Gear wheel on a white background
There's battle lines being drawn • Nobody’s right if everybody's wrong
Young people speaking their minds • Getting so much resistance from behind
Buffalo Springfield
Shattering to pieces the myths around two broken models, and quickly replacing those with advanced manufacturing and strategic infrastructure - trillions of dollars in new investments - is the stuff of leadership, or the height of folly. It’s going to take guts, and I’m betting on leadership.
This is the big challenge that the Biden Administration is setting up for itself, as it contemplates launching an infrastructure initiative that, as a priority, will turbocharge advanced manufacturing across the continental U.S. I got a glimpse in Ohio last week of what this could look like, traveling the Opportunity Highway between Canton and Pittsburgh, just as three weeks previously I had the privilege of visiting the start of the Technology Corridor that will one day connect Reno and Las Vegas. Visionaries across the country seem to be connecting the dots, putting the pieces in place for transformational growth - and offering a truly tantalizing glimpse of what a manufacturing powerhouse this country could once again become.
The White House Playlist. Listen to the music coming from the White House: infrastructure investment, equity, climate, jobs, advanced manufacturing, 5G, clean water, rural broadband… all of this suggests something big, transformative and risky. Change is coming, because a) what we have now doesn’t work for far too many of us, and b) the opportunities of the technology future are coming at us - together with the threat from China - fast, and need to be seized and shaped. The trick is going to be managing this dramatic change, when Washington is less powerbroker, more orchestra conductor.
Two fundamental chunks of our economy, manufacturing and infrastructure, are in play, and in crisis - bland discussion of investment masks the urgent need for a big shift, a transformation.
Broken Model #1 - Manufacturing. The U.S. lost 1/3 of its manufacturing jobs between 2000 and 2010, with 60,000 factories closed during this period - declining from 20 million to a now steady 12 million. Thankfully, the Washington argument that manufacturing is unimportant has been erased - albeit by the rise of China, rather than by any secular concern for our fellow citizens. We have the capacity to bring manufacturing back, particularly - as the CEO of a large energy company suggested to me last week - if we were to place a carbon tax on imported manufactures. The idea that we can produce better in North America - for citizens, for the economy, and for the environment - through advanced manufacturing (”information, automation, computation, software, sensing, and networking”) is the giant opportunity that we must seize.
Manufacturing Employment Decline, 1947-2015 (St. Louis Fed)
This Fourth Industrial Revolution focus - creating infrastructure jobs, retraining the workforce, creating an advanced manufacturing ecosystem in North America - will focus and discipline our infrastructure investment. Key participants in driving creative growth - including the additive manufacturing leaders like 3D Systems Inc.
Broken Model #2 - Infrastructure. The heuristics around infrastructure are fantastic compared to the actual state of play. Contrary to two big misconceptions, the media’s assumptions, and the image of reality we have in our minds, infrastructure spending is local and hidebound by legacy obligations: state and local, not federal, spending dominates - with 96% of spending on water, and 74% of spending on highways, coming from state and local governments; and in terms of how we currently invest, operation and maintenance is dominant, not new investment - nearly 50% of highway spending is operations and maintenance, 74% of water spending (and 66% of the transit spend). So when you are told that we spend 2.5% of GDP on infrastructure, just cut that figure by sixty percent and you will get a sense of our meagre outlays for our future, and for future generations.
ARC GIS Map of U.S. Intermodal Facilities
Combining robust and strategic infrastructure investment with real support for advanced manufacturing would unleash one of the most extraordinary rebuilding efforts in history, akin to the kind of effort that Japan and Germany undertook after World War II. The narrative, to be sure, will focus on a coordinated national effort, but the effort will be led by visionaries at the local level, like state senator Kirk Schuring in Ohio, and Rob Hooper of the Northern Nevada Development Authority.
The Risks of Creative Destruction - Recreating the World’s Leading Economy. When you combine an advanced manufacturing initiative with an equally strong commitment to strategic infrastructure there is a chance - as we enter the Fourth Industrial Revolution - to rebuild the core of the U.S. economy. Three big things spring to mind.
First, you cannot overpromise, and underdeliver (the Obama Administration’s high speed rail initiative is a recent example). A series of well-targeted mini moon shots supporting advanced manufacturing entrepreneurs as they bring factories to life is critical. The Ohio Opportunity Corridor is an example, no longer a cost center, the digitized and electrified 83 mile platform will have seven highly robust revenue streams - from high voltage electricity, to rural broadband, to 5G and sensors for autonomous trucks.
Second, we need to recognize the entrepreneurial nature of advanced infrastructure - and encourage those visionaries - with a sense of urgency. If we continue to let projects die on the regulatory vine, then there will be no manufacturing renaissance, and no meaningful infrastructure build. This is the process that needs to be orchestrated from Washington. Who chooses these projects, and who gets this done?
Third, where does the money come from? As we begin deliberations over ever more debt, and endless new taxes, it seems to me that this vision of our future should be a bit more, well, visionary in terms of revenue sources to properly support the massive effort in front of us. I may be wrong, but as you recreate an economy you need to recycle what you have - and we have over $34 trillion in capital assets that can be mobilized for new investment. One example of many: The U.S. Army Corps of Engineers is the largest provider of leisure activity in the U.S., but they are prohibited from utilizing revenue generated from those boating, fishing and leisure services - commercial revenue generated by U.S. agencies must, all of it, be deposited back into the U.S. Treasury. The same holds true for the gushers of data produced as public goods by U.S. agencies (Mckinsey, as an example, benefited to the tune of $10 billion in free data services in 2020).
U.S. Army Corps of Engineers - Leisure Facilities
These are just two examples of public goods that could be conscientiously monetized - and that would go a long way toward paying the upcoming, and well worth it, advanced manufacturing and infrastructure bill. Note: as highlighted here over the last few months, virtually all of our new infrastructure - 5G, renewable energy, electric vehicles, high voltage transmission, industrial batteries, hydrogen fuel cells - simply requires government facilitation, not public investment, since new infrastructure is driven by private investment.
Our Economy in 2030. It’s 'nice' - in an Elliott Gould Ocean's 11 sort of way - for people in Washington to believe that they are in charge of our country's infrastructure, but Washington is more of a catalyst - orchestrating and guiding state and local action. Nothing will happen without Washington, to be sure, but the transformational activity we need is going to be visionary and local, the result of a dance between local public officials, local engineering firms, and local public priorities. Washington needs to reckon with that fact, and develop the tools to facilitate, drive performance and generate what might be called radical transparency in terms of investment (public and private) and the results of that investment.
The Biden Infrastructure Initiative is on to something - huge risk, and dramatic potential returns for the entire country. It is shaping up to be one of the most ambitious movements ever attempted, anywhere. All of us need to come together to make it succeed.
