impacts:
Will a road project reduce travel times or make it safer? Will a project
promote economic development, create jobs and support interstate commerce?
Large-scale, multistate projects often
bring the biggest payoff. But these can also be the most difficult to deliver.
Take, for example, the Gateway Program in New York and New Jersey. By replacing
century-old rail assets critical to the Northeast, it has the potential to
improve citizens’ mobility and foster enormous economic benefits for the
region. Metropolitan congestion is a national imperative. Oil- and gas-pipeline
capacity, particularly at the regional level, shapes manufacturing location
decisions, national competitiveness and job creation.
2. ESTABLISH A CLEAR POINT OF
ACCOUNTABILITY WITHIN THE FEDERAL GOVERNMENT
When it comes to approving and managing
projects, federal agencies often have conflicting mandates and priorities. No
one agency or entity is truly empowered to break ties. Protecting the
environment is rightly a cornerstone of the U.S. evaluation process. But other
democracies suggest it is possible to properly review projects and mitigate
risks while also moving them forward in as little as half the time. Australia
created an accountable body specifically to improve the permitting process and
eliminate decision paralysis. In Canada, the Infrastructure Ontario program
built more than 30 hospitals on time and on budget.
The federal government could also help
catalyze better performance from the construction industry. U.S.
construction-labor productivity is lower today than it was in 1968, while all
other major industrial sectors have experienced impressive gains. We need a
national effort to systematically unlock productivity-enhancing innovations.
3. EMPOWER STATE AND LOCAL EXPERIMENTS
In our experience, many of the most
successful and innovative recent projects were delivered by mayors or
governors. While these projects are city- or state-owned and -operated, the
federal government typically funds, finances and regulates the vast majority of
water, wastewater and transportation projects. Washington can learn from cities
and states, collecting and sharing innovations from across the country.
For existing infrastructure, the federal
government could provide incentives for cities and states to more rapidly
deploy smart solutions like demand-based pricing and Internet of Things
technology to evaluate problems and manage performance in real time.
4. ATTRACT MORE PRIVATE-SECTOR FUNDING
Private investors have some $120 trillion
in assets under management, and they are looking for solid long-term
investments. As the head of one U.S. pension fund told us, “In theory, the U.S.
would be the greatest infrastructure investment market in the world. In
reality, it isn’t worth the headache, and the pipeline of projects is pitiful.”
Multibillion-dollar federal credit programs
such as TIFIA, WIFIA and RRIF can be powerful tools to attract capital and
increase the project pipeline.
Lastly, the federal government could
consider providing incentives to the states to monetize existing assets and
redeploy the income into new projects. Australia has spurred significant
increases in infrastructure investment since its federal government implemented
a program that offers a 15% premium to any state that monetizes an asset, as
long as the proceeds go to new infrastructure.
The writers are partners at McKinsey &
Company, specializing in infrastructure
This appears in the April 10, 2017 issue of TIME.